Can a will override a retirement account beneficiary?

Do the plan documents and beneficiary form decide who gets paid?

Yes, for plans covered by the relevant ERISA provisions, the administrator follows the governing plan documents and a beneficiary designation made under the plan’s procedures, insofar as those documents are consistent with ERISA. Governmental plans and church plans without the specified federal election are excluded from that ERISA coverage.

The Supreme Court’s ERISA decision in Kennedy illustrates why the plan’s procedures matter. The participant’s designation complied with those procedures, while the former spouse’s conflicting waiver did not.

Does receiving an IRA under a will make someone its designated beneficiary?

No, receiving an IRA interest under a will or applicable state law does not by itself make someone a designated beneficiary for federal required minimum distribution purposes. A designation under the account’s governing arrangement is necessary. The federal beneficiary determination rules apply to IRAs as well as retirement plans. These rules classify beneficiaries for federal distribution tax purposes and do not provide a comprehensive state law rule governing ownership of every IRA.

Does a missing beneficiary form automatically mean payment to the estate?

No, a missing affirmative beneficiary election does not automatically mean payment to the estate because plan terms may supply a default beneficiary. For federal designated beneficiary purposes, a designation may arise through that default election. An affirmative election is available if the plan provides for it. Beneficiary choice remains subject to statutory spousal protections and qualified domestic relations order rules.

Is an estate a designated beneficiary for distribution tax rules?

No, an estate is not a designated beneficiary for federal required minimum distribution purposes because it is not an individual. An estate can nevertheless be a beneficiary under the plan. A beneficiary that is not an individual generally causes treatment as having no designated beneficiary, even when individuals are also beneficiaries.

The specified rules for certain trusts that allow their beneficiaries to be treated as plan beneficiaries, and rules for separate beneficiary interests, can change that analysis. These beneficiary determination rules also apply to IRAs. The tax classification does not determine who receives the account under its contract.

Can spouse protections limit another beneficiary’s right to payment?

Yes, spouse protections can limit payment to another beneficiary, but IRC §401(a)(11)(B)(iii) describes an exception to survivor annuity requirements rather than a requirement that every defined contribution plan pay the spouse. For a participant in a defined contribution plan other than one described in clause (i) or (ii), the survivor annuity rules apply unless the plan provides that the full nonforfeitable accrued benefit, reduced by any security interest the plan holds for an outstanding participant loan, is payable on the participant’s death to the surviving spouse, or to a designated beneficiary if there is no surviving spouse or the spouse consents in the manner required by IRC §417(a)(2).

The exception also requires that the participant not elect a life annuity and that, with respect to that participant, the plan not be a direct or indirect transferee described in IRC §401(a)(11)(B)(iii)(III). That clause concerns transfers from a plan described in clause (i) or (ii), or a plan to which clause (iii) applied with respect to the participant. If the plan separately accounts for transferred assets and their income, the transfer restriction applies only to those assets and income. These conditions do not describe every retirement account.

Does an election under IRC §417(a)(1)(A)(i) require spousal consent?

Yes, an election under IRC §417(a)(1)(A)(i) requires the spouse’s consent under IRC §417(a)(2), unless a plan representative establishes that consent cannot be obtained for a reason the statute permits. The spouse must consent in writing, acknowledge the election’s effect and have the consent witnessed by a plan representative or notary. The elected beneficiary or benefit form cannot change without further consent unless the spouse expressly permits that flexibility.

A plan representative may establish that consent cannot be obtained because there is no spouse, the spouse cannot be located or another circumstance prescribed by regulation applies. Consent or a determination that consent cannot be obtained is effective only for that spouse. These consent rules do not apply to every retirement account.

Read the IRC survivor benefit requirements and IRC spousal consent requirements for the statutory conditions.

Can a qualified domestic relations order affect payment?

Yes, a pension plan subject to ERISA’s qualified domestic relations order provisions must pay benefits according to an applicable qualifying order. The administrator must determine whether the order qualifies within a reasonable period after receiving it and notify the participant and alternate payees. A divorce decree or property settlement does not necessarily qualify.

The ERISA QDRO provisions set out the requirements for these orders.

Does divorce automatically remove an ERISA plan beneficiary under state law?

Not under the Washington statute considered in Egelhoff: the Supreme Court held it preempted to the extent it applied to ERISA plans. The decision concerned that statute’s automatic revocation of a former spouse’s beneficiary designation. The holding does not establish a rule for every IRA or every dispute under state law.

Did a conflicting waiver displace the designation in Kennedy?

No, in Kennedy, a Supreme Court ERISA case, the administrator properly followed the participant’s beneficiary designation rather than the former spouse’s conflicting waiver. The governing documents prescribed how designations and changes had to be made. The participant’s designation complied with those procedures, while the waiver did not. The Court left unresolved whether the estate could recover benefits from the recipient after distribution.

Can a will change a POD deposit account designation?

The answer varies by state. In Minnesota, for example, a will can change a payable on death deposit account designation by specifically referring to it. The will does not bind the financial institution unless the institution receives written notice of a claim under the will. After that notice, the deposit remains undistributed until the probate court adjudicates the decedent’s interest disposable by will. Other states differ, and this deposit account rule does not establish a rule for retirement plans.

The Minnesota POD and survivorship provisions describe the notice and court order requirements.