Beneficiary designations only apply to certain types of property: life insurance, IRA accounts, retirement plans, 401k plans, Keogh plans, POD (Pay-On-Death) and TOD (Transfer-On-Death) accounts, or a Beneficiary Deed for real property. The title to the property remains in your name, and you designate a beneficiary to receive the property at your death. For example, such an account may be titled, “Jack Doe, pay on death to Jill Doe”.

Advantages:

• Usually no lawyers are necessary to set up this method.
• Asset transfers instantly and automatically at death and do not pass under a Will.
• No probate court proceeding is necessary at death.
• It is simple to understand and set up.
• It is an inexpensive planning tool.

Disadvantages:

• Beneficiary designations do not apply to all property types.
• It is an item-by-item plan. The title to each applicable type of asset must be placed in this form and a beneficiary named. Every time you change your mind you must change the beneficiary designations on all of the assets involved
• It can be a challenge to treat all children equally.
• Because it is so simple and easy, it has the potential for misuse.
• If all assets are titled in this fashion, there is no fund from which to pay last expenses. Each of the beneficiaries must contribute back to some common fund for the payment of bills and the funeral.
• It can have disastrous Federal Estate Tax consequences in some estates.
• It carries with it no protection for minors. The minor cannot legally deal with it, and it may require that a conservator be appointed to deal on behalf of the minor.
• Your intended recipients may get left out if a beneficiary dies before you do. It will leave out your grandkids from that child and leave it all to the surviving beneficiaries.
• Special beneficiary designations, such as IRA account beneficiaries, can be difficult to correctly set up.