• Bryan D. Eisenbise, Esq.

Do I Need a Trust if I have Transfer-On-Death Accounts / Beneficiary Designations?

A question that comes up often is whether simply naming a beneficiary on an account is sufficient in lieu of transferring the account into one's living trust.


Just a quick note: a transfer on death (TOD) account is an account where the account holder can name a beneficiary to which the account will pass upon death (much like death benefit from life insurance policy). This is a relatively recent feature and have caused many to consider it as a viable estate planning strategy.


To consider this option, one must note the multiple objectives of a living trust and estate planning generally. The most common (and most discussed) objective is to avoid the costs and delays of probate. If we look at probate avoidance as the sole objective, then there would not be much difference between naming a beneficiary on account and transfer the account into a trust has both would adequately accomplish this. in fact, it would be simpler and less expensive to simply name a beneficiary on the account.


However, there are other objectives of estate planning and benefits to creating a living trust which make the trust option almost always more preferable than simply naming a beneficiary on the account. Consider the following:

  • A transfer-on-death designation does not provide any structure for distribution to the beneficiary. In other words, such an account is forced upon the beneficiary regardless of whether they are too young, not mature enough, or in some other situation where delaying the distribution would be preferable. A trust can not only structure distribution, but also allow the trustee to exercise some discretion, thus allowing some flexibility.

  • By extension to the point above, a living trust can provide a certain measure of asset protection for the beneficiary. For example, a trust can include language which prohibits and delays distribution if there is a chance that the distribution would be lost in a bankruptcy, lawsuit, or divorce of the beneficiary.

  • Last, there is an emotional component. The general rule of thumb is that all possible assets should be transferred into a trust; there is merit in this uniformity. With the exception of qualified retirement accounts, all accounts allow transfer of ownership into a trust, but not all have transfer-on-death designations.

Truth be told, lack of any planning can very likely result in probate. So, naming a beneficiary on an account is a huge step in the right direction. However, if one wants to properly plan their estate they should not rely on TOD designations but rather utilize a living trust.