In Illinois, can a trust be named as a beneficiary on a payable on death (POD) account? If so, can a trust be named as a beneficiary on a business account held by an entity other than a sole proprietorship?

Under Illinois law, a trust may be named as a beneficiary on a POD account. However, we do not believe that a business entity (such as a corporation or an LLC) may designate a POD beneficiary of any kind.

The Illinois Trust and Payable on Death Accounts Act (“Act”) allows “one or more persons opening or holding an account” to sign an agreement with a bank “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 Act defines “beneficiary” to include a trust, and accordingly a POD account holder may name a trust as a POD beneficiary.

However, we do not believe that business entities may establish POD accounts. The Act does not define “person” or “holder,” but various provisions of the Act refer to the accountholder as having a lifetime, experiencing death, and having an estate. Consequently, we believe that only individuals or sole proprietorships may establish POD accounts, and not other business entities such as corporations and LLCs. Unlike a sole proprietorship, which has no legal identity separate from the individual who owns it and will terminate when the owner dies, corporations and LLCs can continue to exist when their owners die. As a result, we do not recommend establishing a POD account for a corporation or LLC.

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.”)

Illinois Trust and Payable on Death Accounts Act, 205 ILCS 625/2(c) (“‘Beneficiary’ includes . . . a trust . . . .”)

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.”)

Illinois Trust and Payable on Death Accounts Act, 205 ILCS 625/4(c) (“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 . . .”)

Illinois Trust and Payable on Death Accounts Act, 205 ILCS 625/2(b) (“‘Account’ includes any account, deposit, certificate of deposit, withdrawable capital account or credit union share in any institution.”)

Vernon v. Schuster, 688 N.E.2d 1172, 1176–77 (1997) (“It is well settled that a sole proprietorship has no legal identity separate from that of the individual who owns it. The sole proprietor may do business under a fictitious name if he or she chooses. However, doing business under another name does not create an entity distinct from the person operating the business. . . . ‘There is generally no continuity of existence because on the death of the proprietor, the proprietorship obviously ends.’”)

Golden v. Lim, No. 16-cv-02440, 2018 U.S. Dist. LEXIS 192836, at *7 (N.D. Ill. Nov. 12, 2018) (“There is a long history in the law holding that a corporation is a distinct and separate legal entity from its owner.”)