Wills are not always the last word with regard to where your property goes when you die. The legal documents can address only those assets that require probate to transfer to beneficiaries. Assets that pass to others by contract – such as IRAs – don't require probate, so your will typically has no effect on them. Exceptions exist, however.
What happens with your IRA at your death depends on the beneficiary designation form you completed when you opened the account. Your will generally cannot override this form. Depending on where you live and the laws in your state, if you name your spouse as beneficiary, then you divorce years later and redo your will to leave your entire estate to your child instead, it's possible that your ex might still receive your IRA.
Your Probate Estate
Your IRA could potentially become part of your probate estate if you name your estate as beneficiary on the designation form, or if the beneficiary you named on the form predeceases you or disclaims the inheritance. In the latter case, if you did not name a contingent beneficiary on the form, the account would pass to your estate for lack of anywhere else to go. Your IRA would then be subject to probate rules and it would not receive the same beneficial tax treatment as it would have if it had passed to a named beneficiary.
Even though your will can't usually override your IRA, state laws might lead to such a scenario. In the nine community property states (as of publication) – Arizona, California, New Mexico, Nevada, Wisconsin, Louisiana, Washington, Texas or Idaho – the law treats all marital assets as being owned by both you and your spouse, regardless of who holds title. Therefore, if you opened your IRA during your marriage and if you regularly contributed to it during that time, your spouse may have a right to a half interest in it, even if you named someone else as beneficiary to receive the entire asset. In other states, your divorce decree might be able to override your beneficiary designation if the decree explicitly orders the change of beneficiary, even if you didn't get around to doing so in your will before your death.
Coordinating Your Estate Plan
In many states, if you divorce your spouse and neglect to revise your will accordingly, the decree automatically bars your spouse from any inheritance you might have left her. This rule does not always apply to assets that pass by contract, however, such as your IRA. A few states have realized the inequity in this and have revised their statutes accordingly. For example, Florida passed a law in 2012 which bars a spouse from inheriting by beneficiary designation after a divorce, and New York has similar legislation. You probably won't want to rely on this, however, hoping that your state has such a law, particularly because it only applies to spouses. You should check your estate plan every few years to make sure that the intent of your will and that of your beneficiary designation are the same. You can change your beneficiary designation at any time to keep pace with changes in your life.
- Jason C. Hunter: Beneficiary Designations on Your Account Override Your Will
- AXA Equitable: Choosing a Beneficiary for Your IRA or 401(k)
- MarketWatch: Five Big IRA Beneficiary Concerns
- Bedrock Divorce Advisors: Do You Live in a Community Property State or an Equitable Distribution State?
- Kentucky Legislature: §394.092 Effect of Divorce or Annulment of Marriage of Testator (PDF)
- Gould Cooksey Fennell: Effect of Divorce on Beneficiary Designations
Beverly Bird has been writing professionally for over 30 years. She specializes in personal finance and w, bankruptcy, and she writes as the tax expert for The Balance.