IBA Compliance Connection

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We have a payable on death (POD) account with four adult beneficiaries. After the account owner died, but before we could distribute the account funds, one of the beneficiaries died. The surviving beneficiaries are insisting that we split the account balance among them, without paying a portion to the estate of the deceased beneficiary. Is that right? Our account agreement expressly provides that the POD beneficiaries take as tenants in common.

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We believe that the POD account funds should be split four ways among the named beneficiaries who were living when the account owner died, including the deceased beneficiary. The Illinois Trust and Payable on Death Accounts Act (“POD Act”) requires depository institutions to distribute POD account funds to beneficiaries as tenants in common with equal shares.

If a beneficiary predeceases the account owner, the POD account funds are to be equally distributed to the remaining living beneficiaries, rather than to the predeceased beneficiary’s estate or descendants. However, this provision would not apply in here, because the deceased beneficiary did not predecease the account owner.

You may wish to take advantage of the POD Act’s protections against possible objections about the POD account distribution. When 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 (“(c) Upon the death of the last surviving holder of the account, the beneficiary designated to be the owner of the account (i) who is then living . . . 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. . . .”)
  • 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.”)