We have a customer that, to our knowledge, does not have a will. This customer has a CD with five people listed as payable on death (POD) beneficiaries. Among the beneficiaries the are two couples and one individual. Upon their death, this customer would like the proceeds of the CD to be divided into thirds between the two couples and the single person. If one of the members of the couples dies before the customer, the customer would like the surviving member of the couple to receive one third of the proceeds. Is this possible, or would the proceeds have to be divided equally among the remaining beneficiaries when the customer dies?

We believe it is possible for your bank to set up an account with POD beneficiaries as you described, but your bank will have to enter into an amended or new CD account agreement with the customer that makes this intent clear.

In general, the Illinois Trust and Payable on Death Accounts Act (“POD Act”) requires depository institutions to distribute POD account funds to living beneficiaries as tenants in common with equal shares. When a beneficiary predeceases the account owner, the POD account funds are to be equally distributed to the remaining living beneficiaries upon the account owner’s death.

However, the POD Act permits this general rule to be altered by a written agreement between the bank and its customer. In this case, we recommend customizing your CD account agreement to clearly memorialize your customer’s intent respecting the distributions among the POD beneficiaries. Also, your bank may need to follow up with the customer regarding their intent with respect to the individual beneficiary and other potentially unanswered questions — for example, if the individual beneficiary predeceases the other beneficiaries, does your customer wish the account to be distributed in two halves to the two couples?

Provided that your bank clearly memorializes your customer’s intentions in your written account agreement, there should be little risk of objections when it comes time to distribute the POD account among the beneficiaries. In the event that there are any questions or objections, the POD Act protects depository institutions in two ways. First, the POD Act permits banks to refuse to distribute a POD account until all beneficiaries have provided a “written direction” to the bank that accepts the bank’s proposed distributions. Second, if beneficiaries or putative beneficiaries make conflicting claims on a POD account’s funds, the POD Act permits your bank to “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.”

For resources related to our guidance, please see:

Illinois Trust and Payable on Death Accounts Act, 205 ILCS 625/4 (“If one or more persons opening or holding an account sign an agreement with the institution providing that on the death of the last surviving person designated as holder the account shall be paid to or held by one or more designated beneficiaries, the account, and any balance therein which exists from time to time, shall be held as a payment on death account and unless otherwise agreed in writing between the person or persons opening or holding the account and the institution: . . . (c) Upon the death of the last surviving holder of the account, the beneficiary designated to be the owner of the account . . . shall be the sole owner of the account, unless more than one beneficiary is so designated and then living or in existence, in which case those beneficiaries shall hold the account in equal shares as tenants in common with no right of survivorship as between those beneficiaries. If no beneficiary designated as the owner of the account on the death of the last surviving holder is then living or in existence, the proceeds shall vest in the estate of the last surviving holder of the account.”)

Illinois Trust and Payable on Death Accounts Act, 205 ILCS 625/10 (“Upon the death of the last surviving trustee or holder of the account, the institution that maintains the account shall distribute the proceeds to the beneficiary or beneficiaries designated in the agreement controlling the account without further liability. No institution, however, shall be required to distribute the account proceeds until the institution receives (i) legal evidence of death of all trustees or holders of the account, (ii) identification from each beneficiary then living, or business records evidencing the lawful existence and parties authorized to collect on behalf of each beneficiary not a natural person, and (iii) written direction from each beneficiary to close the account and distribute the proceeds in a form acceptable to the institution. If the institution, in its discretion, is unable to identify one or more beneficiaries, or cannot determine the lawful existence of any beneficiary, or cannot determine a party authorized to collect on behalf of any beneficiary, or 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.”)