Beneficiary Designations in New York: What You Need to Know

Beneficiary designations are among the most powerful but underutilized tools in estate planning. Many New Yorkers create a detailed will or trust, yet fail to review or properly coordinate their beneficiary designations on retirement accounts, life insurance, and financial accounts. The result can be an estate plan that does not function as intended, and assets passing to unintended recipients.

Under New York law, beneficiary designations generally bypass probate and pass directly to the named beneficiary, regardless of what your will says. This means a poorly coordinated designation can undo months of careful estate planning.

How Beneficiary Designations Override Your Will

One of the fundamental principles of estate planning is that beneficiary designations take precedence over the provisions of your will. This is true under New York law and federal law, which governs retirement accounts and certain financial instruments.

When you name a beneficiary on a life insurance policy, retirement account (IRA or 401(k)), or payable-on-death (POD) account, that document becomes a contractual designation. Upon your death, the account custodian or insurance company is obligated to pay the funds directly to the named beneficiary, completely bypassing your will and the probate process.

For example, if your will names your spouse as executor and provides that your estate should be divided equally among three children, but you name only one child as the beneficiary of your $500,000 life insurance policy, that child will receive the insurance proceeds outside of probate. The other two children and your spouse will receive no portion of the life insurance proceeds, regardless of what your will says.

This is why coordinating beneficiary designations with your overall estate plan is critical. Your designations should work together with your will and trust to achieve your actual intentions.

Types of Accounts with Beneficiary Designations

Life Insurance

Life insurance proceeds pass through beneficiary designation to whoever you name. Most life insurance policies allow you to name multiple beneficiaries and specify percentages. Life insurance is often the largest liquid asset in an estate, making proper designation essential.

Upon your death, the life insurance company will pay the proceeds directly to the named beneficiary. The proceeds are generally not subject to estate taxes at the federal level unless the policy is owned by your estate or you retain certain incidents of ownership. However, these assets count toward your New York estate tax for state purposes.

Retirement Accounts (IRAs and 401(k)s)

Federal law requires retirement accounts to pass according to the named beneficiary designations on file with the account custodian. Under Internal Revenue Code rules, these beneficiary designations are controlling documents.

This is particularly important given the tax implications. Naming a spouse as beneficiary offers different tax treatment than naming an adult child. After the Secure Act (2019), most non-spouse beneficiaries of inherited retirement accounts must distribute the entire account balance within 10 years of the account holder’s death.

New York law recognizes the federal primacy of these designations. Check your IRA and 401(k) beneficiary designations regularly to ensure they align with your current intentions, especially after major life events.

Payable-on-Death (POD) Accounts

New York recognizes payable-on-death accounts under common law and statute. Many banks offer POD accounts, sometimes called “transfer on death” (TOD), which allow you to name a beneficiary for a savings or checking account. Upon your death, the account passes directly to the named beneficiary without probate.

POD designations are governed by the contractual agreement between you and the financial institution. Always confirm that your bank offers POD designations and that the designation is properly documented in writing.

Transfer-on-Death (TOD) Securities Accounts

Under New York law, you may also register securities or brokerage accounts in “transfer on death” form. While New York adopted the Uniform Transfer-on-Death Securities Registration Act (found in Article 6 of the New York General Obligations Law), this mechanism is less commonly used than POD accounts.

With TOD registration, you maintain full control of the account during your lifetime. Upon death, the securities pass directly to the named beneficiary without probate.

Common Mistakes with Beneficiary Designations

Outdated Designations After Life Changes

One of the most common mistakes is failing to update beneficiary designations after a major life event. A recent divorce, birth of a child, or death of a spouse can completely change who should receive your assets.

New York law addresses this issue in EPTL 5-1.4, which provides that certain beneficiary designations to a former spouse are revoked upon divorce. However, this statute has limitations and does not apply to all types of designations. Do not rely on automatic revocation; update your designations manually after any divorce.

Similarly, having a child after executing your estate plan does not automatically remove or modify existing beneficiary designations. The new child will not receive proceeds unless you update the designations.

Naming Your Estate as Beneficiary

Naming your estate as the beneficiary of life insurance or retirement accounts defeats the purpose of having a beneficiary designation. This forces those assets through probate, incurs estate administration costs, and may trigger unnecessary tax consequences.

The only situation where naming your estate makes sense is if you want those assets to be distributed according to your will’s specific instructions. In most cases, you should name individual beneficiaries or a trust instead.

Inconsistent Designations Across Accounts

If you have multiple retirement accounts, insurance policies, and financial accounts, their designations should align with your overall estate plan. Inconsistent or conflicting designations can create confusion and may result in assets passing contrary to your wishes.

Take time to list all accounts with beneficiary designations and review them together to ensure they support your estate plan.

Naming Minor Children as Direct Beneficiaries

Naming a minor child as the direct beneficiary of a life insurance policy or retirement account creates administrative problems. If the child inherits before age 18, the funds cannot legally be paid to the child directly. A court must appoint a guardian of the estate or conservator, which triggers court proceedings and ongoing supervision.

Consider instead naming a trust as the beneficiary, with instructions that the trustee manage the funds for the benefit of minor children until they reach a specified age.

Divorce and Revocation of Beneficiary Designations (EPTL 5-1.4)

Under New York law, EPTL 5-1.4 provides partial protection for divorced individuals. The statute provides that upon divorce or annulment, any provision in a beneficiary designation that would make a former spouse the beneficiary is revoked.

However, this statute has important limitations:

• It applies to certain beneficiary designations but may not cover all types of accounts or designations under other state laws or federal law
• It only revokes the designation; it does not specify who will receive the asset instead
• It does not apply if the beneficiary designation was executed after the divorce
• The statute’s application can be unclear in some situations

After a divorce, do not rely on automatic revocation under EPTL 5-1.4. Instead, affirmatively update all beneficiary designations to remove your former spouse and designate whomever you actually want to receive the assets.

Coordinating Beneficiary Designations with Your Estate Plan

Proper coordination of beneficiary designations with your will and trust is essential to achieving your estate planning goals.

If You Have a Revocable Living Trust

Many New Yorkers create revocable living trusts as the centerpiece of their estate plan. If you have a trust, you should consider naming your trust as the beneficiary of life insurance policies and retirement accounts (subject to tax and distribution rule considerations for retirement accounts).

This approach allows your life insurance proceeds and other designated assets to flow into your trust, where they can be managed and distributed according to your trust instructions. This is particularly valuable if you have minor children, need ongoing asset management, or want to control how assets are distributed after your death.

Coordinating with Your Will

If you do not have a trust, your beneficiary designations should still coordinate with your will. The assets passing through beneficiary designation (outside probate) should be considered when thinking about how your will-controlled assets will be distributed.

For example, if your life insurance will pass $500,000 to one child and your will controls $1,000,000 in other assets to be divided equally among three children, the total distribution to each child is unequal. Determine whether this matches your actual intentions.

Tax Planning Considerations

Beneficiary designations have significant tax implications. The type of beneficiary you name affects income taxes (especially for retirement accounts) and potentially estate and gift taxes.

• A spouse beneficiary receives favorable income tax treatment for retirement accounts
• Naming a trust can provide tax benefits but requires careful drafting
• Direct bequests to charities through beneficiary designation can reduce your taxable estate

Discuss the tax implications of your designations with both your estate planning attorney and tax advisor.

Westchester-Specific Considerations

Residents of Westchester County should be aware that New York has an estate tax on estates exceeding $7,350,000 (the 2026 basic exclusion amount). While beneficiary designations pass outside of probate, the assets themselves are still counted as part of your taxable estate for New York estate tax purposes.

Additionally, Westchester property owners with significant real estate holdings should consider how life insurance proceeds might be used to pay estate taxes or ensure liquidity for property that cannot be easily divided.

If you own real property in Westchester and have out-of-state beneficiaries, be aware that any real estate will still require probate or ancillary probate in New York. Coordinating your real property planning with your beneficiary designations can help minimize probate complications.

Reviewing and Updating Your Beneficiary Designations

You should review your beneficiary designations:

• Every 3 to 5 years, even if your circumstances have not changed
• After any major life event: marriage, divorce, birth of a child, death of a family member, or significant change in financial circumstances
• When you establish a new retirement account or financial account
• When you refinance or obtain new life insurance
• When you create or modify your estate plan

To review your designations, contact the custodian or issuer of each account and request a current beneficiary designation form. Compare these designations to your overall estate plan and make any necessary changes.

Updating Your Beneficiary Designations

Most beneficiary designations can be updated relatively easily. Financial institutions and insurance companies typically provide beneficiary designation change forms. Some institutions now allow online updates.

Ensure any changes are:

• In writing
• Signed and dated by you
• Properly delivered to the custodian or insurance company
• Confirmed in writing by the institution

Avoid handwritten changes to existing documents or informal instructions. These may not be honored by the institution.

Conclusion

Beneficiary designations are a critical component of your overall estate plan. Assets passing through beneficiary designation bypass probate but are not exempt from estate taxes. They can either support or undermine your estate planning goals, depending on how carefully they are coordinated.

Review your current beneficiary designations, ensure they are aligned with your estate plan, and update them whenever your circumstances change. If you have questions about how your beneficiary designations interact with your will or trust, or whether they are properly coordinated, consult with an estate planning attorney in your area.

Marc R. Lynde, Esq., serves Westchester County residents and can help you review and coordinate your beneficiary designations with your complete estate plan. Contact our office to discuss your situation.