Your will may not control your investments
Here is the fact that surprises most people: your will usually does not govern your retirement accounts, brokerage accounts, or life insurance. Those assets pass according to the beneficiary designation or account registration on file with the institution — and that paperwork legally overrides your will. As FINRA explains, planning ahead with these designations is how you smooth the transfer of brokerage assets at death. If your will leaves everything to your two children but your IRA still names an ex-spouse from decades ago, the ex-spouse wins. The form, not the will, controls.
Beneficiary designations: the most powerful page you'll ever sign
Every IRA, 401(k), annuity, and life insurance policy asks you to name a beneficiary. That single line directs the money straight to the named person at your death, bypassing probate entirely. Because it overrides your will, it must be kept current. Marriages, divorces, births, and deaths can all make an old form dangerous. A good practice is to review every beneficiary designation you have at least once a year and after any major life event, and to name a contingent (backup) beneficiary in case your first choice dies before you do.
TOD and POD: skipping probate on the rest
Not every account has a built-in beneficiary form, but most can be set up to behave like one. A transfer-on-death (TOD) registration applies to investment accounts such as brokerages and lets the holdings pass directly to your named heirs. A payable-on-death (POD) designation does the same for bank accounts like checking, savings, and CDs. Both let beneficiaries receive the assets without waiting for probate, a court process that can take many months. Like beneficiary forms, a TOD or POD designation supersedes your will, so the two should never contradict each other.
Why probate is worth avoiding
Probate is the court-supervised process of validating a will and distributing assets. It can be slow, public, and costly, and it ties up the money your heirs may need right away. Assets that pass by beneficiary designation, TOD, or POD skip probate altogether and reach your heirs in weeks rather than months. That is the core reason these designations matter: they are not just paperwork, they are the difference between your family waiting on a courthouse and your family being taken care of promptly.
The step-up in basis: a quiet gift from the tax code
When you inherit investments held in a regular (taxable) account — stocks, mutual funds, a house — you generally get a powerful tax break called a step-up in basis. The IRS explains in Publication 551 that the basis of property inherited from someone who dies is generally the fair market value of that property on the date of death. In plain terms, the built-in capital gain that accumulated during the deceased owner's lifetime is wiped clean. If your father bought stock for $20,000 that was worth $120,000 when he died, your basis steps up to $120,000 — and if you sell near that price, you may owe little or no capital-gains tax on the $100,000 of growth.
A few step-up details worth knowing
The step-up applies to the value at the date of death, though an estate may instead elect an alternate valuation date in certain cases, per IRS Publication 551. In community-property states, a surviving spouse may receive a step-up on the entire value of jointly held community property, not just the deceased spouse's half. And one trap to avoid: the step-up generally does not apply to appreciated property you gave to the decedent within one year before their death. The step-up is one of the most valuable features of inheriting taxable investments — and notably, it does not apply to traditional retirement accounts, which carry their own rules.
The inherited-IRA 10-year rule: deadlines that are now real
Retirement accounts get very different treatment. Under the SECURE Act, the IRS confirms that for most non-spouse beneficiaries who inherit an IRA from an owner who died after 2019, the entire account must be emptied within 10 years of the owner's death. After years of waived requirements, the IRS finalized its regulations, and many beneficiaries now also face required minimum distributions during that 10-year window. As the IRS notes in Publication 590-B and Franklin Templeton and Vanguard both summarize, those annual distributions began phasing in for 2025 when the original owner had already reached their required beginning date.
How the 10-year rule actually plays out
The IRS splits beneficiaries into two main paths. If the original owner died before their required beginning date for distributions, a non-spouse beneficiary generally need not take annual withdrawals and can drain the account at any pace, as long as it is empty by the end of year 10. If the owner died on or after that date, the beneficiary must take a required minimum distribution in years one through nine and empty the account by year 10. Withdrawals from a traditional inherited IRA are taxable income, so timing them across the decade — rather than taking one large hit in year 10 — can save real money.
Who is exempt: eligible designated beneficiaries
The IRS carves out a group called eligible designated beneficiaries who are not bound by the 10-year rule and may stretch distributions over their own life expectancy. This group includes surviving spouses, minor children of the account owner (until they reach the age of majority, after which the 10-year clock starts), disabled or chronically ill individuals, and beneficiaries who are not more than 10 years younger than the deceased owner. Surviving spouses in particular have the most flexible options, including treating the IRA as their own.
Put your plan to the test
Seeing how these pieces fit together for your own family makes the abstractions concrete. Our <a href="/calculators/estate-legacy">Estate & Legacy Calculator</a> helps you map which accounts pass by beneficiary form versus your will, estimate what a step-up could save your heirs in taxes, and sketch how an inherited IRA might be drawn down across the 10-year window. It is a useful first step before sitting down with an estate attorney.
Your afternoon to-do list
You do not need to be wealthy for this to matter. Pull up every retirement, brokerage, bank, and insurance account and confirm the named beneficiary is still the person you intend. Add contingent beneficiaries. Set TOD or POD registrations on accounts that lack them. Make sure your will and your designations agree. These steps cost nothing but time, and they spare your family the worst version of grief — the kind tangled up in courts, taxes, and paperwork.
This article is educational and not personalized financial, tax, or legal advice. Rules change and depend on your situation. Consider consulting a fiduciary advisor or estate attorney.