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Issues With Pay on Death Accounts
By: John Burrus, Esq.

To avoid the costs associated with probate proceedings, an individual may arrange for the transfer of an asset by means of a separate writing which designates the beneficiary of the asset. Nonprobate transfers on death are codified at Section 15-15-101 through 15-15-311 of the Colorado Revised Statutes.

In the banking context, such a nonprobate transfer provision is most frequently found in a pay on death deposit account agreement whereby the owner of the account designates a beneficiary or beneficiaries to receive the funds in the account upon the death of the account owner. The law is clear that such a nonprobate transfer provision may be set forth in the instrument or deposit agreement itself or in a separate writing, including a will, executed either at the same time as the instrument or afterward. C.R.S. § 15-15-101(1)(a).

Pay on Death accounts (PODs) may be for a single party or multiple parties. C.R.S. § 15-15-203. A beneficiary is not the same as an account signatory. A “beneficiary” is the person named as one to whom sums on deposit in an account are payable on request after the death of the account holder. C.R.S. § 15-15-201(1)(3). An account signatory is an “agent” of the account and is neither the owner of the account nor a beneficiary, unless listed as such. An “agent” is a person that is authorized to make account transactions for the account owner. C.R.S. § 15-15-201(1)(2). Upon the death of the sole or the last surviving account holder, the agent’s authority is terminated. C.R.S. § 15-15-205(3).

Upon the death of an owner of a multiple-party account with a POD designation, the sums on deposit belong to the surviving owner or owners. C.R.S. § 15-15-212(1). The law gives special rights to the spouse of the decedent account owner. If one of the surviving owners is the decedent’s spouse, by law the spouse is entitled to his or her proportionate share of the net contribution in the account, which is generally half of the account unless proven otherwise. C.R.S. § 15-15-212(1) and C.R.S. § 15-15-211. If none of the surviving owners is the decedent’s spouse, then they will receive, in equal shares, the decedent’s proportionate share of the net contribution in the account. C.R.S. § 15-15-212(1).

Upon the death of the account owner of a single party account with a POD designation or upon the death of the last surviving party on a multiple-party account, the sums on deposit belong to the named beneficiary or beneficiaries. C.R.S. § 15-15-212(2)(b). If there are multiple beneficiaries named, they will share the funds in equal shares unless the owner has designated a different percentage. Id. If no beneficiary survives the account owner, then the funds being to the account owner’s estate. Id. Beneficiaries do not have the same rights of survivorship as do account owners. Id. 

The type of account established by the account owner governs the rights upon death. Changes to the type of account must be made by the account owner or owners (in the case of multiple-party accounts) in a signed writing to the financial institution and received by the financial institution before the party’s death. C.R.S. § 15-15-213(1). 

The financial institution may, upon request, pay the sums on deposit in an account with a POD designation in accordance with the terms of the account. Depending on the type of account, the POD designation may state that payments be made, to one of the following, as applicable: (1) one or more of the parties on a multiple-party account, whether or not the requesting party is disabled, incapacitated or deceased or did not survive the other parties; (2) the beneficiary or beneficiaries, if proof of death is presented to the financial institution showing that the beneficiary or beneficiaries survived the account owner and/or all other persons named as parties on the account; or (3) the personal representative of the estate of the account owner, if any, or, if there is none, then to the heirs and devisees of the account owner, if proof of death is presented to the financial institution showing that the decedent survived all other persons named on the account as a party or as a beneficiary. C.R.S. § 15-15-223.

If the financial institution pays out the sums on deposit according to the type of account, it is discharged from all claims for the amount paid. C.R.S. § 15-15-226(1). However, if the financial institution is served with process in an action or proceeding or receives written notice from a party, a personal representative, the surviving spouse, or heir or devisee of the deceased party, that payments made in accordance with the account should not be permitted and the financial institution has had a reasonable opportunity to act on the notice, then the financial institution will not be protected against claims if payment is subsequently made in accordance with the terms of the account. C.R.S. § 15-15-226(2). In addition, if the financial institution otherwise has reason to believe that a dispute exists as to the rights of the parties, it may refuse, without liability, to make payments in accordance with the terms of the account. C.R.S. § 15-15-226(3).

In summary, an account owner may seek to bypass the probate process by establishing a pay on death deposit account. As such, a financial institution may pay the sums on deposit in accordance with the terms of the account, unless it has received written notice of a dispute on the account. If the financial institution believes that a dispute exists, it will not be held liable if it refuses to pay the account according to its terms.

Contact John Burrus at jeb@bsblawyers.com

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