Why You Should Think Twice Before Naming a Beneficiary on Your Bank Account

It’s common for people to name a loved one—often a child, sibling, or close friend—as a payable-on-death (POD) or transfer-on-death (TOD) beneficiary on their bank account. It seems simple and convenient: when you pass away, the funds go directly to that person without going through probate.

But what seems like a straightforward solution can actually create serious legal, financial, and family problems down the road.

Here’s why naming a beneficiary on your bank account may not be the best move and what to consider instead.

1. It Overrides Your Estate Plan

One of the biggest risks of naming a beneficiary directly on a bank account is that it bypasses your will or trust. Even if your estate plan divides your assets evenly among your children, a beneficiary designation on your bank account could funnel everything to just one person.

This can lead to:

• • Unintended favoritism
  • Family conflict or resentment
  • Legal disputes over what you “really intended”

In other words, that quick bank form can completely derail your carefully crafted estate plan and cause serious issues that your estate plan was set up to prevent.

2. There’s No Legal Obligation to Share the Money

Let’s say you name one child as the beneficiary of your account, expecting they’ll “do the right thing” and share it with their siblings. Unfortunately, the law doesn’t require them to.

Once the money is transferred, it legally belongs to them. If they choose to keep it—or if they have creditors, a divorce, or financial issues—it’s gone.

Even if your child wants to distribute the money fairly, doing so could trigger gift tax consequences or other legal issues that could place burden on your child.

3. It Can Create Estate Inequity

Often, people name a POD beneficiary just for convenience, thinking, “They’ll split it up fairly.” But unequal distributions can accidentally occur, especially if:

• • Other assets have different beneficiaries
  • Joint accounts pass to one person automatically
  • The account was never updated after a divorce or life change

Without coordination across all your assets, your estate can end up heavily skewed in favor of one person—intentionally or not.

4. It Doesn’t Provide Any Asset Protection

Naming a beneficiary offers zero protection for those funds once transferred. If that person:

• • Has creditors
  • Goes through a divorce
  • Files for bankruptcy
  • Or simply makes poor financial decisions

The money you saved and intended to go to your loved ones could be gone in a flash to pay creditors or others who don’t have your loved ones’ best interest in mind.

A trust, on the other hand, can protect and manage the funds over time—with built-in safeguards to protect your beneficiaries and your assets.

5. It Can Disrupt Medicaid or Public Benefits Planning

If a beneficiary is receiving government assistance—such as Medicaid or disability benefits—an inheritance via a POD account could disqualify them from the support they rely on.

This kind of unplanned inheritance may do more harm than good. A properly drafted special needs trust or discretionary trust would avoid that problem.

6. There Are Better Alternatives: Consider a Trust Instead

If your goal is to:

• • Avoid probate
  • Ensure fair distribution of your assets
  • Protect your loved ones from legal and financial trouble

Then a revocable living trust is a much better option.

With a trust, you maintain control during your lifetime, and after your death, assets can be distributed privately, efficiently, and exactly how you’ve planned—with no guesswork or surprises.

Final Thoughts

Designating someone as a beneficiary on a bank account might seem quick and easy—but it can cause long-term problems that far outweigh the convenience. Your estate plan should reflect your full intentions—not just what’s easiest in the moment.

If you want to avoid probate, protect your family, and ensure your legacy is handled the right way, it’s time to think bigger than a bank form.