How Your Retirement Accounts Could Be Threatening Your Estate Plan

 Posted on April 02, 2026 in Asset Protection & Wealth Preservation

Most families feel confident once they have a will or a trust in place and beneficiaries named on their retirement accounts. It seems like everything is covered. But in 2026, one of the most common and costly estate planning mistakes is assuming retirement accounts and the rest of an estate plan automatically work together.

Unfortunately, they often do not. If not carefully planned for, your retirement accounts may actually be one of the biggest threats to the plan you have worked so hard to build. Our Sandwich, IL estate planning and wealth preservation attorney explains.

Why Don't Retirement Accounts Follow Your Will or Trust?

Retirement accounts like IRAs and 401(k)s do not pass through your will or your trust. They are governed by contract law and transfer directly according to your beneficiary designations. That means if your trust says one thing and your beneficiary designation says something different, the beneficiary designation is what must be followed.

This disconnect creates one of the most unexpected and significant gaps in estate planning. Americans hold an estimated $49.1 trillion in retirement assets. Yet many of those accounts are named in ways that conflict with the owner's broader estate plan, sometimes redirecting wealth in ways the owner never intended.

When a surviving spouse inherits retirement accounts outright, for example, those assets can be exposed to long-term care costs, or redirected to a new spouse if the survivor remarries. If a child inherits outright and later passes away, the funds may go to their spouse's family rather than staying within your own family. Once assets are distributed without any structure around them, control is gone.

What Does the SECURE Act Mean for Your Beneficiaries?

The rules around inherited retirement accounts have changed significantly in recent years. Under the SECURE Act of 2019 (Pub. L. No. 116-94) and its follow-up legislation, most non-spouse beneficiaries are now required to withdraw inherited retirement accounts within 10 years of the original owner's death. This is a major shift from older rules that allowed beneficiaries to stretch distributions over a lifetime.

What this means in practice is that your children or other heirs may be forced to take large taxable distributions during their peak earning years, pushing them into higher tax brackets and reducing the overall value of what you leave behind. Many families are still working with estate plans built on outdated assumptions about how inherited retirement accounts are taxed and distributed. If your plan has not been reviewed with these rules in mind, it may not act the way you and your heirs need it to.

Other common mismatches we see between wills and trusts and retirement accounts include: 

• Beneficiary designations that conflict with the instructions in a trust or will
• Retirement assets left to a surviving spouse outright, with no protection from long-term care costs or remarriage
• Children named as direct beneficiaries with no structure to protect against divorce, lawsuits, or poor financial decisions
• Accelerated distributions that push heirs into higher tax brackets than necessary
• Plans that have never been updated after major life events like remarriage, the birth of grandchildren, or a health diagnosis

With the right planning, you can prevent these errors from happening. Attorney Sean Robertson at Gateville Law Firm can help.

How Does the Illinois Estate Tax Make This Even More Complex?

Illinois is one of a small number of states with its own separate estate tax, and its exemption threshold is considerably lower than the federal one. This creates planning decisions that simply do not exist in most other states.

Some strategies used to reduce Illinois estate tax, such as removing assets from your taxable estate, can unintentionally eliminate what is called a "step-up in basis." A step-up in basis can significantly reduce capital gains taxes for your heirs when they eventually sell inherited property. In other words, a strategy that saves estate taxes on the front end can create a much larger income tax problem for your family down the road.

There is no one-size-fits-all answer. The right approach for your family will depend on your net worth, the types of assets you own, your health, your family's financial situation, and your long-term goals. What works well for one family may be the wrong move for another.

This is also why estate planning is not a one-time event. A plan that made sense five years ago may need to be revisited today as your health, your family, and the tax laws all continue to change. At Gateville Law Firm, we offer Family Wealth Preservation Meetings so you can get a thorough analysis of your estate plan, whether it meets your needs, and whether it has any risks that we can help you avoid.

Call a Yorkville, IL Estate Planning Lawyer Today

With more than 20 years of helping Illinois families protect their wealth, our Sandwich, IL wealth and asset protection attorney at Gateville Law Firm understands how to coordinate your retirement accounts with your overall estate plan so nothing falls through the cracks.

We invite you to schedule a Family Wealth Preservation Meeting to take a close look at your current plan and make sure it is built to protect the people you care about most. Call 630-780-1034 today to get started.