The Risk of Beneficiary Designations and Paid on Death Accounts

 Posted on March 13, 2025 in Asset Protection & Wealth Preservation

When crafting your estate planning, you should not only consider how you wish your assets to be distributed, but also the ideal way to do so to minimize the burden on your estate and beneficiaries. Many people believe that simply designating beneficiaries on their financial accounts, life insurance policies, and retirement plans is sufficient to transfer their assets smoothly to their heirs. 

However, relying on naming beneficiary designations creates significant probate risks, including unintended consequences, probate complications, and a lack of asset protection. A properly structured living trust can provide a comprehensive estate planning solution to mitigate probate risks. An experienced Plainfield, IL estate planning attorney can advise you on your estate planning options, such as a living trust or other estate planning instruments.

Why Relying on Beneficiary Designations is a Mistake

Beneficiary designations are a valid estate planning tool; however, beneficiary designations contain significant legal risks.

Unintended Consequences and Failure of Coordination

Beneficiary designations override the instructions in a will or trust, which can result in litigation and conflicts. Failing to update beneficiary designations after a life event such as a marriage, divorce, death, or birth of a child can result in unintended consequences. Most people underestimate the risks of failing to update beneficiary designations.

Probate Consequences

Failed probate designations often result in unexpected probate proceedings. Probate court often results in conflict, significant legal fees, family disputes. For example, an unforeseen event such as a death of a spouse or a child can result in probate issues, which must be resolved by courts and attorneys.

Lawsuit and Liability Vulnerabilities

A beneficiary that has outstanding debts can result in one’s inheritance being seized by a beneficiary’s creditors. A beneficiary going through a divorce may result in additional complicated legal proceedings, which increase legal fees and divorce and child custody complications for your beneficiary.

Incapacity Concerns and Nursing Home Situations

Minor children cannot legally inherit in Illinois while they are under the age of 18 years of age. Furthermore, minors or children with special needs receiving an inheritance may become ineligible for government programs, leaving them in a vulnerable position. If a beneficiary has an incapacity or relies on government assistance to pay for a residential care facility, an inheritance may result in unintended consequences.

Call a Plainfield, IL Estate Planning Attorney

At Gateville Law Firm, we help clients build and preserve our clients’ assets with careful estate planning. During your complimentary consultation, we will speak with you about your estate planning goals and offer ideas for crafting the ideal estate plan that preserves your assets and protects your interests. Our experienced Aurora, IL estate planning attorneys are here for all your estate planning needs and can be reached at 630-780-1034.