A customer requested a change of beneficiary for a payable on death (POD) account, and we mailed them a change in beneficiary form. Before we received the completed form, the customer died. A day later, we received in the mail the customer’s completed form designating a new beneficiary for the account. Who is the rightful beneficiary, the one in our system or the one on the form?

Whether you have the authority to accept the change in beneficiary form depends on whether your bank knew of the POD account holder’s death before receiving the form. Also, if different beneficiaries are making conflicting claims to a POD account, your bank may wish to take advantage of an Illinois law that authorizes you to refuse to distribute the POD account proceeds until you receive a court’s determination as to the account’s ownership.

The Illinois Trust and Payable on Death Accounts Act allows a POD account owner to change the designated beneficiaries “during his or her lifetime . . . by a written instrument accepted by the institution.” This language appears to require a bank to accept a change in beneficiary form before the account owner’s death, which did not occur in this situation. However, an Illinois appellate court case dealing with similar facts held that banks have the authority to accept change in beneficiary forms for POD accounts if the forms are received before the bank knows of the account owner’s death.

In that case, a POD account owner mailed forms to change the beneficiaries for her POD accounts two days before dying. The bank received the change in beneficiary forms one day after the POD account owner’s death. The court reviewed the history of POD accounts in Illinois and the Illinois Uniform Commercial Code (UCC), which preserves a banks’ authority to pay checks and take related actions until the bank knows of a customer’s death. The court held that the UCC rule also applies to change in beneficiary forms for POD accounts and that the bank “had the authority to accept” a change in beneficiary form presented by a deceased account holder “before knowing the fact of her death.”

Also, the Illinois Trust and Payable on Death Accounts Act provides that when there are conflicting claims to a POD account, a financial institution “may refuse to distribute the proceeds, without liability to any beneficiary or other party,” until a court determines who is the correct POD account beneficiary. If your bank has received conflicting claims for the POD account, your institution may wish to hold the account funds without distributing them until you receive the court’s determination as to the POD account’s ownership.

For resources related to our guidance, please see:

Illinois Trust and Payable on Death Accounts Act, 205 ILCS 625/4(a) (“Any holder during his or her lifetime may change any of the designated beneficiaries to own the account at the death of the last surviving holder without the knowledge or consent of any other holder or the designated beneficiaries by a written instrument accepted by the institution.”)

Fairfield Nat’l Bank v. Chansler, 2013 IL App (5th) 110530, *40–41 (Ill. App. Ct. 2013) (“In the end, the facial ambiguity of the Act arises from the legislature’s use of time-based terms ‘during his or her lifetime’ and ‘accepted’ for reasons other than establishing a bright-line test for the time beneficiaries may be changed. This does not mean that the legislature did not contemplate financial institutions being faced with documents submitted after the death of their clients. The legislature addressed such dilemmas by enacting the Uniform Commercial Code—Bank Deposits and Collections. The Uniform Commercial Code instructs financial institutions, such as the interpleader, of their authority and responsibility in situations where the holder of an account dies after forwarding otherwise acceptable documents. . . . This provision of the Uniform Commercial Code specifically addresses the situation at hand and informs the authority of the interpleader. The interpleader had the authority to accept the items presented by Malinda before knowing the fact of her death.”)

Illinois UCC, 810 ILCS 5/4-405(a) (“A payor or collecting bank’s authority to accept, pay, or collect an item or to account for proceeds of its collection, if otherwise effective, is not rendered ineffective by incompetence of a customer of either bank existing at the time the item is issued or its collection is undertaken if the bank does not know of an adjudication of incompetence. Neither death nor incompetence of a customer revokes the authority to accept, pay, collect, or account until the bank knows of the fact of death or of an adjudication of incompetence and has reasonable opportunity to act on it.”)

Illinois Trust and Payable on Death Accounts Act, 205 ILCS 625/10 (“If . . . . conflicting claims to the account are made by the beneficiaries or other interested parties, then the institution may refuse to distribute the proceeds, without liability to any beneficiary or other party, until the institution receives a determination of ownership by a court of appropriate jurisdiction.”)