What is a Beneficiary Designations Audit and why does it matter?

A Beneficiary Designations Audit is a targeted review of all accounts and policies that pass outside a will—retirement plans (401(k), 403(b), IRAs), life insurance, annuities, and bank accounts with Payable-on-Death (POD) or Transfer-on-Death (TOD) designations. It matters because beneficiary forms generally override instructions in a will; an outdated designation can force assets into probate, create tax inefficiencies, or send property to someone you no longer intend to benefit (for example, an ex-spouse). State intestacy rules and plan documents vary, so regular audits reduce surprises and legal costs (Consumer Financial Protection Bureau, IRS).

Why beneficiary designations can trump your will

Beneficiary forms are contractual instructions between you and the account custodian. Federal tax rules and account terms mean that when a named beneficiary exists, an account typically transfers directly to that person or entity without probate oversight. That directness is useful when designations are correct, but dangerous when they are not. For IRAs and retirement plans, beneficiary choices also affect required minimum distribution (RMD) rules and possible tax treatment for heirs (see IRS Publication 590-B and related guidance at irs.gov).

Who should perform a Beneficiary Designations Audit?

  • Anyone with named-beneficiary accounts or policies.
  • People after major life events: marriage, divorce, birth/adoption, death of a named beneficiary, estate tax changes, or significant changes in net worth.
  • Retirees and business owners where continuity matters.

In my 15 years advising clients, I routinely recommend an audit at every major life event and at least every 2–3 years.

A step-by-step audit process

  1. Create an inventory
  • List every account type: employer retirement plans, IRAs, Roth IRAs, brokerage accounts with TOD, life insurance, annuities, reverse mortgages with survivorship terms, and bank POD/TOD accounts.
  • Don’t forget employer plans you left behind or old life policies.
  1. Pull the current beneficiary forms
  • Request copies from each custodian. Account portals often provide PDF copies of the active designation.
  1. Verify beneficiary details
  • Confirm full legal names, Social Security numbers or TINs for trust beneficiaries, correct relationships, and whether beneficiaries are primary vs. contingent.
  • For trusts, confirm the trust name and date on the form match the current trust document.
  1. Check beneficiary tiers and per stirpes language
  • Look for contingent beneficiaries and per stirpes (by-branch) or per capita distribution instructions. These clauses determine how assets pass if a beneficiary predeceases you.
  1. Coordinate with estate documents
  1. Consider tax and liquidity consequences
  • Naming non-spouse beneficiaries on retirement accounts can accelerate tax events. Spouses have special rollover rights — other beneficiaries may be subject to the 10-year rule for inherited IRAs (IRS guidance applies). Consult a tax advisor for large accounts.
  1. Update forms and document changes
  • Complete required forms with custodians; obtain and store signed confirmations. Keep copies with your estate documents.
  1. Inform key people
  • Tell your executor/trustee and primary beneficiaries where to find documents and whom to contact.

Quick audit checklist (printable)

  • Inventory completed: employer plans, IRAs, life policies, annuities, bank POD/TOD, brokerage TOD
  • Copies of current beneficiary forms saved
  • Primary and contingent beneficiaries verified
  • Trust names and dates match forms if named
  • Minor beneficiaries addressed (custodian or trust)
  • Per stirpes/per capita language confirmed
  • Beneficiaries notified and contact info updated
  • Updated forms filed with custodian and confirmations saved

Special situations and practical solutions

  • Minor beneficiaries: Don’t name a minor as direct owner. Use a custodial account (Uniform Transfers to Minors Act — UTMA/UGMA) or name a trust with a guardian or trustee to manage funds.

  • Deceased beneficiaries: Specify alternate or contingent beneficiaries; without alternates, assets may revert to your probate estate.

  • Divorce: Many states do not automatically remove an ex-spouse from a beneficiary designation. Update immediately after final judgment and obtain confirmation from custodians.

  • Trusts as beneficiaries: Use the trust’s legal name and date. Ensure the trustee and successor trustee are current.

  • Small-dollar accounts: Even modest balances can create problems for heirs; include them in your audit.

Common mistakes that lead to probate surprises

  • Forgetting old employer plans.
  • Naming an estate as beneficiary unintentionally (this forces probate).
  • Using nicknames or incomplete legal names.
  • Failing to name contingent beneficiaries.
  • Not understanding plan-specific rules (annuity contracts, employer plan provisions, or state TOD statutes).

Real-world examples

  • Case A: A client forgot to remove an ex-spouse from a life-insurance form after divorce. The insurer paid the ex-spouse and the client’s children had to sue for recovery — an expensive, emotional fight that could have been prevented by a simple audit.

  • Case B: A retiree named an adult child as IRA beneficiary but failed to name a contingent. When that child died first, proceeds fell into probate and were distributed under state intestacy rules rather than to the retiree’s chosen alternate.

These patterns are common in my practice: timely audits prevent both litigation and unintended distributions.

When to audit: recommended timetable

How beneficiary choices affect taxes and timing

  • Retirement accounts: Non-spouse beneficiaries generally face distribution rules that can compress taxable income into a shorter period (IRS guidance on inherited IRAs and the post-SECURE Act 10-year rule; see irs.gov).
  • Life insurance and annuities: Death benefits are typically income-tax-free to beneficiaries, but naming the estate as beneficiary can create probate and expose funds to creditors.

Consult a CPA or estate attorney for high-value or complex cases.

Useful links and internal resources

Authoritative external resources: IRS (irs.gov) for retirement account rules and tax guidance; Consumer Financial Protection Bureau (consumerfinance.gov) for practical steps and dealing with banks and custodians.

Next steps (what I recommend)

  1. Schedule an immediate audit if you have not reviewed beneficiary forms in over two years or since any major life event.
  2. Complete the inventory and obtain form copies from custodians.
  3. Coordinate beneficiary choices with your will and trusts; get professional tax and legal advice for large or complex estates.
  4. Store confirmations where your executor, trustee, and financial advisor can find them.

Professional disclaimer

This article is educational and does not constitute personalized legal, tax, or financial advice. For advice tailored to your situation, consult a certified financial planner, CPA, or estate attorney. The rules and interpretations described here reflect general guidance current as of 2025 and may vary by state and account contract.