Kentucky Appellate Court Decides Payable On Death Issue
“KRS 391.315(1)(a) provides the funds remaining in a joint account at the death of a party belong to the surviving party.”
In a 2018 case, Coe v. Schick, the Kentucky Appellate Court ruled directly on one of the most common methods for transfer of bank account assets upon death. It also directly described some of the perils of using Payable on Death beneficiary designation without the assistance of an experienced estate planning attorney.
A Payable On Death or POD account is an arrangement between a bank and an account holder. When the account holder dies, the contents of the account are automatically transferred to the beneficiaries as the new owners.
As in many probate cases, the individuals at issue share a last name, so they are referred to by first names to be clear. In Coe, William purchased a Certificate of Deposit (CD) and a bank account in the name of his Trust. His granddaughter, Jennie, was named as the POD beneficiary of the CD. William’s estate planning documents, including his pour-over will and his trust left his assets to his two children, Bill and Bonnie.
The trustee of William’s Trust was the bank, and when William died the bank negotiated the CD and consolidated its proceeds into a new trust account, combining it with the checking account.
Jennie asserted her position as POD beneficiary of the CD and the bank account during probate proceedings. Her claim was denied by the estate, and ultimately the estate made final settlement and distribution.
It took more than eight years of litigation for the Kentucky Court of Appeals to hear the case. It held that a POD beneficiary designation for a trust does not take effect, because the trust itself cannot die. The Court held that the CD was held jointly. Under Kentucky state statute, the CD was by definition an “account” for the purposes of probate law, and it was a “joint account” because it was in the name of William’s Trust and listed Jennie as a beneficiary and that the CD was payable on request to both.
Because they were joint accounts, the party that held the accounts had the freedom to negotiate, even if those negotiations were worse for one side. The Court held that the bank, as trustee, had acted properly to dispose of the CD by negotiating it and putting its value into a separate account for the Trust and its beneficiaries. Once the CD was disposed of, the proceeds were to be distributed per the terms of the Trust, not any POD designation.
After almost a decade in litigation and tens of thousands of dollars in legal fees, the Court clarified the confusion created by a POD beneficiary designation. A consultation with a skilled estate planning attorney can prevent these pitfalls from the start, saving families money, anxiety, and upheaval.
Reference: Justia (June 29, 2018) “Coe v. Schick”