Beneficiary Designations: The Estate Planning Step That Can Override Your Will

Most families will never owe federal estate tax. Far more will run into a beneficiary form that no one has looked at in fifteen years.

Why This Matters More Than Estate Tax

The federal estate tax exemption is $15 million per person for 2026 and rises to $15.48 million for 2027. A married couple can generally shelter twice that. For the large majority of families, federal estate tax is not the problem.

The more common problem is simpler. A 401(k), IRA, or life insurance policy passes to the person named on its beneficiary form, regardless of what your will says. If that form is outdated, missing, or filled out incorrectly, the money can go to the wrong person, land in probate, or create a tax bill your heirs did not need to pay.

Which Assets Skip Your Will

In Texas, these generally pass outside of probate, by contract or deed rather than by your will:

• Retirement accounts such as 401(k)s, 403(b)s, and IRAs
• Life insurance and annuities
• Payable-on-death bank accounts and transfer-on-death brokerage accounts
• Real estate covered by a Texas transfer on death deed
• Property held jointly with right of survivorship
• Assets titled in a living trust

For a household with a large retirement plan and a paid-off home, that can mean most of the estate never touches the will.

Common Mistakes Worth Checking

An ex-spouse still listed. Texas law generally revokes a former spouse's designation on many non-probate assets after a divorce. That rule does not reach employer plans governed by federal law (ERISA), such as most 401(k)s. In those plans, the person named on the form generally receives the money, even after a divorce. The only reliable fix is to update the form.

No contingent beneficiary. If your primary beneficiary dies before you and no contingent is named, the account may default to your estate. That can mean probate and, for retirement accounts, less flexibility in how the money is withdrawn.

Naming a minor child directly. A minor generally cannot control an inherited account. Without a trust or custodial arrangement in place, a court may need to appoint a guardian to manage the money.

Naming "my estate." This routes an asset that could have skipped probate back into it, and for retirement accounts it can shorten the time heirs have to withdraw the money.

Forms that don't match the plan. A will or trust that divides assets equally among children does little if one child is named on the largest account and the others are not.

The Spouse Rule for 401(k)s

Most 401(k) plans require your spouse to be the beneficiary unless your spouse consents in writing to a different choice. IRAs generally do not have that federal requirement, though Texas community property rules can still give a spouse an interest in the account. If you plan to name anyone other than your spouse, it is worth confirming how these rules apply to you.

Retirement Accounts and Your Heirs' Taxes

Who you name also affects taxes. A surviving spouse generally has the most flexibility. Most adult children now have to empty an inherited IRA within 10 years, often with annual withdrawals along the way. (See our article on inherited IRA RMDs.) A child in a high tax bracket may keep less of a traditional IRA than a child in a lower one. Roth accounts and life insurance generally pass income-tax-free, which can make them useful for balancing what each heir actually keeps.

Where the $15 Million Exemption Still Matters

For larger estates, a few details are worth knowing:

• Portability. A surviving spouse can generally keep the unused portion of the first spouse's exemption, but only if an estate tax return is filed after the first death, even when no tax is owed.
• Annual gifts. You can give up to $19,000 per recipient in 2026 ($20,000 in 2027) without using any of your lifetime exemption.
• Texas has no state estate or inheritance tax. Heirs who live in other states may still face their own state's rules.

A Simple Review Checklist

• Request the current beneficiary designation for every retirement account, insurance policy, and transfer-on-death account.
• Confirm a primary and a contingent beneficiary on each.
• Compare the names and percentages against your will or trust.
• Review after any marriage, divorce, birth, death, or move from another state.
• Keep a copy of each confirmation with your estate documents.

The Bottom Line

Estate tax gets most of the attention, but beneficiary forms decide where much of a typical family's money goes. A review takes an afternoon and can prevent problems that are difficult or impossible to fix later. If you would like help comparing your designations with the rest of your plan, our team can help, and we can coordinate with your estate planning attorney.

Investment advisory services offered through CreativeOne Wealth, LLC, a Registered Investment Adviser. CreativeOne Wealth, LLC is not affiliated with Luca Wealth Management or Luca Financial Solutions. This material is for informational purposes only and does not constitute investment, tax, or legal advice. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal. Please consult with a qualified professional before making any financial decisions.