Imagine this: a dad, age 69, with two grown children. One relies on government benefits with strict income and asset limits. The other has battled substance abuse and would probably blow a large check.
So Dad does what any careful parent would. He pays an attorney to set up a revocable living trust, with a separate protected share for each child.
Then life goes on. Dad turns 70... 78... 80. Somewhere in there he opens a new bank account and buys an annuity. Both ask who gets the money when he dies, and he writes in his kids' names.
When he dies, that money skips the trust and lands in his kids' hands, no strings attached. Every protection he paid for is gone like the wind.
That scenario comes from elder law attorney Patrick M. Simasko, writing for Kiplinger on Oct. 24. It isn't a new law. It's a mistake estate lawyers see all the time.
Gary P Guthrie
The Form Beats the Document
Here's what surprises people. Many of your biggest assets never pass through your will or trust at all.
IRAs, 401(k)s, life insurance, annuities, and accounts with a "payable on death" or "transfer on death" instruction go straight to whoever is named on the form. The company holding the account follows its own paperwork, not your estate plan.
"The beneficiary form is a contract. The trust is a set of instructions. The contract pays first, and it never reads the instructions," says Dolina Lascaze, founding attorney at Lascaze Law, a Florida estate planning firm.
Courts generally side with the form. In 2009, the U.S. Supreme Court unanimously upheld a retirement plan paying roughly $400,000 to a man's ex-wife, even though she had signed away her claim in their divorce. His mistake? He never updated the form.
So avoiding probate, the reason most of us fill out these forms, can backfire. Skipping probate is a fine goal. Skipping your own trust usually isn't.
Why It Matters More for Some Families
For many families, naming the kids directly works fine. Trouble starts when an heir can't safely receive money outright: someone on means-tested benefits, someone who struggles with addiction or money, or someone mid-divorce.
Benefits are where the stakes run highest. Supplemental Security Income (SSI) allows just $2,000 in countable resources for an individual, a limit unchanged since 1989. An inheritance counts as income the month it arrives, and whatever's left counts as a resource after that.
Say a $50,000 annuity payout goes to an adult child on SSI. That can stop the monthly check, and often the Medicaid that comes with it, until the money is spent down.
And the obvious escape hatch doesn't work. Lascaze notes that if the child simply refuses the inheritance, Social Security can treat it as giving away a resource, with its own penalty of up to 36 months.
A properly drafted special needs trust prevents all of that. But it only works if the money is pointed at it.
"Just Name the Trust" Isn't an Automatic Fix
Before you rush off to your bank, a little caution. Retirement accounts come with federal payout rules, and a trust generally has to be drafted a specific way, called a "see-through" trust, to avoid faster payouts and bigger tax bills. Workplace plans add a wrinkle: a spouse is usually first in line unless they sign a notarized waiver.
There's more flexibility than people realize, too. A single form can split an account, part to one child outright and part to a trust for another, Lascaze says. And since Jan. 1, 2026, ABLE accounts, which shelter up to $100,000 from the SSI limit, are open to people whose disability began before age 46, up from 26.
The right move depends on the account, the heir, your state and your taxes. That's a conversation for an estate attorney, not a bank teller.
What You Can Do This Week
You don't need a lawyer for the homework. List every account with a beneficiary or POD/TOD instruction, then ask each company for a copy of what's actually on file, not what you remember signing. Watch especially for accounts opened after your trust was signed, or set up during a rollover or job change.
Then bring the stack to the attorney who drafted your plan.
"Anyone who is updating their estate plan should check and see if they need to update their beneficiary designation forms," says John Scheerer, a trusts and estates litigator at Sacks, Glazier, Franklin, Lodise, McMurtrey & Scheerer.
Repeat after any marriage, divorce, death, birth or new account. Our free downloadable checklist walks you through it.
Your trust may be beautifully written. Just make sure your paperwork lets it do its job.
