We have a new forms provider that told us it does not support per stirpes designations for payable on death (POD) accounts in Illinois. However, it offered this position could change if we can provide a legal citation indicating that such designations should be supported in Illinois. Does Illinois recognize per stirpes designations for POD accounts?

Yes, we believe that per stirpes designations for POD accounts are recognized in Illinois — provided the account agreements clearly indicate that the account funds will be distributed “per stirpes” or by “right of representation.”

Illinois courts have held that “[t]he words per stirpes denote a taking by right of representation of that which an ancestor would take if living.” In other words, if a customer intends for their POD account to be distributed per stirpes and one of their beneficiaries predeceases them, that beneficiary’s shares would be distributed among their descendants, rather than among the living beneficiaries.

Generally, 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 when the account owner dies, rather than to the predeceased beneficiary’s estate or descendants. However, the POD Act permits this general rule to be altered by a written agreement between the bank and its customer. Consequently, we believe an account agreement may be customized to reflect a customer’s intent to distribute their account funds per stirpes at the time of their death.

Also, banks in Illinois can mitigate the potential risks of disputed claims related to allowing per stirpes designations on POD accounts by requiring written directions from all living beneficiaries accepting their distributions, and, if there are objections or conflicting claims on the proposed distributions, by also requiring a court order for the distributions from that account.

For resources related to our guidance, please see:

In re Estate of Agin, 57 N.E.3d 675, 683 (1st Dist. 2016) (“‘Per stirpes’ is a term used to specify the method of distribution of property. ‘The words per stirpes denote a taking by right of representation of that which an ancestor would take if living.’”) (internal citations omitted)

Mercantile Trust & Savings Bank v. Rogers, 5 Ill. App.2d 162, 169 (3rd Dist. 1955) (“The distinction between inheritance ‘per stirpes’ and inheritance ‘per capita’ has been decided and enunciated so many times there can be very little question as to the meaning. ‘Per stirpes’ means by representation. A devise to the heirs of testator's children ‘per stirpes’ meant that heirs of the children should take by right of representation through their respective parents and not as individuals. Ordinarily the words ‘per stirpes’ are used to denote substitution in case of the death of the primary legatee. The words ‘per stirpes’ denote a taking by right of representation of that which an ancestor of the parties would take, if living.”) (internal citations omitted)

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.”)