One of the most common goals in estate planning is avoiding probate—the court-supervised process of distributing a deceased person’s assets. Probate can be time-consuming, expensive, and public. Fortunately, there are several ways to bypass it, and one of the most widely used methods is through beneficiary designations.

What Are Beneficiary Designations?

Beneficiary designations are instructions you give to financial institutions or government agencies about who should receive a specific asset when you pass away. These are commonly used for:

• Life insurance policies
• Retirement accounts (401(k), IRA)
• Annuities
• Bank and investment accounts
• Automobiles
• Real estate

When properly set up, these designations allow assets to pass directly to the named individuals, avoiding probate entirely.

The Appeal—and the Risk—of Beneficiary Designations

Beneficiary designations are simple and cost-effective. They’re especially useful for smaller estates or when you want to ensure a quick transfer of specific assets. However, they come with significant limitations:

• No centralized control: Each asset passes independently to its named beneficiary. There’s no one overseeing the overall distribution of your estate.
• No protection for beneficiaries: If a beneficiary is a minor, has special needs, or is financially irresponsible, receiving a lump sum outright could be harmful.
• No plan for contingencies: What happens if a beneficiary predeceases you or becomes incapacitated? Many beneficiary forms don’t account for these scenarios.
• No mechanism for paying debts: If all assets pass outside of probate and outside the control of a person in charge of your estate, there may be no funds available to pay final expenses, taxes, or debts, leaving your loved ones in a difficult position.

Why a Living Trust Is Often the Better Option

A revocable living trust offers a more comprehensive and flexible approach to estate planning. Here’s why it’s often the preferred method for avoiding probate:

1. Centralized Asset Management

A trust consolidates your assets under one legal entity. Upon your death, your successor trustee can manage and distribute all assets according to your instructions - without court involvement.

2. Privacy and Efficiency

Unlike probate, which is a public process, trust administration is private. It also tends to be faster and less expensive, especially in states like Michigan, where recent updates to the Estates and Protected Individuals Code (EPIC) have raised thresholds for simplified probate but still leave many estates subject to court oversight [1].

3. Protection for Beneficiaries

A trust allows you to control how and when your beneficiaries receive their inheritance. You can stagger distributions, create protections for minors or individuals with disabilities, and even shield assets from creditors or divorce.

4. Built-In Contingency Planning

Trusts are designed to handle “what if” scenarios. If a beneficiary passes away or becomes incapacitated, your trust can specify alternate plans—something most beneficiary designations don’t accommodate.

5. Debt and Expense Management

Your trustee can use trust assets to pay final expenses, taxes, and debts—ensuring your estate is settled properly and fairly.

When to Use Beneficiary Designations vs. a Trust

Beneficiary designations can still play a role in a well-crafted estate plan. For example, naming your trust as the beneficiary of certain accounts can combine the simplicity of direct transfers with the control and protection of a trust.

However, for most families, especially those with multiple beneficiaries, real estate, or complex financial situations, a living trust provides a more reliable and comprehensive solution.

Start Designing Your Plan Today

At Legacy Law Group, we help families across Ohio and Michigan create estate plans that reflect their values, protect their loved ones, and avoid unnecessary complications. Whether you’re just getting started or need to update an existing plan, our experienced attorneys are here to guide you.

Explore our Estate Planning Checklist or meet our team to learn more about how we can help.