We have a payable on death (POD) account that lists beneficiaries as well as designated amounts for each beneficiary to be provided on the accountholder’s death. The accountholder recently died. Is it possible for a POD account to designate specific amounts for each beneficiary? There are insufficient funds in the account to satisfy each of the designated amounts. Should we prorate each beneficiary’s share or split the account evenly among all beneficiaries?

We recommend that you distribute the remaining account funds pro rata to approximate your deceased customer’s instructions as closely as possible. To protect your institution from possible objections by the beneficiaries (who will not be receiving the full amounts of their designated shares), we also recommend that you notify the beneficiaries of the bank’s intent to make pro rata distributions and request their written acceptance of this result.

In general, the Illinois Trust and Payable on Death Accounts Act (“POD Act”) requires POD beneficiaries to take account funds “in equal shares,” but this general rule can be altered by an agreement between a bank and its customer. Additionally, Illinois courts have held generally that the POD Act is intended to carry out the wishes of a POD accountholder. We believe that a pro rata distribution of the POD account would most closely match your customer’s clear intent, which was to distribute the account in unequal shares of specific amounts.

However, because the POD account will not fully cover the specific amounts designated by your customer, it is possible that one of the beneficiaries will object to this distribution of the POD account funds. The POD Act protects depository institutions from such second-guessing or objections 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. Second, if beneficiaries make conflicting claims to POD account funds, the POD Act permits the depository institution 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.” We recommend taking advantage of these protections by requiring written direction from the beneficiaries; if the beneficiaries object or make conflicting claims to the POD account's funds, your bank should further require a court order before making any distributions.

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. . . .”)
Fairfield Nat’l Bank v. Chansler, 368 Ill.Dec. 142, 148 (5th Dist. 2013) (“[T]he few precedents interpreting the Act have found that the policy behind the statutory scheme is to effectuate the intent of the holder.”)
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.”)