You finalized your divorce, updated your will and asked HR to remove your ex-spouse from your accounts. That must mean your estate plan is in order, right?
Not necessarily.
In a recent dispute over a retirement plan beneficiary, the family members of a deceased employee were unable to remove his ex-spouse as the primary beneficiary of his account because he’d faxed the request to have his ex-spouse removed from his accounts to his employer’s benefits center instead of following the required procedures to update his beneficiary designation.
While the district court initially concluded that the employee’s actions constituted “substantial compliance” with the plan’s terms, the U.S. Court of Appeals for the Seventh Circuit reversed, finding that the fax notification did not substantially comply with the plan’s beneficiary-change requirements. As a result, in Packaging Corporation of America Thrift Plan for Hourly Employees v. Langdon (No. 25-1859, 2026 BL 32177 (7th Cir. Feb. 2, 2026)), the ex-spouse was entitled to receive his retirement account as the primary beneficiary.
It’s an outcome that demonstrates how easily beneficiary designations can derail an otherwise thoughtful estate plan, especially for executives with significant assets in employer-sponsored plans. Here’s what to know about how beneficiary designations work and where the common pitfalls lie.
Why Beneficiary Designations Matter
A will is not the only document that determines asset distribution after death. A beneficiary designation specifies who will receive the assets of a retirement plan or other financial account after the owner dies. As underscored by the holding in Langdon, failure to file or correctly complete a beneficiary designation (even if informal attempts are made) can direct your assets to unintended recipients.
While beneficiary designations are often overlooked, they are a crucial part of an executive’s estate plan. Beneficiary designations offer several benefits, including probate avoidance, convenience, and tax-planning opportunities. However, improper handling can trigger significant delays in asset distribution, adverse tax consequences, family disputes, and costly litigation.
The Basic Rules
The administrator of an employer-sponsored plan is generally required to honor a beneficiary designation if the form has been properly completed and the designation is valid under the plan’s terms. However, if the designation is invalid, incomplete, or all named beneficiaries (both primary and contingent) predecease the owner, the default provisions in the plan’s governing documents will determine who receives the assets.
Divorce adds another layer of complexity. If a qualified domestic relations order (QDRO) entered in a divorce or marital separation awards a former spouse a share of the benefit, that portion must be paid in accordance with the QDRO, regardless of any beneficiary designation. In that situation, the beneficiary designation generally controls only the portion of benefits still belonging to the participant under the plan.
Special Rules for Tax-Qualified Plans
Tax-qualified plans impose heightened protections for spouses, including:
401(k) plans: A married participant generally cannot designate a non-spouse beneficiary without the spouse’s written consent. Without that, the spouse remains the designated beneficiary.
Defined benefit plans: These are legally required to provide spousal death benefits to surviving spouses regardless of whether the participant dies while employed or retired. Retirement benefits for married participants of a qualified defined benefit plan must be paid in the form of a qualified joint and survivor annuity, with a benefit of at least 50% of the participant’s pension continuing for the surviving spouse’s lifetime, unless the spouse consents to a different form of distribution.
Timing matters: If a participant is unmarried and dies while still employed, a pre-retirement death benefit may be payable, depending on the plan’s terms and whether the participant is vested. If a participant remarries after pension payments begin, the new spouse generally has no entitlement to survivor benefits tied to that pension.
6 Considerations for Executives
By understanding and addressing these considerations, executives can ensure their estate planning objectives are met, minimize potential pitfalls, and safeguard the smooth transfer of their assets in employer-sponsored plans.
1. Understand the Plan Terms and Confirm Your Designations are Effective
Read the beneficiary designation provisions of your plan documents and any associated explanations provided by your employer. These materials should provide comprehensive instructions for completing and updating beneficiary designations. For example, depending on the plan documents and your individual circumstances, proof of marriage and spousal consent (with specific waiver, witnessing or notarization requirements) may be required. Supplemental information is often required to establish a more complex distribution scheme, such as naming trusts as beneficiaries, dividing assets among multiple parties, or providing for detailed contingent distributions. It is also important to be familiar with the default distributions under the governing documents of the plan upon divorce or if you are predeceased by one of your named beneficiaries.
State laws vary significantly regarding whether divorce automatically revokes beneficiary designations, and federal law (ERISA) may preempt state law for certain plans. Most pre-approved 401(k) plans will automatically revoke a prior spousal designation on divorce. The process can also vary among your employer’s plans. Retirement plans subject to ERISA’s substantive requirements (such as 401(k) plans and pension plans) must follow the federally mandated beneficiary designation framework and comply with legal rules requiring that the benefit be paid over no longer than a specified maximum period. Certain executive compensation arrangements are not subject to ERISA’s requirements (e.g., top-hat nonqualified deferred compensation plans, certain bonus plans, phantom equity, or other equity-based arrangements, and SERPs) and may establish their own rules. Do not assume consistency among all employer plans, as some may have different requirements or default distribution provisions. Retain copies of your completed beneficiary designations, confirmations of acceptance, and other related communications with the plan sponsor or your human resources department.
2. Review and Update Beneficiary Designations After Major Life Events
Life changes, and your beneficiary designations should too. Prioritize updating your designations following significant events, such as:
● Marriage or divorce
● Birth or adoption of children
● Death of a named beneficiary
● Significant changes in family relationships
● Major changes in your financial situation
Forgetting to update beneficiary designations after important life events is a common estate-planning mistake that can completely undermine your carefully crafted plan. Proactive reviews can also mitigate potential conflicts and legal challenges that may arise if outdated beneficiary designations are relied upon during estate administration.
3. Streamline Administration and Avoid Probate
Many assets held in your personal name that are transferred at death via will or intestacy will be subject to the hassle and expense of probate. However, assets with a valid beneficiary designation generally pass in accordance with the beneficiary designation, bypassing the probate process entirely so long as such assets are considered non-probate assets under applicable state law.
This means your beneficiaries can receive their inheritance more quickly after your death—often within weeks rather than months or years—while avoiding the substantial costs and potential public disclosure associated with probate proceedings. Properly executed beneficiary designations create a clean, efficient transfer mechanism that reduces the administrative burden and legal complications for everyone involved.
4. Customize Beneficiary Designations for Your Needs
You might assume that customary distribution schemes or even the default distribution provisions of the plan (e.g., all to spouse, then equally among children) are sufficient when it comes to beneficiary designations, but beneficiary designations do not necessarily limit your universe of beneficiaries.
Beyond basic asset transfer—and subject to the distribution restrictions that apply to qualified plans—beneficiary designations can provide flexibility for more advanced estate planning strategies. Generally, beneficiary designations can name trusts, be structured to provide for special needs beneficiaries without disqualifying them from governmental benefits, implement charitable giving strategies, or otherwise dovetail with more sophisticated estate planning techniques.
Like your other assets, your employer-sponsored plan assets should be integrated with your overall estate plan. Work with an attorney or financial advisor, the plan administrator or your HR team to prepare beneficiary designations that fit your needs.
5. Coordinate with Estate Planning Counsel
Work closely with your estate planning attorney and financial planner to ensure your designations align with your will, trusts, and broader wealth transfer strategy. Your advisors can identify potential conflicts, suggest structures to minimize estate and income taxes, advise on which beneficiaries are best-suited recipients, provide counsel on asset protection strategies, and ensure that your designations work harmoniously with your other planning documents.
This coordination is especially important for executives with complex compensation structures involving multiple plan types. Neglecting beneficiary designations can undermine your desired allocation of assets among your heirs, access to inherited funds, and creditor protection strategies. Estate planning counsel can also serve as a backstop for record-keeping purposes, as your attorney should retain copies of your documents.
6. Keep Copies in a Safe, Accessible Place
Create a centralized repository of all critical personal and financial information to provide a roadmap for your loved ones. Generally, this should include:
● Copies of the relevant plan documents or summaries
● Copies of all beneficiary designations (with dates and confirmation of acceptance)
● Estate planning documents (wills, trusts, powers of attorney)
● Account information for all financial institutions
● Insurance policies and contact information
● Medical information and healthcare directives
● Important passwords and access instructions
● Contact information for your advisors (attorneys, accountants, financial planners)
● Specific instructions for your loved ones
Inform your spouse and other loved ones about where this file is located and how to access it. Saving copies of these documents helps ensure your loved ones know that these assets exist and can notify your employer or the plan administrator when needed. The process of creating and maintaining this repository also serves as a periodic review of your beneficiary designations.
Beneficiary Designations Are a Strategic Estate-Planning Tool
Beneficiary designations are a pivotal component of an executive’s estate plan. By diligently reviewing and updating these designations, understanding the terms of your employer’s plans, and coordinating with estate planning professionals, you can ensure that your assets are distributed in accordance with your wishes.
Copyright 2026 Cohen & Buckmann P.C.