A Primer on Payable on Death Accounts for Financial Institutions

December 20, 2023

Payable on death accounts. Your institution probably issues them on a regular basis, but how much do you really know about them? Whether you’re a banking veteran or new to the game, it’s always a good time to familiarize yourself with what they are, what they are for, and what you, the financial institution, do with them. Payable on death (“POD”) accounts are generally governed by the Minnesota Multiparty Accounts Act, Minnesota Statutes sections 524.6-201 to 6-214, which will be the focus of this primer. POD accounts provide account holders with a non-probate estate planning tool, while affording financial institutions certainty and liability protection in account succession.

I. What is a payable on death account?

A payable on death account is a type of multiple-party account. POD accounts allow the account owner to designate one or more “POD payees,” who may claim the account upon the person’s death. POD payees are not account holders.

During the life of the person (or persons), who open the account, the POD payees do not own any part of the account, have no interest in the account, and have no right to request funds from the account.

A POD account differs from a joint account with a right of survivorship. With a joint account, multiple parties are account owners and generally have an interest in the account and right to request funds throughout the existence of the account, and the surviving account owner simply succeeds to account following the passing of the other owners. However, a joint account can also include a POD designation; for example, mom and dad might be joint account owners with right of survivorship, so that the last to pass has immediate control over the account, and combine it with a POD designation that a child becomes receives the funds from the account following the death of the last parent.

II. What are payable on death accounts for?

Payable on death accounts allow account owners to control the beneficiaries of certain accounts, without having those accounts impacted by probate. Upon the death of the owner of a POD account, the account transfers to the surviving POD payees as a non-probate transfer. However, POD accounts do not shield assets from the owner’s estate to the extent that those sums are needed to pay debts, taxes, and expenses of administration.

For financial institutions, POD accounts allow for orderly transitions of account ownership, with little liability risk. When a POD account holder dies, financial institutions already know who an account is payable to and need not wait for probate or other legal proceedings before knowing what to do with their deceased client’s accounts. In addition, the Multiparty Accounts Act provides substantial liability protection to financial institutions who distribute POD accounts according to their terms.

III. Establishing and Administering a POD account.

A. Opening a payable on death account.

When setting up a POD account, institutions should be sure that the beneficiary or beneficiaries are listed in writing as POD payees. Minnesota statutes section 524.6-213 provides language for designating POD beneficiaries on accounts and contracts of deposit, which serves as conclusive evidence of the intent of the depositor to have an account payable on death to the persons listed. Using this language, or substantially similar language, affords the most certainty to financial institutions providing POD accounts.

B. Payable on death accounts during the account owner’s lifetime.

During the life of the account owner, a POD account is treated just like any other account between the financial institution and the owner. As mentioned above, the POD payee has no rights in the account until the owner’s death, and the payee should not be treated as an account owner. A POD account owner may change their POD payees at any time by submitting a signed written order or request to the financial institution during the owner’s lifetime. A POD account owner may also request to be paid from the account on request at any time during their lifetime, subject to any other agreement the owner may have with the financial institution for the account. A POD account is subject to garnishment by a creditor of the account owner, but not the POD payee.

Financial institutions’ right to setoff or liens upon accounts are unaffected by POD designations. Accounts remain subject to setoff, even after an account owner’s death, to the extent that they were subject to setoff immediately before the owner’s death.

C. Payable on death accounts after the account owner’s death.

When a POD account owner dies, the account becomes immediately payable to the listed beneficiaries. A POD payee may request payment of the account upon proof that the account holder has died, which could be a death certificate, probate case filing notice, or obituary. The estate or heirs of a POD payee may also request payment of the account, upon proof that the payee survived the account owner. If the account owner outlived all listed payees, the account can be paid out to the owner’s estate, upon proof that the owner survived the payees. If there is some uncertainty over who is rightfully entitled to the POD account proceeds, a financial institution could seek some resolution by a court before making payment.

By paying out an account as listed above, a financial institution discharges itself from all claims for the amounts paid, regardless of whether any other person has a claim to the funds. Although creditors are entitled to the funds held in a POD account, financial institutions are not liable to those creditors directly, and you are entitled to pay out a POD account according to its terms without liability, although the POD payee may be themselves liable to the estate or creditors. However, if your institution has been served with process in a proceeding to make a claim to POD funds or has been presented with a claim by a state or county agency to POD funds which have not been paid out, you should refuse to pay out unclaimed funds until the rights of the creditors are resolved. In addition, if your institution has received written notice from anyone entitled to request payment of an account that withdrawals should not be permitted, payments should not be made until the notice is withdrawn or the successor of any deceased account owner and all other persons entitled to payment agree that withdrawals are appropriate.

Ultimately, in the absence of notice to the contrary, financial institutions should feel confident in their ability to pay out POD accounts to named beneficiaries upon proof of the account owner’s death without liability. However, if you are concerned that a dispute over the ownership of an account may exist, you are permitted to refuse to make payments in accordance with the terms of the account, without liability.

IV. Conclusion.

Payable on death accounts are useful tools for account holders and financial institutions alike. However, the statutory framework that they operate within and their unique nature as providing for non-probate transfers upon death could lead to confusion and questions, particularly in situations where there are multiple claims asserted over the funds. Following the account agreement will usually be the best course of action, but some situations might be best resolved by the courts

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