Beneficiary Designations in California Estate Planning: A Complete Guide (2026)

Beneficiary designations are one of the most powerful tools in California estate planning. They control who receives your retirement accounts, life insurance, and even real estate when you pass away.

Yet many families discover too late that an outdated or missing beneficiary can override their entire estate plan.

Here is the key point: beneficiary designations take priority over your will and trust for the assets they cover. This makes them critical to get right.

This guide explains what beneficiary designations are, how they work under California law, and how to avoid common mistakes.

We will also cover the updated rules for California’s Revocable Transfer on Death Deed (RTODD), which allows you to pass real estate without probate.

Key Takeaways

• Beneficiary designations bypass your will and trust. They control who directly receives the asset.
• Review your designations after significant life events like marriage, divorce, or the birth of a child.
• California’s small estate threshold is now $208,850 (effective April 1, 2025).
• Naming a trust as a beneficiary can provide control, protection, and probate avoidance.
• Never name your estate as a beneficiary. This forces the asset into probate.

What Is a Beneficiary Designation?

A beneficiary designation is a legal instruction on an account or policy that names who will receive that asset when you die. It transfers the asset directly to your chosen person or entity without going through probate court.

Think of it as a direct transfer instruction. When you name a beneficiary on your IRA, life insurance policy, or bank account, that person receives the asset immediately upon your death.

The asset does not pass through your will. It does not go through probate. It goes straight to the person you named.

This is why keeping your beneficiary designations current is so important. Even the most carefully drafted trust cannot override an outdated beneficiary form.

Primary vs. Contingent Beneficiaries

Primary beneficiaries are first in line to receive your assets. Contingent beneficiaries serve as backups. They receive the asset only if the primary beneficiary dies before you do.

Always name contingent beneficiaries. If your primary beneficiary passes away and you have no backup named, the asset may default to your estate. This defeats the purpose of probate avoidance.

Per Stirpes vs. Per Capita Distribution

These terms describe what happens when a beneficiary dies before you.

Understanding the difference helps you choose the right option for your family.

How to Designate Beneficiaries for Different Asset Types

Retirement Accounts (IRA, 401(k), 403(b))

Retirement accounts pass directly to your named beneficiaries. The plan administrator will transfer the funds without probate when you provide a valid beneficiary designation form.

Follow these steps to designate beneficiaries on your retirement accounts:

1. Get the beneficiary form from your plan administrator or account custodian.
2. Name both primary and contingent beneficiaries.
3. If married, understand spousal consent rules (see below).
4. Submit the completed form and keep a copy for your records.

California Note: Spousal Consent Rules

Federal ERISA rules require written spousal consent to name a non-spouse as primary beneficiary of a qualified employer retirement plan (like a 401(k)). For IRAs and life insurance, California community property law under Family Code Sections 760-761 requires spousal consent if community property funds were used. Always get written consent and confirmation from the plan administrator.

Important Tax Note: Under the SECURE Act and SECURE 2.0, most non-spouse beneficiaries must withdraw all inherited retirement funds within 10 years. Exceptions exist for surviving spouses, minor children (until age 21), disabled beneficiaries, and those within 10 years of the account owner’s age.

Life Insurance Policies

Life insurance proceeds transfer directly to your named beneficiaries without probate. You designate beneficiaries through your insurance company’s official form.

Most policies allow you to name multiple beneficiaries and assign percentages. For example, you might name your spouse as 100% primary beneficiary and your two children as 50% each as contingent beneficiaries.

Consider naming an irrevocable life insurance trust (ILIT) as beneficiary if you want to provide structured distributions or protect funds for minor children or individuals with special needs.

Bank Accounts (POD) and Real Estate (RTODD)

Payable-on-death (POD) accounts and California’s Revocable Transfer on Death Deed (RTODD) allow bank accounts and real estate to pass directly to beneficiaries without probate.

POD Accounts: Simply complete a form at your bank naming who should receive the funds when you pass away. The account remains in your control during your lifetime.

RTODD for Real Estate: California Probate Code Sections 5600-5698 allow you to transfer certain residential real estate upon death without probate. The RTODD is currently scheduled to sunset January 1, 2032, but deeds executed before that date remain valid.

RTODD Requirements (as of January 1, 2022):

Common Mistakes to Avoid

Failing to Name Any Beneficiary

If you do not name a beneficiary, the asset typically defaults to your estate. This means it must go through probate. California’s intestacy laws (Probate Code Sections 6400-6414) will then determine who inherits, which may not match your wishes.

Not Updating After Life Changes

Life events can make your beneficiary designations outdated. Review and update your designations after:

• Marriage or divorce
• Birth or adoption of a child
• Death of a beneficiary
• Major changes in assets or financial situation
• Changes in your relationship with a beneficiary

Naming Minors Directly

Minor children cannot legally manage inherited assets. If you name a minor directly, a court may need to appoint a guardian to manage the funds until the child turns 18. This creates delays, expense, and court oversight you likely wanted to avoid.

Better options include:

• A custodial account under California’s Uniform Transfers to Minors Act (UTMA), which terminates at age 18 (or 21 if specified)
• A trust that holds assets until the child reaches an age you choose, with a trustee managing the funds in the meantime

Naming Your Estate as Beneficiary

Be very cautious when naming your estate as a beneficiary, and this should only be done after discussing with an experienced estate planning attorney. This can result in forcing the asset into probate, which defeats the entire purpose of having a beneficiary designation. It also makes the asset subject to creditor claims and creates a public record of your assets.

It is best practice to always name a specific person, multiple people, or a trust as your beneficiary.

Why Name a Trust as Beneficiary?

Naming a revocable living trust as beneficiary combines the probate avoidance of a beneficiary designation with the control and flexibility of trust planning.

Benefits of naming a trust as beneficiary:

• Assets avoid probate just like naming an individual
• You control when and how beneficiaries receive assets (staged distributions, conditions)
• Protection for minor children or individuals who cannot manage money
• Creditor protection in some situations
• Privacy (trust administration does not create public court records)

Special Needs Trusts for Disabled Beneficiaries

If your beneficiary receives government benefits like Medi-Cal or Supplemental Security Income (SSI), inheriting assets directly could disqualify them from those benefits. A special needs trust holds inherited assets without affecting eligibility. The trustee can use the funds for the beneficiary’s care, comfort, and quality of life beyond what government programs provide.

Trust Funding Checklist

If you plan to name your trust as a beneficiary, make sure it is correctly set up:

1. Create a complete list of accounts and policies that need beneficiary updates.
2. Contact each account custodian or insurance company for their beneficiary change forms.
3. Name the trust exactly as it appears in your trust document (example: ‘John Smith, Trustee of the John Smith Revocable Trust dated January 1, 2025’).
4. Verify that the trustee powers in your trust document allow them to manage inherited retirement accounts.
5. Keep copies of all completed forms for your records.

California-Specific Laws and Thresholds

Probate Threshold (Updated April 2025)

California requires probate for estates exceeding certain value thresholds. As of April 1, 2025, the small estate threshold under Probate Code Section 13100 is $208,850. This amount adjusts every three years for inflation, with the next adjustment scheduled for 2028.

Assets with beneficiary designations do not count toward this threshold because they bypass probate entirely. This is one of the key reasons beneficiary designations are such a powerful planning tool.

Federal Estate Tax Exemption

The federal estate tax exemption for 2025 is $13.99 million per person ($27.98 million for married couples). In 2026, the exemption increases to $15 million per person ($30 million for married couples) under H.R. 1, commonly known as the One Big Beautiful Bill Act, signed into law on July 4, 2025. This higher exemption is now permanent and will continue to be indexed for inflation.

If your estate may be affected by estate taxes, consult with an estate planning attorney and tax advisor to coordinate your beneficiary designations with your overall tax planning strategy.

California Note: California does not have a state estate tax or inheritance tax. Only the federal estate tax applies if your estate exceeds the federal threshold.

How to Review and Update Your Beneficiaries

Review your beneficiary designations at least once a year and after any major life event. Set a recurring calendar reminder to check your designations annually.

Steps to change a beneficiary designation:

1. Contact the account custodian, plan administrator, or insurance company.
2. Request the beneficiary change form (some institutions allow online changes).
3. Complete all fields carefully, naming both primary and contingent beneficiaries.
4. Obtain spousal consent if required (for qualified retirement plans or community property).
5. Submit the form and request written confirmation that it was received and processed.
6. Keep a copy of the completed form and confirmation for your records.

Annual Review Checklist:

1. List all accounts and policies with beneficiary designations.
2. Verify that the current beneficiaries are still the ones you want to receive each asset.
3. Confirm contingent beneficiaries are named on every account.
4. Check that percentages and distribution instructions are correct.
5. Ensure your beneficiary designations align with your overall estate plan.