Naming a beneficiary using a beneficiary form provided by or accepted by the IRA custodian is very important. Why? What's written on the beneficiary designation form, not contained within the investor's will, determines who inherits the IRA. In other words, IRAs do not pass through probate.

By law, qualified plans, such as a 401(k)s, require the participant's spouse to be the designated 100% beneficiary. In order for a married 401(k) plan participant to name any other person as beneficiary, the spouse must waive his or her rights as beneficiary in writing, and most plans require that any spousal waiver be witnessed by a notary public. In addition, a new beneficiary must be named.

One type of frequently used trust is called a "see-through" trust. It creates a mechanism for the deceased to control account withdrawals, post-death. In addition, a see-through trust allows the underlying beneficiary to "stretch" distributions over their life expectancy. Prior to naming a trust as a beneficiary, an investor needs to be aware of the complex rules that govern trust beneficiaries.