Properly structured Illinois beneficiary designations help avoid legal pitfalls and ensure your estate plan works as intended.
When people think about estate planning in Illinois, they often start with wills and trusts. But there’s one critical detail that can override those documents—beneficiary designations. These designations apply to non-probate assets like retirement accounts, life insurance, and certain financial accounts. They determine where your assets go, and if they don’t match your broader estate plan, things can go sideways fast.
In Illinois, beneficiary designations take legal priority over the contents of your will or trust. That means if your will says one thing, but your IRA or life insurance designates someone else, the beneficiary designation will control who receives the asset.
The legal structure behind this includes:
Illinois Probate Act (755 ILCS 5/): Governs wills, estates, and probate procedures.
Illinois Insurance Code (215 ILCS 5/): Covers life insurance beneficiary requirements.
Illinois Trusts and Trustees Act (760 ILCS 5/): Explains how trusts and designations interact.
In re Estate of Riordan (2004): A court case reinforcing that improperly aligned beneficiary designations can unintentionally disinherit loved onesEnsuring_Your_Illinois_….
Let’s look at some of the most common types of beneficiary designations used in estate planning in Illinois:
Designate primary and contingent beneficiaries.
Must be documented and filed with the insurer to be valid.
Designations determine who inherits the account.
Governed partly by the Illinois Pension Code (40 ILCS 5/) for public employees.
Use Transfer on Death (TOD) or Payable on Death (POD) designations.
Supported under the Illinois Uniform TOD Security Registration Act (815 ILCS 10/).
A Transfer on Death Instrument (TODI) allows you to pass property outside probate.
Governed by the Illinois Real Property Transfer on Death Instrument Act (755 ILCS 27/).
These types of designations are crucial because they bypass the probate process entirely—assuming they're up to date and properly filed.
Your Illinois beneficiary designations don’t just affect who gets what; they also have serious tax implications:
Illinois repealed its estate tax for deaths after January 1, 2021.
But the federal estate tax still applies to large estates.
Non-spouse retirement account beneficiaries must now withdraw the full balance within 10 years.
This can lead to higher income taxes due to Illinois' flat tax rate (currently 4.95%).
A surviving spouse can roll the inherited account into their own and delay taxes.
Naming a nonprofit as the beneficiary of a retirement account can eliminate income tax and earn estate tax deductions.
Naming a trust as a beneficiary is complex.
Without a properly structured “see-through” or “conduit” trust, taxes may accelerate.
💡 Tip: Work with a qualified Illinois estate attorney or tax advisor to minimize tax burdens on your estate and your heirs.
Outdated or inconsistent beneficiary designations can cause:
Unintended disinheritance
Family disputes
Probate delays
Legal challenges
Review and update designations anytime you experience:
Marriage or divorce
Birth or adoption
Death of a named beneficiary
Major financial changes
While the Illinois Marriage and Dissolution of Marriage Act (750 ILCS 5/) can revoke some designations post-divorce, it doesn’t cover all situations. You must take proactive steps.
To make sure your Illinois estate plan is aligned, consider the following:
Always list backup beneficiaries.
Consider using per stirpes language to pass assets to descendants of a deceased beneficiary.
Review every few years.
Reassess after major life events.
Maintain a list of all accounts with beneficiary designations.
Avoid conflicts by ensuring your designations match your Illinois estate planning documents.
Especially important for blended families or complex estates.
Know how the law treats adopted, estranged, or stepchildren.
Be aware of spousal rights under the Illinois Probate Act.
Avoid naming them directly.
Use a special needs trust to preserve government benefits.
Write down your reasons in a letter of intent.
While not legally binding, this can help prevent disputes.
Illinois and federal law are complex.
Consult a seasoned Illinois estate attorney to ensure everything is in sync.
If you want to learn more or get help with your estate plan, these Illinois-based resources can be a great starting point:
Illinois State Bar Association – Referrals and guides
IDFPR – Oversees insurers and financial institutions
Illinois Attorney General – Consumer and senior resources
Legal Aid Chicago – Help for low-income Cook County residents
Prairie State Legal Services – Assistance for residents in Northern and Central Illinois
Getting your Illinois beneficiary designations right is just as important as drafting a will or trust. At Khatib Law LLC, we help you craft estate plans that align your non-probate assets with your long-term wishes.
Whether you're forming a business, restructuring your trust, or need help navigating Illinois law, our firm is here to provide the legal and financial clarity you need.
Contact Khatib Law LLC Click here or call 708-722-2222 to schedule a consultation and choose the structure that fits your needs.
Hani Khatib: Attorney at Law, CPA, and LL.M. in Taxation
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