Estate-planning crises usually come down to small oversights

Ed Lyon had done everything right - or so he thought - when he did his estate planning.

A pioneering urologist at the University of Chicago, Lyon worked with an estate attorney to divide his $1.2 million retirement account equally among his 36 grandchildren through separate trusts. Under the tax rules at the time, each grandchild would have been able to stretch distributions over their lifetime, giving them the ability to compound decades of tax-deferred growth.

But it wasn't until Lyon was ailing and his wife, Val, was incapacitated that a family member looking to confirm a beneficiary designation found no record of any updates to his plans. And it was then too late to make any changes, because federal law prohibits anyone from being named as primary beneficiary without the spouse's consent.

Seven years after Lyon's death, the account - now worth approximately $1.7 million - has still not reached a single grandchild. Even if the family ultimately wins in court, much of what Lyon put in place is already gone: The Secure Act of 2019 eliminated the stretch provision for most nonspouse beneficiaries, wiping out the tax advantages that made the plan worth building.

Most people think of estate-planning mistakes as something that happens to procrastinators - the people who never get around to making a will or talking to an attorney. But many cases come down to small oversights - and the people caught off guard are often the ones who thought they had it taken care of.

Don't count on your will

When people think of estate planning, they often think of a will. But what many people don't realize is that a will doesn't determine what happens to a significant portion of their assets. For the accounts that matter most - 401(k)s, IRAs, life insurance - whoever is named as beneficiary inherits the money, regardless of what a will says.

A trust gives you more control by spelling out your wishes in detail. But even a trust can't override a beneficiary designation on a retirement account without triggering significant tax consequences.

Financial institutions follow the contract. When it doesn't match your wishes, the consequences can be devastating and, in many cases, irreversible. But they are avoidable.

The form has the final say

Many beneficiary-designation errors come down to simple oversight. Take the case of Jeffrey Rolison, who worked for Procter & Gamble (PG) for three decades. In his early 20s, he named his then-girlfriend, Margaret Losinger, as his beneficiary. When the relationship ended, he never updated the form.

When Rolison died nearly 40 years later, Losinger inherited roughly $1 million. At the time of his death, Rolison wasn't married and had no children. His brothers contested the claim, and lost. The court held that the designation on file has the final say, regardless of how long ago it was signed or how much had changed since.

Rolison's case is one of inertia; he most likely forgot about his beneficiary designation entirely. But sometimes, the results aren't desirable even when people try to follow the rules.

That's what happened to Carl Kleinfeldt.

Kleinfeldt worked for Packaging Corporation of America $(PKG)$ for more than 30 years. When he and his wife Dená Langdon divorced in September 2022, he moved quickly. Within two weeks, his assistant faxed the company's benefits center requesting the removal of his former spouse as beneficiary from his 401(k), pension and life insurance.

But PCA's plan documents required changes to be made either by phone or through the plan's online portal; a fax didn't meet that standard. PCA updated Langdon's status on the retirement account from "spouse" to "ex-spouse," but did not remove her as the primary beneficiary.

When Kleinfeldt died four months later, he thought the change had gone through. In February 2026, the Seventh Circuit Court of Appeals ruled against his estate. His ex-wife was entitled to the account. The form had the final say.

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What to look for and when

These cases have the same underlying problem. Beneficiary-designation mistakes are among the most common and costly errors in estate planning, and they happen to careful planners just as often as careless ones. Life tends to move faster than paperwork. Here's what to watch for:

After a divorce: Divorce is the most obvious trigger - but as Kleinfeldt's case shows, wanting to update your beneficiary designations isn't enough. You must follow your plan administrator's specific process and get written confirmation that the change is on file before you consider the job done.

When your family grows: Some beneficiary forms let you simply select "my children equally," while others ask you to check that option and list each child's name. If your form requires names, it doesn't automatically update as your family grows. A child born or adopted afterward may not be included unless you update the designation to add their names. This catches parents off guard more often than you might expect - especially those who completed beneficiary forms early in their careers and haven't reviewed them since.

Also worth considering is whether your beneficiaries are designated as "per stirpes" or "per capita." Per stirpes routes a deceased beneficiary's portion to their children - in other words, your grandchildren. Per capita divides the account equally among whoever is still living, which can inadvertently cut out an entire branch of the family.

It's not uncommon for people to choose per-capita basis when none of their children have started families of their own yet. Years later, when grandchildren are in the mix, that may not be how you want your assets to be passed down. Choosing per stirpes can provide a hedge if a child has children before the beneficiary designation is updated, so that a deceased child's share will pass on to their descendants. However, that may not necessarily be what you ultimately want either. Neither designation is inherently correct; what matters is understanding which one you've chosen and whether it reflects your wishes.

When your employer changes plan providers: Beneficiary designations don't transfer to a new plan automatically. The notification typically arrives buried in a stack of paperwork few people read carefully. If your company has recently switched providers, log in or call to confirm what's currently on file. This also applies to people who have changed jobs; an old 401(k) sitting at a former employer starts from scratch if that employer ever switched plan administrators, and you may not be aware that happened.

When a minor is involved: Minors cannot legally inherit retirement accounts. If you die while a named child is still a minor, the account is frozen until a court appoints a guardian. When the child reaches adulthood, they receive the full balance as an unrestricted lump sum. Naming a trust as the beneficiary instead, with distribution terms spelled out, gives you far more control over timing and outcome.

After a major life event: Remarriage, a death in the family or a move to a new state should prompt a review of your beneficiary designations. Business owners should also ensure they have a buy-sell agreement in place; it functions like a beneficiary designation for the business itself, directing ownership to the right person rather than whoever happens to inherit your estate. Without one, a business built over decades could end up in the hands of a surviving spouse or children who have no ability to run it.

A few steps to make sure your wishes hold

Knowing the risks is only half the battle. Here's how to make sure your designations actually reflect what you want:

Verify procedures: Understand exactly what your plan administrator requires to put a beneficiary-designation change in place. As Kleinfeldt discovered, using the wrong channel, even with the right intention, can leave the old designation intact.

Request your beneficiary designations in writing: Call or log in to every financial account, life-insurance policy and retirement plan. Likewise, double-check that percentages across all named beneficiaries add up to 100%, a common source of errors. Even a small discrepancy can require the account custodian to apply its own procedures for allocating any remaining amount.

Don't assume an update went through: As both the Lyon and Kleinfeldt cases show, a form submitted isn't always a form completed. After any change request, get written confirmation that the new designation is on file.

Ed Lyon and Carl Kleinfeldt both believed their paperwork was in order. Jeffrey Rolison likely never thought about his paperwork at all. In each case, the inheritance followed the form. Make sure yours says what you mean.

Please consult your tax and legal professionals regarding your specific situation.

Erin Wood, CFP(R), FBS(R), is senior vice president of advanced planning at wealth-management platform AssetMark.

-Erin Wood