Pitfalls of Naming Your Estate As A Beneficiary

Naming your Estate as a beneficiary—whether for life insurance policies, retirement accounts (like IRAs and 401(k)s), or other payable-on-death (POD) assets—can create several potential issues:

Probate

Delays Assets passing directly to a named individual or Trust avoid probate. But assets payable to your Estate must go through probate. That change extends the time required for Estate administration from a few months to the better part of a year.

Creditor Exposure

Estates requiring probate must publish a notice in a local newspaper to interested parties. That heightens the risk that creditors may come out of the woodwork to demand their piece of the pie. In contrast, assets passing directly to beneficiaries or into a Trust generally bypass this risk.

Loss of Control Over Distribution

If minor children or financially irresponsible beneficiaries inherit from a probated Estate, they generally take outright ownership of the funds. This may undermine your intent to hold money back for their benefit.

Increased Costs

The Probate process tacks on additional requirements for both attorneys and the courts. This increased workload generates additional fees that reduce the Estate’s value before distributing out to beneficiaries.

Loss of Tax Benefits

Retirement accounts inherited by individuals through beneficiary designation or a Trust can benefit from several years of additional tax-deferred growth. but if paid to the Estate, they may need to be distributed faster, increasing the tax burden.

Better Alternatives

• Name individual beneficiaries (e.g., spouse, children, or Trusted family members).
• Use a Trust to provide structure, creditor protection, and controlled distributions.
• Review beneficiary designations regularly to reflect life changes.

The Estate Planning Team at Burnett Legal Group, LLP is here to help you create or review your estate plan, making sure every detail aligns with your wishes. We will provide clear guidance on proper beneficiary designations so your assets are protected and distributed just as you intend. Reach out to us today