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Leaving everything to your children in a new will does not automatically control what happens to bank accounts, retirement accounts or life insurance. Those assets usually pass to the person named on file. That means an ex-spouse could still get the money if the designation was never updated. Here’s why this can happen, and what you can do about it.
Why a Beneficiary Form Can Override Your Will
Some accounts let you name a person to receive the money when you die. A bank account uses a payable-on-death (POD) designation, and a brokerage account uses a transfer-on-death (TOD) registration. IRAs, 401(k)s and life insurance policies have their own beneficiary forms.
These accounts generally skip probate, the court process that carries out a will. The money goes straight to the person named on the form, even if your will says something else.
State law may help in some cases because many states automatically cancel a former spouse’s beneficiary designation after a divorce, though not all do, and your divorce decree or account terms can affect the result.
ERISA-governed workplace retirement plans, including many 401(k)s, are different. Federal law can override state rules that automatically revoke an ex-spouse as beneficiary after divorce. A divorce order, including a qualified domestic relations order (QDRO), can also affect an ex-spouse’s rights under a retirement plan. If your former spouse is still the valid beneficiary under the plan, they could receive the money.
A financial advisor can help update your estate plan after a divorce to protect assets for your children.
What One Old Form Could Cost Your Kids
To estimate how much one outdated form could cost your children, let’s consider a $600,000 estate split across checking, brokerage and IRA accounts. Your goal is to leave $300,000 to each of your two children, but the checking account still names your former spouse. The table shows how the money could be divided, excluding debts, expenses, taxes and market changes:
| Account | Balance | Intended Split | Beneficiary on File | Who Actually Receives It |
|---|---|---|---|---|
| Checking | $300,000 | $150,000 per child | Former spouse (POD) | Former spouse: $300,000 |
| Brokerage | $100,000 | $50,000 per child | Both children equally (TOD) | Each child: $50,000 |
| IRA | $200,000 | $100,000 per child | Both children equally | Each child: $100,000 |
| Total | $600,000 | $300,000 per child | Not applicable | Each child: $150,000; former spouse: $300,000 |
In this example, each child gets $150,000, which is $150,000 less than you intended. The former spouse receives the full $300,000 in the checking account. Your will generally would not override a valid POD designation on that account, which is half of your estate.
Don’t Forget to Check Your Contingent Beneficiaries
Your contingent beneficiary is your backup, the person who gets the account if your primary beneficiary dies before you or can’t accept it. If your children are listed first but your ex is still the backup on an old form, your former spouse could end up with some or all of that account, depending on how the designation is written. A blank contingent line carries its own risk, since the account’s default rules may send the money to your estate and through probate.
Ask each bank, brokerage and insurer for a copy of the beneficiaries they have on file, and compare it with your estate plan. Fix any outdated names and keep proof that the changes went through. Most banks let you update a POD designation with a short form at a branch or online, without opening a new account, so it’s worth doing as soon as your divorce is final.
A financial advisor can help you track down every account and spot beneficiary gaps your will may not cover.
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