Limitations on Using Beneficiary Designations

   One trend that I have noticed in recent years as an estate planner has been for older individuals to name their children (or other intended recipients) as direct beneficiaries on their assets. This is frequently known as a “P.O.D.” or “T.O.D.” designation, and nowadays it can be used to send almost any type of asset to one or more named recipients upon one’s death. It has long been available for bank and investment accounts, and of course tax-deferred accounts and insurance policies nearly always will pass in this manner. For the last dozen years or so, it has been available to pass real estate. 

   However, having worked as both an estate planner and a probate attorney for thirty years, it is my observation that there are many situations for which this is not an appropriate way of passing property. It works well in a situation where there is only one likely beneficiary, or maybe very few, and those beneficiaries will act honorably together in settling a parent’s estate. It also is safest to do when a person anticipates that their remaining life expectancy is limited. For a person in rapidly declining health, naming your sole child, or two children who get along well, can be an effective way of streamlining the transfer of property.

   However, the more recipients there are, the more problematic this process is. Unfortunately, it is my observation that too many investment a ...