Do Beneficiary Designations Override a Will? What Controls Each Asset

Does a beneficiary designation override a will?

Generally, yes. Life insurance, retirement accounts and payable-on-death registrations pass to the person named on the form, under the contract or the governing statute, not under the will. For employer plans governed by ERISA, the Supreme Court held that the administrator pays according to the plan documents (Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 555 U.S. 285 (2009)). For federal employees’ group life insurance, a designation made in a will has no force or effect (5 U.S.C. § 8705(a)). State law governs most other assets, and it varies.

This page explains the rule across asset types and the four Supreme Court decisions that settled its hardest applications. The retirement-account detail, including a review checklist, is on the beneficiary-designation audit.

Assets that pass outside a will

A will disposes of the property in a person’s probate estate. Some assets never enter that estate, because a contract, a registration or a statute already names the person who takes them at death. The Supreme Court has called revocable trusts, pension accounts and life insurance policies “will substitutes” (Sveen v. Melin, 584 U.S. 811 (2018)).

The common examples:

• Life insurance. The insurer pays the beneficiary named under the policy.
• Retirement accounts and employer plans. The plan or account pays the beneficiary on its records.
• Payable-on-death bank accounts. Federal deposit insurance rules describe these as accounts under which a deposit passes directly to one or more beneficiaries on the depositor’s death without a written trust agreement (12 CFR § 330.10(a)(1)).
• Transfer-on-death registration of securities, and transfer-on-death deeds. Both exist under state statutes. The deed rules are compared on the transfer-on-death deed pages.
• Savings bonds registered with a beneficiary. For a definitive Series I bond in beneficiary form, a beneficiary who survives the owner is recognized as the sole and absolute owner (31 CFR § 360.70(c)).

What controls each asset

The federal cases

Two provisions of ERISA sit behind the first two cases. ERISA supersedes state laws insofar as they relate to a covered employee benefit plan, subject to the exceptions in § 1144(b) (29 U.S.C. § 1144(a)). It also requires a plan fiduciary to act in accordance with the documents and instruments governing the plan, insofar as they are consistent with ERISA (29 U.S.C. § 1104(a)(1)(D)).

• Egelhoff v. Egelhoff, 532 U.S. 141 (2001). A Washington statute revoked the designation of a spouse as beneficiary of a nonprobate asset on divorce. The Court held that ERISA pre-empts the statute to the extent it applies to ERISA plans. The case involved an employer-provided life insurance policy and a pension plan.
• Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 555 U.S. 285 (2009). A divorce decree divested a former spouse of her interest in a savings and investment plan, but the participant never replaced the designation naming her. The Court held that the plan administrator did its duty under ERISA by paying her in conformity with the plan documents. The Court expressed no view on whether the estate could have sued her for the benefits after they were distributed.
• Hillman v. Maretta, 569 U.S. 483 (2013). A federal employee never changed the designation naming his former spouse. A Virginia provision made a former spouse who received such proceeds liable for them to the person who would have taken under the state’s revocation-on-divorce rule. The Court held that the federal employees’ group life insurance statute pre-empts that provision.
• Sveen v. Melin, 584 U.S. 811 (2018). Minnesota’s revocation-on-divorce statute was enacted after the insured bought his policy and named his wife. The Court held that applying the statute to that existing policy does not violate the Contracts Clause.

What divorce changes

No single rule decides whether a divorce removes a former spouse from a beneficiary form. The answer depends on which law governs the asset.

• State revocation-on-divorce statutes. The Court wrote in Sveen that “26 States have by now adopted revocation-on-divorce laws substantially similar to the Code’s,” referring to the Uniform Probate Code. As the Court described Minnesota’s statute, a divorce revokes a revocable beneficiary designation to the former spouse, the proceeds go instead to the contingent beneficiary or the policyholder’s estate, and the policyholder may name the former spouse again. The opinion describes the law as of 2018, and the statutes are not identical.
• ERISA plans. A state statute of this kind is pre-empted to the extent it applies to an ERISA plan (Egelhoff). The plan pays according to its documents (Kennedy).
• Federal employees’ group life. The statute pays the designated beneficiary first (5 U.S.C. § 8705(a)), with one exception: a decree of divorce, annulment or legal separation, or a court order or court-approved property settlement agreement incident to one, that expressly provides for payment to another person controls if it was received before the employee’s death by the employing agency or, for an employee who has separated from service, by the Office of Personnel Management (§ 8705(e)). The terms of the federal contract supersede inconsistent state law relating to group life insurance (5 U.S.C. § 8709(d)(1)). In Hillman the parties agreed that Virginia’s direct revocation rule was pre-empted, and the Court held that the state’s substitute remedy against the former spouse was pre-empted as well.
• Divorce decrees and employer plans. In Kennedy the decree did not change whom the plan paid; the designation on the plan’s records had never been replaced. The Court noted that a qualified domestic relations order is treated differently: an administrator enforcing one is enforcing the plan documents.

Pension plans covered by 29 U.S.C. § 1055 must also provide survivor benefits to a participant’s spouse, and a participant’s election to waive them generally requires the spouse’s written consent (29 U.S.C. § 1055(a), (c)(2)); that rule is covered on the retirement-account page.

What a will still reaches

A will governs an asset of this kind when the asset ends up payable to the estate. That happens in two ordinary ways.

• The estate is the beneficiary. The owner named the estate, or named no one and the contract or statute pays the estate by default.
• No named beneficiary survives. What follows depends on the governing terms. Under the plan in Kennedy, if no spouse or designated beneficiary survived, distribution was made as the estate’s executor directed. Under the federal employees’ statute the order runs from designated beneficiary to widow or widower, children, parents and then the executor (5 U.S.C. § 8705(a)).

Once an asset is payable to the estate it passes under the will, or under the state’s intestacy rules if there is no will, and it is administered with the rest of the estate.

A will can also do one thing about insurance that passes outside it. Where life insurance proceeds received by a beneficiary other than the executor are part of a gross estate on which tax has been paid, the executor is entitled to recover a proportionate share of the tax from that beneficiary, unless the decedent directs otherwise in the will (IRC § 2206). The rule does not apply to proceeds passing to a surviving spouse to the extent they qualify for the marital deduction (§ 2206).

Estate tax is separate

The form decides who receives an asset. It does not decide whether the asset is counted in the federal gross estate. Separate Code sections answer that:

• Life insurance. Proceeds receivable by the executor are included, and so are proceeds receivable by other beneficiaries if the decedent held any incident of ownership at death (IRC § 2042; Treas. Reg. § 20.2042-1(b)).
• Annuities and similar survivor payments. A payment receivable by a beneficiary by reason of surviving the decedent is included where, under the contract or agreement, a payment was payable to the decedent or the decedent had the right to receive it for life or one of the other periods the statute lists. Inclusion is limited to the part proportionate to the decedent’s contribution to the purchase price, and employer contributions made by reason of employment count as the decedent’s (IRC § 2039).
• Joint property with survivorship. Included to the extent the statute provides, which depends on who furnished the consideration and whether the joint owners were spouses (IRC § 2040).

Inclusion does not by itself mean tax is owed. The basic exclusion amount is $15,000,000 for a decedent dying in 2026 (IRC § 2010(c)(3)). How the choice of beneficiary changes the estate-tax result for life insurance is covered on naming a trust as beneficiary.

Related guides

• The beneficiary designation audit for retirement accounts
• Naming a trust as beneficiary of life insurance
• Transfer-on-death deeds by state
• Funding a trust
• All planning guides

Sources