The Beneficiary Designation Problem That Sends Money to the Wrong Person — And How to Fix It

A Will Can't Help When the Beneficiary Form Says Otherwise

Last year, a woman in Sanford discovered that her late husband's 401(k) — worth $280,000 — had named his mother as the sole beneficiary. His mother had died a decade earlier, and her husband had never updated the form. Because the named beneficiary was deceased and no contingent beneficiary had been listed, the account passed through his estate, sat in probate for months, incurred legal fees, and ultimately went to the estate for distribution — not directly and immediately to his widow.

The couple had a will. It did not help.

Why Beneficiary Designations Override Your Will

When you name a beneficiary on a retirement account, life insurance policy, annuity, or payable-on-death bank account, you are creating a contract between you and that financial institution. The contract says: when I die, give this to that person. That contract does not consult your will. It does not consult your trust. It does not ask whether you got divorced, had children, or changed your mind since 1998 when you first filled out the paperwork.

This is one of the most important things to understand about estate planning in Florida — or anywhere else. In many estates, the assets with beneficiary designations are the largest assets. Retirement accounts, life insurance policies, and investment accounts with transfer-on-death designations often represent more money than the items addressed in a will. When those forms are wrong, the financial consequences can be severe and there is very little a probate court can do to fix it.

The Florida-Specific Concern

Florida law does not automatically revoke beneficiary designations when you divorce — not for most non-probate assets. A will in Florida is automatically updated to remove an ex-spouse as a beneficiary upon divorce, under Section 732.507(2) of the Florida Statutes. But that protection does not extend to life insurance policies, retirement accounts, or most payable-on-death designations, which are governed by federal law or individual contract terms.

In other words: if you got divorced five years ago, updated your will, but never called your HR department to change your 401(k) beneficiary, your ex-spouse may still be the legal beneficiary of your retirement account. This is a real, recurring problem in Central Florida. We have seen it happen, and it is entirely preventable.

The Most Common Mistakes

One of the most frequent errors is naming a minor child as a direct beneficiary of a large financial account. A minor cannot legally receive a large sum of money directly in Florida. If a child under 18 inherits a significant financial account, a court-appointed guardian of the property will likely be required to manage those funds — an expensive, time-consuming court process — until the child reaches adulthood. At 18, the child receives the full amount with no restrictions, whether they are ready or not.

A second very common mistake is failing to name a contingent beneficiary. A contingent beneficiary is the backup — the person who inherits if your primary beneficiary dies before you. Without a contingent beneficiary, the account may default to your estate and go through probate, as in the example above.

A third mistake is naming the estate itself as the beneficiary, sometimes accidentally, sometimes on advice that did not account for the tax consequences. Naming your estate as the beneficiary of an IRA, for example, can accelerate the required minimum distribution schedule in ways that cost your heirs significantly more in income tax compared to a named individual beneficiary.

What Can Happen Without Action

Consider another scenario that plays out regularly in Central Florida. A retired Orange County schoolteacher has a pension, a life insurance policy from her union, and an IRA. She names her sister as beneficiary on all three shortly after her divorce. She and her sister have a falling out years later and are estranged by the time of her death. Her will leaves everything to her two adult daughters.

Her daughters receive the probate assets. Her sister receives the pension survivor benefit, the life insurance payout, and the IRA — a combined $400,000 — by operation of contract, regardless of the will, because the designations were never updated. The daughters grieve twice: once for their mother, and once for the inheritance they expected and never received.

Practical Next Steps

The single most useful thing you can do today is locate the beneficiary designation forms for every financial account you own. This includes your employer 401(k) or 403(b), any IRA accounts, life insurance policies, annuities, and payable-on-death or transfer-on-death designations at banks and brokerages.

For each account, confirm that the named beneficiary is still living, still the person you intend, and still appropriate given your current family situation. Also confirm that you have named a contingent beneficiary on each account. If you have minor children you would like to benefit, consider whether a trust might be a better vehicle than naming them directly — a trust can receive the assets, manage them over time, and distribute them according to your instructions.

How Our Firm Helps

At Yergey & Yergey, P.A., reviewing beneficiary designations is a standard part of every estate planning consultation. We help clients see the full picture — not just the will, but the financial accounts, insurance policies, and property titles — and make sure everything points in the same direction.

We encourage clients to bring in what they found online so we can explain what is right, what is wrong, and what the tradeoffs are. A conversation with a lawyer is better than guessing based on internet content, online forms, or AI-generated answers. A beneficiary designation mistake that sits uncorrected for years can cost a family more than the estate planning work itself would have ever cost.

If you are updating your plan after a divorce, a remarriage, the birth of a child, or the death of a named beneficiary, a review of all your accounts is an essential part of the process — not an optional add-on.

Frequently Asked Questions

Q: Does my will override my beneficiary designations?

A: No. Beneficiary designations on retirement accounts, life insurance, and payable-on-death accounts are governed by contract law and generally override your will. Your will only controls assets that pass through probate — it has no effect on accounts with valid, enforceable beneficiary designations.

Q: My spouse and I have each other named on everything. Is that enough?

A: It is a good start, but you should also name contingent beneficiaries — the people who inherit if both of you die at the same time or close together. Without a contingent beneficiary, an account can end up in the estate and go through probate. You should also consider what happens if your spouse dies shortly after you, before having time to update their own designations.

Q: I want my young grandchildren to inherit my IRA. Can I just name them directly?

A: Naming a minor as a direct beneficiary creates problems. A court-appointed guardian may be required to manage the funds until the child turns 18, at which point they receive everything at once. A trust gives you more control — you can specify ages for distribution, conditions, and purposes. An attorney can help you structure this correctly.

Q: I got divorced two years ago. Did the divorce automatically update my beneficiary designations?

A: Probably not. Florida law revokes your ex-spouse as a will beneficiary automatically upon divorce, but this protection generally does not apply to retirement accounts, life insurance, or annuities. You need to affirmatively update those designations yourself, or your ex-spouse may remain the legal beneficiary.

Q: How often should I review my beneficiary designations?

A: At every major life event — marriage, divorce, birth of a child, death of a named beneficiary, and any significant change in assets or family circumstances. At a minimum, a review every three to five years is sensible even if nothing obvious has changed.

Call to Action:

You do not have to audit every account by yourself. Call our office at (407) 843-0430) or visit orlandoprobatelawyer.com and we will help you review your full estate picture — documents and designations together. Getting this right now saves your family real money and real heartache later. Yergey & Yergey, P.A. has been helping Central Florida families get it right since 1928.