Titling and Beneficiary Designations
This is the highest-leverage paragraph in the chapter, so read it twice. A beneficiary designation on a 401(k), IRA, HSA, or life-insurance policy is a contract with the custodian, and it overrides your will. A will leaving everything to your new spouse is worthless against a $2 million IRA that still names your ex — the custodian pays the named beneficiary, and the courts back the custodian. Marriage does not auto-update these designations. Divorce does not reliably revoke them either, and this is settled law, not a cautionary anecdote: about half the states have statutes that purport to void an ex-spouse designation automatically on divorce, and in Egelhoff v. Egelhoff , 532 U.S. 141 (2001) the Supreme Court held that ERISA preempts those statutes as applied to employer plans. The plan pays the ex. Eight years later, Kennedy v. Plan Administrator for DuPont Savings & Investment Plan, 555 U.S. 285 (2009) closed the other escape route: even where the ex-spouse had expressly waived the account in the divorce decree, the administrator was required to follow the beneficiary form on file. The plan documents govern, full stop. Federal employee life insurance works the same way ( Hillman v. Maretta, 569 U.S. 483 (2013)).
The rule has a mirror image that catches second marriages. Your employer plan is not simply yours to direct: under IRC §417(a)(2), naming anyone other than your spouse as the beneficiary of a 401(k), 403(b), or pension requires that spouse’s written, witnessed or notarized consent. Name the children of your first marriage without it and the designation simply fails; the plan pays your current spouse. An IRA carries no such federal rule — which is why a rollover into an IRA is the standard move when you want to direct retirement assets to children instead of a new spouse, and why your new spouse’s lawyer will notice that you made it.
After any marriage or divorce, walk every account that carries a designation — employer retirement plans, IRAs, HSAs, life insurance, annuities, and transfer-on-death brokerage and bank accounts — and update them on the same day you update your will. Confirm in writing that the custodian has recorded the change; an unprocessed form is the same as no form.
One titling rule works in your favor: the unlimited marital deduction. A transfer of any size to a US-citizen spouse, during life or at death, is free of gift and estate tax ( IRC §2056, “Bequests, etc., to surviving spouse”, IRC §2523, “Gift to spouse”), which is why couples can shift assets between themselves freely to equalize estates. The exception that surprises people: a non-citizen spouse does not get the unlimited deduction. Lifetime gifts to a non-citizen spouse are capped at an indexed annual amount, and bequests generally require a Qualified Domestic Trust (QDOT) to defer the tax. If your spouse is not a US citizen, consult section “Estate planning” before moving assets.
Marriage also hands your spouse a floor you cannot draft away. In a community-property state they already own half of everything the marriage earned. In a common-law state they get a statutory elective share — a right to renounce your will and take a fixed fraction of your estate instead, commonly a third, and in states following the Uniform Probate Code a percentage that escalates with the length of the marriage and is computed against an augmented estate that sweeps in revocable trusts, joint accounts, and recent gifts, precisely so that titling tricks do not defeat it. Two related default rules run alongside it: an omitted spouse statute gives a spouse you married after signing your will a share as though you had died intestate ( Cal. Prob. Code §21610), and an omitted-child statute does the same for a child born or adopted afterward ( §21620). The only reliable way to change any of this is a signed waiver in a prenuptial or postnuptial agreement — another reason the document in section “Prenuptial and Postnuptial Agreements” is an estate-planning instrument as much as a divorce-planning one.
The other titling decision is invisible until the first spouse dies, when it can cost the survivor hundreds of thousands of dollars. In a community-property state, a taxable investment account held as “community property with right of survivorship” gets a step-up in basis on both halves when the first spouse dies; the same account held as JTWROS gets a step-up on only the decedent’s half. On a long-held appreciated portfolio in California, the gap easily runs into seven figures of unrealized gain — and into six figures of needlessly paid tax. The worked example, and the mechanics of converting separate property into community property to capture the full step-up, are in section “Capital Gains Resets With Inheritance”.