Use of a Pay on Death (“POD”) beneficiary designation is often touted as a way to simplify transfers of assets at your death. If a bank account or CD is put in the name of “Father POD Son,” then the asset will transfer automatically to Son at the death of Father.
Unfortunately, the POD beneficiary form is not a panacea. When used incorrectly, it can lead to family disputes, years of litigation and significant attorneys fees.
A prime example of the downside of the POD beneficiary designation is vividly illustrated by the recent unpublished opinion from the Kentucky Court of Appeals in Coe v. Schick. The case arose when William Schick, Jr. (“William”) both established a Revocable Living Trust for his estate plan, and also added POD beneficiary designation language to the ownership of the assets purchased by the trust.
The litigation involved a bank account and a Certificate of Deposit purchased by William in the name of his Trust, but with his granddaughter Jennie also 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 William’s death.
Jennie began asserting her rights to the CD and the bank account with a Notice of Claim filed in William’s probate proceeding in 2010. The Estate disallowed Jennie’s claim and ultimately made final settlement and distribution of the Estate in 2012. Nonetheless, a Motion to Reopen the Estate was filed in late 2013, and son Bill then filed suit in Circuit Court seeking a ruling on ownership of the contested assets. The Circuit Court granted partial summary judgment in 2014, and then had a bench trial of the remaining issues in 2015. Bill’s positions in opposition to Jennie’s claims were generally sustained. Jennie then appealed to the Court of Appeals, who agreed to hear her case. The Court of Appeals issued its ruling on June 29, 2018, some 8 ½ years after William’s death.
The Court’s opinion held that a Trust cannot have a POD beneficiary designation, since a Trust cannot die. There was also some close technical analysis of Kentucky’s statute regarding “accounts” and “joint accounts.” Part of the case involved the claims by Bill for the recovery of over $65,000 in attorney fees he had paid regarding the dispute. The Court of Appeals ruled that the Trust should pay a portion of Bill’s attorney fees related to the administration of the Estate. However, as to the attorney fees Bill paid for his own personal representation, the Court of Appeals remanded the issue to the Circuit Court below for further proceedings related to the propriety of the other parties paying those attorney fees. Thus, this case will likely continue into the future, with the attorney fees for Bill’s personal representation being the remaining issue.
This case is a very compelling object lesson regarding the perils of the uninformed use of the POD beneficiary designation. Eight to ten years of family litigation and $75,000 or more in total legal fees spent by the family were the results here of a simple POD beneficiary designation gone wrong.