The Dangers of Using Beneficiary Designations and/or Not Having an Estate Plan in Place

Beneficiary designations, such as Payable on Death (PODs) and Transfer on Death (TODs) may sound like a great idea and are often used to avoid probate.

If you have a life insurance policy or an IRA, you most likely designated someone as a beneficiary, such as your spouse, your children, your grandchildren, or a friend or family member.

Upon your death, these assets will “legally transfer” to the beneficiary without the need for probate. So, beneficiary designations seem to be a simple and easy way to transfer assets to your loved ones and avoid probate.

This is true if everyone dies in the right order and your beneficiary’s life is going smoothly without any issues.

However, the use of beneficiary designations can lead to unwanted consequences which should be carefully considered.

The top three (3) dangers associated with the use of beneficiary

Danger No. 1 – Major life changes

Major life changes for your beneficiary, such as death, divorce, marriage, bankruptcy, litigation, lack of capacity, disability, and having children and/or death of a child may impact who you name as the beneficiary on your asset.

As life changes, you have to remain vigilant to monitor who you have named on each asset and will need to update your beneficiary designation each time a named beneficiary has a major life change or change in circumstances to avoid transfers to an unintended beneficiary or possibly have your asset end up in probate.

Danger No. 2 – Naming a minor as a beneficiary

If you have minor children or grandchildren (under the age of 18), you may have named them as the beneficiary on your assets, such as your life insurance policy, your bank accounts, vehicles, IRAs, ROTHS, your home, etc.

Most people do not realize that a transfer to a minor can lead to some unexpected and costly problems.

A minor, much like an individual who lacks capacity, legally cannot manage assets, therefore, if you have named a minor as a beneficiary on your asset and you pass, a court will have to appoint a conservator, which is very costly and involves unwanted time and expense dealing with a lawyer and a court of law.

Further, there is the fear that the court may not appoint the person that you would have chosen to manage assets for your minor loved one.

In addition, if a POD or TOD designation names a minor, once that child turns 18, they legally own the asset and have full access to it. Unfortunately, not all 18-year-olds make sound financial decisions, so giving your house, your car, or a large sum of money outright to a young adult may result in that money not being used in the way you would want. You have absolutely no control over how that beneficiary uses your asset.

Danger No. 3 – The Unforeseen

Even if you name an adult as a beneficiary on your asset, several things can go wrong.

a. If the beneficiary is in bankruptcy, they may lose all of their inheritance from you;

b. If the beneficiary is in a car accident or has a legal judgment against them, they may lose all of their inheritance from you;

c. If they lack capacity, they cannot legally manage inherited assets, and court involvement may be necessary to appoint a conservator to manage your assets; and

d. If your beneficiary is going through a divorce, he/she could lose some or all of their inheritance to an ex-spouse.

Because there are so many things that can potentially go wrong with beneficiary designations, they definitely are not the best choice to transfer your assets to your loved ones upon your death.

What happens if you die without an estate plan:

Most people do not know that if you die without an estate plan, the State of Missouri has an estate plan in place for you. The danger of this is that your assets may not go to the loved ones that you want.

Assets without beneficiary designations, titled solely in your name, will go through probate, and be distributed pursuant to Missouri law (your heirs-atlaw/extended family).

This may result in your assets being given to family members that you do not like or have not spoken to in years.

Without a well-drafted estate plan, your assets will be distributed outright with no protection, as discussed, making it burdensome, time-consuming, and very costly for those that you love the most.

At Estate Planning Concierge, we offer FREE initial consultations and are more than happy to have a conversation with you about your wishes and estate planning goals.

Feel free to contact us via telephone or text at (314) 626-4500 or contact us via email at

We look forward to hearing from you!