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Beneficiary and Transfer-on-Death Designations: Are You Doing It Right?

Do you know which of your accounts have beneficiary designations, sometimes called transfer-on-death (TOD) or payable-on-death (POD) designations? Have you reviewed your choices or updated them recently? Are you aware of what can go wrong if there are issues with your beneficiary designation forms?

If you answered “no” to any of these questions, it may be time to review your beneficiary, TOD, and POD designations and confirm that everything is accurate, complete, and current.

Accounts and property with beneficiary, TOD, or POD designations take precedence over your will or trust, so keeping forms updated is crucial to ensuring that your accounts and property go quickly and seamlessly to the right people.

If you would like to review your plans, your designations, and gifting strategy contact Gielow Groom Terpstra & McEvoy Attorney Chuck Murray today. He will discuss options and help you determine what is best for your gifting strategy, with an eye towards simplified administration of your estate.

Where to Find TOD, POD, and Beneficiary Designations

Beneficiary, TOD, and POD designations are made using legal forms that specify who will receive the asset (e.g., accounts, property, death benefits, etc.) at the original owner’s death.

Such designations allow you to pass assets directly to your beneficiaries and avoid probate of those assets. Avoiding probate can reduce estate costs, ultimately leaving more money to benefit your family and loved ones, and result in faster distribution to beneficiaries, and, in certain situations, allow the beneficiary to stretch tax impact over multiple years. Common asset types where beneficiary designations come into play include the following:

• retirement accounts—401(k)s, individual retirement accounts, and other retirement plans;
• investment accounts—Brokerage accounts, stocks, bonds, and mutual funds;
• bank accounts*—Checking accounts, savings accounts, and certificates of deposit;
• life insurance policies—All types of life insurance policies, including whole, term, and group; and
• real estate—TOD deeds and similar alternatives (available in Michigan and some other states).

For most Americans, their home and financial accounts are the primary source of their wealth, making them central in an estate plan^[1] and making it even more important that beneficiary designations for these assets reflect your current wishes.

However, these beneficiary decisions should be part of a comprehensive estate plan, devised with your attorney and financial advisor.

*GGTM Attorney Chuck Murray recommends leaving at least one bank account, funded to certain levels, within the probate estate or the trust to allow your administrator access to liquid funds to pay initial administration costs. This simple planning helps reduce, or avoid, the potential burden of a family member needing to fund the start of the administration process personally and then be repaid in the future form the estate.

What Can Go Wrong with an Incomplete, Inaccurate, or Outdated Beneficiary Form?

According to financial advisors, and Attorney Chuck Murray’s experience in assisting with estate administration, beneficiary form errors are among the most common—and the costliest—estate planning mistakes that people make.^[2] These errors fall into a few main buckets:

• Failure to name a beneficiary. Many people simply forget to complete beneficiary designation forms or put themoff indefinitely. This situation is especially common for inherited accounts.
• Outdated information. Major life events such as marriage, divorce, the birth of a child, or the death of a beneficiary necessitate updating designations.
• Inaccurate or missing information. Mistakes in spelling, addresses, or other identifying information or failure to provide complete information can cause delays, confusion, or even disputes when processing beneficiary designations.
• Naming a minor as beneficiary. Technically, minors can be named as beneficiaries, but they cannot legally receive or manage money and property above a certain If they are named as beneficiaries, a court may need to appoint a guardian to oversee the funds for them until they reach the age of majority (18 years of age in Michigan, subject to Michigan’s Uniform Transfers to Minors Act).
• Overlooking complex circumstances. A beneficiary may be unable to manage their inheritance because of a disability, special needs, poor money habits, mental health issues, or substance use disorder.
• Not naming contingent beneficiaries. If the primary beneficiary dies before the account holder or cannot be located and no contingent (backup) beneficiary has been named, it will be treated as if no beneficiary had been named.
• Lost or invalid forms. Unfortunately, financial institutions sometimes misplace beneficiary designation forms or fail to process them correctly. Also, if a financial institution or employer changes the plan’s service provider or administrator, the original beneficiary designation may no longer apply, meaning that a new beneficiary designation form needs to be completed under the new provider.

Remember these beneficiary designations are actually contracts, and therefore the plan administrator will follow the direction in the file. The probate or trust process is often helpless to change them without a good cause and solid evidence to prove error by the administrator or some other factor that should nullify the designation – and those challenges are costly and time consuming.

In addition to the unintended distribution of accounts, property, or death benefits and related disputes, an invalid, missing, or outdated beneficiary designation can result in the assets requiring probate administration, possibly causing payout delays and raising estate administration costs. Also, most things that go through probate may be subject to claims from creditors, potentially reducing the amount distributed to beneficiaries.

To emphasize how disastrous beneficiary form errors can be to an estate plan, here are some examples of how they could play out in the real world:

• Divorce dilemma. John and Mary were married for 20 years. John had a 401(k) from his employer, with Mary listed as the sole beneficiary. They divorced, and John remarried. John passed away unexpectedly, and despite his wishes for his current wife to inherit his retirement funds, the plan administrator, bound by the beneficiary designation, paid the entire sum to his ex-wife. Michigan does not apply revocation-upon-divorce to many investment accounts, such as 401(k)s and IRAs. Therefore, failing to address those designations in the event of divorce could result in a former spouse receiving your benefits.
• Forgotten children. Sarah had a life insurance policy from her early 20s naming her parents as beneficiaries. She later had two children but never updated the policy. Upon Sarah’s death, the life insurance proceeds went to her parents.
• Probate purgatory. Robert had a brokerage account but never designated a beneficiary. When he died, the account became part of his probate estate, resulting in a lengthy and expensive legal process that delayed the distribution of his money and property to his heirs. Because the assets were tied up in probate, creditors also had easier access to those funds.
• Incapacitated beneficiary. A woman named her adult son as her sole beneficiary on her life insurance policy. Years later, her son was in a severe car accident and became mentally incapacitated. When the woman passed, there was no clear plan for how the life insurance funds should be managed for her incapacitated son, and if he was receiving needs-based benefits, those benefits could be jeopardized by his receiving the funds.

Schedule an Estate Plan Review

A recent survey found that nearly one-fourth of Americans have not revised their estate plan since creating it. Many have also not updated it within the past 10 to 15 years.^[3]

The recommended timeline for reviewing beneficiary designations is the same as for the rest of your estate plan—at least every few years or after any significant life event. GGTM sends reminder letters to our estate planning clients approximately 3 years after the last interaction. GGTM believes it is important for our clients to at least look at the plan and see if it remains appropriate to your strategy. During the review process, you and your attorney can dig into details such as the following:

• Are these beneficiaries still the people you want to receive your accounts?
• Are the beneficiaries still living?
• Are they capable of managing the inheritance?
• Is there more than one beneficiary named, and if so, how hard is it to divide the account or property, and what is the potential for conflict between/among the beneficiaries?
• Have you informed the beneficiaries that they are named? Do they know how to claim their inheritance?
• Are you fine with them receiving an outright distribution, or are safeguards needed?

When reviewing beneficiary designations, get current confirmation directly from the financial institutions to verify whom they have on record. Do not just rely on the forms you originally filled out to ensure your designations were properly processed.

Even if everything looks good after a review, for added protection and control over the inheritance in complex circumstances, you may want to name a trust as the beneficiary and allow a trustee to manage the inheritance on your loved ones’ behalf. This is a consideration, and has some costs, but the benefits of naming a trust may provide you, and your loved ones, a better outcome than just an outright gift. You can also name a charity as a beneficiary.

Avoid letting a simple clerical error derail your estate plan. Contact Attorney Chuck Murray and schedule an estate plan review to double-check that every “i” is dotted, every “t” is crossed, and every form accurately expresses your intentions.

^[1] Rakesh Kochhar and Mohamad Moslimani, 4. The assets households own and the debts they carry, Pew Rsch. Ctr. (Dec. 4, 2023), https://www.pewresearch.org/2023/12/04/the-assets-households-own-and-the-debts-they-carry.

^[2] Mark Henricks, Out-of-date beneficiary designations are a common and costly mistake, CNBC (Apr. 17, 2018), https://www.cnbc.com/2018/04/16/out-of-date-beneficiary-designations-are-a-common-and-costly-mistake.html.

^[3] Victoria Lurie, 2025 Wills and Estate Planning Study, Caring (Feb. 18, 2025), https://www.caring.com/caregivers/estate-planning/wills-survey.

GGTM Law

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