Living Trust vs. Beneficiary Designations: Why Just Using POD or Beneficiary Forms Can Be a Huge (and Expensive) Mistake

Ashly Guernaccini
3 hours ago
4 min read

One of the questions we're asked almost every week by new clients is:

“Do I really need a living trust, or is it fine to just put my kids (or whoever) as beneficiaries/POD on my bank and retirement accounts?”

It sounds like a simple shortcut. After all, both methods avoid probate. But in practice, relying only on beneficiary designations (also called TOD for stocks or POD for bank accounts) is one of the most common and costly estate-planning mistakes I see.

Here’s the plain-English breakdown of why a revocable living trust is usually the far safer choice — even if you already have beneficiary forms filled out.

Quick Refresher: What Each One Actually Does

Beneficiary Designation / POD / TOD You fill out a form with your bank, brokerage, or retirement plan provider saying “When I die, pay this account directly to these people.” It bypasses probate — great! — but that’s where the simplicity ends.
Revocable Living Trust You create a trust while you’re alive, transfer your assets into the trust (house, bank accounts, brokerage, etc.), and name who gets everything after you pass. When you die, the successor trustee you named simply distributes everything according to your instructions — no probate, no court, no delays.

Both avoid probate. So why do I almost always recommend the trust?

7 Big Problems with Relying Only on Beneficiary Designations

Many institutions won’t let you name contingent (backup) beneficiaries If your primary beneficiary dies before you and you never updated the form, the account falls back into your probate estate. Suddenly the whole “avoid probate” plan fails.
You often can’t split an account by percentage or among many people Some banks limit you to one or two beneficiaries and only in equal shares. Want to leave 50% to your daughter, 25% to each of two grandchildren, and 10% to charity? Good luck on most POD bank accounts.
Minors cannot inherit directly — it triggers an expensive court guardianship If any beneficiary is under 18 (or sometimes 21), the financial institution will not hand over the money. The family has to go to court to appoint a guardian of the property, set up restricted accounts, file annual accountings, and pay ongoing legal fees until the child turns 18. I’ve seen families spend $10,000+ in legal fees just because a grandparent named a 5-year-old grandchild on a $100,000 CD.
Special needs beneficiaries can lose government benefits (Medicaid, SSI, etc.) An outright inheritance counts as an asset and can disqualify them from critical benefits for years — sometimes permanently. A properly drafted trust can receive the money without destroying their eligibility.
No control after you’re gone With a beneficiary designation, the money is 100% theirs the moment you die. Want your 22-year-old to get it in stages (⅓ at 25, ⅓ at 30, balance at 35)? Can’t do it with a POD form. A trust lets you set any conditions you want.
Every single financial institution has different rules — and the employees often get it wrong I can’t count how many times a surviving spouse or child has come to me with a death certificate and the bank still demands full probate because “that’s our policy.” A trust sidesteps all of that nonsense.
Real estate and non-retirement assets usually can’t use beneficiary designations anyway You can’t put a TOD on your house in most states (Florida is an exception with Lady Bird deeds, but that’s another topic). Cars, personal property, and non-retirement investment accounts almost always require probate unless they’re in a trust.

So When Are Beneficiary Designations Actually Fine?

They’re perfectly acceptable (and even preferred) in these situations:

Retirement accounts (401(k), IRA, 403(b)) — the IRS has its own rules anyway
Life insurance and annuities
Small bank accounts where you’re 100% sure the named adult beneficiaries will outlive you and nothing else is needed

But using them as your entire estate plan is like building a house with no roof and hoping it never rains.

The Bottom Line

If your estate is more than a couple of retirement accounts and a modest bank balance — or if you have minor children, a special-needs family member, blended-family issues, or simply want control and protection — a revocable living trust is almost always the smarter, safer, and ultimately less expensive choice in the long run.

The few thousand dollars you spend setting up a trust today can easily save your family tens of thousands (and years of headaches) tomorrow.

Need Help Deciding What’s Right for Your Family?

If you’re in Florida and want a straightforward, no-pressure conversation about whether a living trust makes sense for you, feel free to reach out. We’re atCause Law Office — the non-stuffy attorneys who actually answer the phone.

You’ve worked hard for what you have. Make sure it goes exactly where you want, when you want, with the fewest headaches possible. Schedule a Free consultation with us to get you setup with the right legal service for you.