As with joint tenancies and community property with right of survivorship, property which passes to individual(s) as a result of a designated beneficiary provision (life insurance and retirement assets, generally) is outright, and therefore free of any management by the decedent, and is subject to the beneficiary’s creditors.
Moreover, if the designated beneficiary predeceases the decedent, the assets will likely pass to the decedent’s estate, and be subject to whatever other testamentary dispositions the decedent had in place. This may foil the decedent’s ultimate planning objectives.
Another issue arises where an asset was paid for with community property (like life insurance), but the beneficiary was designated by one spouse, without the knowledge or consent of the other spouse. If the surviving spouse objects to the designation, only the decedent’s community property interest in the asset will pass pursuant to the designation.