Kentucky law affirmed that money remaining in a POD account after one of the owners died, belongs to the survivor. That’s the whole point of a Payable On Death account.
Known as a POD or a Totten trust, a Payable on Death account is a way to own accounts, usually in a bank, that is not subject to probate and is considered to be an arrangement between a bank and a customer. When one of the owner(s) dies, the ownership of the account and the assets automatically transfers to the beneficiary or beneficiaries. As a result, they are the new owners. This is a fairly commonly used method of transferring assets at death.
Justia reported in the recent Kentucky case, “Coe v. Schick,” that the use of a Pay on Death (“POD”) beneficiary designation was at issue. It shows the dangers of using the POD beneficiary designation, without consulting with a qualified estate planning attorney.
The bank account and a Certificate of Deposit (CD) were purchased by William in the name of his Trust. However, the problem was that his granddaughter Jennie was a named as the POD beneficiary. William’s pour-over will and trust left all of his assets to his two children Bill and Bonnie. The bank named as trustee at William’s death negotiated the CD and moved its proceeds along with the checking account funds into a new, single trust account after his death.
However, Jennie asserted her rights to the CD and the bank account in William’s probate proceeding. The estate disallowed her claim and ultimately made final settlement and distribution.
After more than eight years of litigation, the Court of Appeals heard the case.
The Court held that a trust can’t have a POD beneficiary designation because a trust can’t die. The Court of Appeals found that the CD was a joint account. State statute defines an "account" as "a contract of deposit of funds between a depositor and a financial institution, and includes a checking account, savings account, certificate of deposit, share account and other like arrangement." A "joint account" is also "an account payable on request to one (1) or more of two (2) or more parties whether or not mention is made of any right of survivorship[.]"
Because the CD was issued to the Trust or Jennie alternatively, it was payable on request to either of them, the Court said. As a result, the CD satisfied the statutory definition of a joint account. The Court went on to explain that joint accounts payable in the alternative, like a CD, give the party who has possession the freedom to negotiate them, even to the detriment of the other party.
In this situation, the bank, as successor trustee, negotiated the CD and placed the funds in a separate account for the benefit of the Trust and its beneficiaries. The Court of Appeals found it proper for the trustee to dispose of the CD in this manner, even without Jennie's authorization or knowledge. The funds from the negotiation of the CD were the sole property of the trust and were to be distributed by the trust's terms.
This case is an example of what happens when assets in an estate are not properly aligned with the estate plan. The family could have been spared the $75,000 in legal fees, not to mention the acrimony within the family, by working with an experienced estate planning attorney to resolve all of these matters well in advance.
Reference: Justia (June 29, 2018) “Coe v. Schick”