While Illinois law does not expressly prohibit trusts from opening POD accounts, we do not recommend permitting a trust to establish a POD account. A trust would not trigger the POD provisions because a trust is an entity that does not die, even if its settlor dies, and, as you noted, the POD designation could conflict with the provisions of the trust agreement.

The Illinois Trust and Payable on Death Accounts 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 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.

Additionally, the Act limits a financial institution’s liability when it distributes a POD account to the designated beneficiaries “upon the death of the last surviving . . . holder.” If the POD is held by a trust, that limitation on liability would not necessarily protect your institution since the trust may exist beyond the settlor’s death.

Further, allowing a trust to designate POD beneficiaries may conflict with the provisions of the trust agreement, which should stipulate how funds are distributed upon the settlor’s death. Consequently, we believe that only individuals or sole proprietorships (which do not exist separately from their owners) should be permitted to establish POD accounts.

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 625/10 (“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 . . .”)