Retirement accounts, life insurance policies, and payable-on-death bank accounts pass to whoever is named on the form held by the financial institution. That transfer happens on its own, outside the will, and the will has no authority to redirect it. Families usually learn this in the weeks after a death, when they discover that the document everyone spent time and money preparing does not control the largest asset in the estate. Understanding how these two systems fit together is one of the more useful things a family can sort out in advance.
How a Beneficiary Designation Works
A beneficiary designation is a form filed with a bank, insurance company, or retirement plan administrator naming who receives the asset when the owner dies. It usually names contingent beneficiaries as backups as well. The form functions as a contract between the owner and the institution, and the institution is obligated to pay according to that contract. It is not obligated to read the will, and in most cases it never asks to see one.
The Assets That Never Reach the Will
401(k) plans, IRAs, life insurance policies, and payable-on-death or transfer-on-death accounts are the common examples. Jointly held accounts and real property owned with a right of survivorship work similarly, passing automatically to the surviving co-owner. These are non-probate assets. The Queens County Surrogate's Court oversees only probate assets, meaning those held in the decedent's name alone with no transfer mechanism attached to them. Non-probate assets often reach the named beneficiary within weeks, while the probate estate is still waiting on the court.
When the Form and the Will Disagree
People remarry, have children, or grow apart from relatives, and they update their wills to reflect it. The beneficiary forms are frequently left untouched, sometimes for decades. When the two conflict, the institution pays the person listed on its own paperwork. That is why I advise reviewing every beneficiary designation whenever a will is updated, rather than assuming a new will corrects an outdated form sitting in a file somewhere.
What New York Law Protects for a Surviving Spouse
New York provides one significant protection. Under Estates, Powers and Trusts Law Section 5-1.1-A, a surviving spouse may claim an elective share equal to the greater of fifty thousand dollars or one-third of the net estate. The important detail is how that net estate is measured. It is not limited to what passes under the will. The statute counts certain non-probate assets, called testamentary substitutes, in the calculation from the start, which means a spouse cannot be disinherited simply by moving everything into accounts with someone else named on the form. This protection belongs to spouses alone. It does not extend to children or other relatives who feel they were left out.
What a Divorce Does, and What It Does Not Do
Estates, Powers and Trusts Law Section 5-1.4 revokes most revocable dispositions in favor of a former spouse once a divorce, annulment, or judicial separation is final. The statute reaches further than the will itself. It covers transfer-on-death registrations, life insurance designations, revocable trusts, bank accounts held in trust form, and the nomination of a former spouse as executor or trustee. The former spouse is treated as though he or she died first.
Where Federal Law Takes Over
The state statute stops where federal law begins. Employer-sponsored retirement plans and group life insurance governed by the Employee Retirement Income Security Act of 1974 are administered according to the plan documents, and the United States Supreme Court held in Egelhoff v. Egelhoff that state revocation-on-divorce statutes are preempted as to those plans. A separate decision, Kennedy v. Plan Administrator, confirmed that a waiver signed in a divorce settlement does not change who the plan pays either. The administrator follows the form on file. That is why I advise submitting new beneficiary forms directly to every plan and insurer once a divorce is finalized, rather than relying on the statute or the settlement agreement to do that work.
Naming a Minor Child
A child under eighteen cannot receive these funds directly. Where the amount exceeds ten thousand dollars, the Surrogate's Court must appoint a guardian of the property under Article 17 of the Surrogate's Court Procedure Act before anything is released. The money is generally deposited under the court's control, withdrawals require a court order, the guardian posts a bond and files an annual accounting, and the balance is turned over to the child at eighteen regardless of readiness.
Naming a Trust Instead
Naming a properly drafted trust avoids that process and allows the funds to be managed and distributed on terms the owner sets in advance. This only works if the beneficiary form identifies the trust correctly, so I recommend having an attorney review that language before it is filed with the institution.
A Review Schedule Worth Keeping
Gather statements for every retirement account, insurance policy, and payable-on-death account every few years, and again after any marriage, divorce, birth, or death in the family. Confirming that each form still says what it should takes very little time and prevents a great deal of difficulty for the people left to sort it out.
If your loved one left behind retirement accounts or life insurance policies with beneficiary designations which need to be reviewed against their will, contact us today for a free phone consultation.
Contributed by Roman Aminov, Esq, a Queens estate attorney in New York City.
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