How Beneficiary Designations Can Override Your Will
How Beneficiary Designations Can Override Your Will
You spent time drafting a will. You named the people you want to inherit your assets. You signed it, had it witnessed, and filed it away. So everything is handled, right?
Not necessarily. There's a category of assets that your will doesn't control — and most people don't realize it until it's too late. Beneficiary designations on life insurance, retirement accounts, and certain bank accounts override your will entirely. At Dickey Law Group, we see this issue cause real damage to Texas families every year.
Why Beneficiary Designations Take Priority
When you open a life insurance policy, a 401(k), an IRA, or a payable-on-death bank account, you name a beneficiary on the account itself. That designation is a contract between you and the financial institution. When you die, the institution pays the funds directly to whoever is named — regardless of what your will says.
This isn't a loophole or an oversight. It's how the law works. Under both federal law (ERISA governs most employer retirement plans) and Texas law, beneficiary designations control the distribution of these assets. Your will simply doesn't apply to them.
Real-World Examples of Conflicts
Consider these scenarios — all of which we've seen variations of in our practice:
The forgotten ex-spouse. A man divorces and writes a new will leaving everything to his children. But he never updates the beneficiary on his 401(k), which still names his ex-wife. When he passes away, she receives the entire account — hundreds of thousands of dollars — while his children get nothing from that asset. Texas Family Code § 9.301 revokes some designations upon divorce, but federal ERISA plans are governed by federal law, and the Supreme Court has ruled that ERISA preempts state law in these cases.
The outdated policy. A woman buys life insurance in her twenties and names her mother as beneficiary. Decades later, she's married with two kids. Her will leaves everything to her husband and children. But the life insurance? It still names her mother, who receives the full payout.
The blended family conflict. A father remarries and wants his new wife and his children from his first marriage to share his estate. His will splits everything evenly. But his retirement accounts name only his new wife. His children receive nothing from those accounts, even though the will says otherwise.
How Divorce Affects Beneficiary Designations in Texas
Texas has a statute — Texas Family Code § 9.301 — that automatically revokes an ex-spouse as a beneficiary on certain instruments after divorce. This applies to life insurance policies, retirement accounts, and other beneficiary-driven assets governed by state law.
But here's the catch: this protection has limits. If the account is governed by federal law (like most employer-sponsored 401(k) plans under ERISA), the Texas statute may not apply. Federal courts have consistently held that ERISA preempts state revocation statutes. That means your ex-spouse could still inherit your 401(k) even after a Texas divorce — unless you actively change the designation.
Don't rely on automatic protections. Change your designations yourself.
Steps to Audit and Update Your Designations
We recommend every client go through this process at least once a year:
- Make a list of every account with a beneficiary designation — life insurance, 401(k), IRA, Roth IRA, annuities, POD/TOD bank and brokerage accounts
- Log into each account or contact the institution to verify who is currently named
- Name both primary and contingent beneficiaries — the contingent receives the funds if your primary beneficiary predeceases you
- Coordinate with your will and trust — make sure your designations and your estate documents tell the same story
- Keep a record — maintain a list of all accounts and their current beneficiary designations in a secure location your executor can access
Bringing It All Together
Your estate plan is only as strong as its weakest link. A perfectly drafted will means nothing if your largest assets — your retirement accounts and life insurance — are going to the wrong person because of an outdated form you filled out years ago.
At Dickey Law Group, we review beneficiary designations as part of every estate plan. We'll help you identify conflicts, update your designations, and make sure your entire plan works in harmony.
Contact Dickey Law Group today to schedule a consultation. We serve families throughout The Woodlands, Spring, Conroe, and the Houston metro area. Call (832) 521-4414.