Q&A: Here’s a question that a Wisconsin credit union recently asked The League’s Legal Affairs team, along with our answer. Do you have a compliance question? Contact The League’s Compliance Hotline at (800) 242-0833 or email.
Q. Our members have asked to add their revocable living trust as the payable on death (POD) beneficiary on their existing accounts. Does The League have any guidance on whether that is allowed?
A. Credit unions ask us from time to time about members who want to name their trusts as POD beneficiaries on their accounts – or about credit union staff who would like to suggest to members that doing so may be a simpler alternative to having trusts as the titled owners of accounts.
The question presents two separate issues: Can it be done? Should it be done?
Trusts can be named as POD beneficiaries
Can a member ever name an organization – like a charity, trust, church, corporation, or other entity – as a POD beneficiary? We believe the answer is yes.
Under the Wisconsin Statutes (Section 705.01(9)), “‘P.O.D. Beneficiary’ means a person designated on a P.O.D. account as one to whom all or part of the account is payable on request after the death of one or more parties.” What does “person” mean? Legally, an organization like a corporation is considered a “person.” (A human being is a “natural person,” to use legal-speak.) Section 990.01(26) of the Wisconsin Statutes defines “person” to include “all partnerships, associations and bodies politic or corporate.” So, it seems that organizations, like trusts, can be POD beneficiaries.
This 2019 Compliance Courier discusses the ins-and-outs of naming organizations as POD beneficiaries in general.
Members need to decide whether trusts should be named as POD beneficiaries
Should trusts be named as POD beneficiaries? You should leave that decision up to your members.
We caution credit unions not to suggest this strategy themselves. While it may be more convenient for staff to add a trust as a POD beneficiary to a member’s accounts vs. titling accounts in the trust’s name, the practice can have serious (and maybe unforeseen) consequences.
That said, if a member requests it, the credit union can comply – but always encourage the member to consult their attorneys or estate planning advisors first, to be sure they agree that it’s a good idea.
Here are a few potential complications to bear in mind:
- Naming the trust as POD beneficiary, instead of simply putting the account in the trust’s name, could cause tax consequences or other issues with the way the trust is administered. For example, if the trust is merely the POD beneficiary, and if the trustee/account holder becomes incapacitated and can no longer manage their finances, a successor trustee would have no right to access the account – because the trust would not own the funds until the member passes away. If the account were titled in the trust’s name now, instead, the successor trustee would be able to access it when the original trustee (your member) became incapacitated. Your members should understand these implications, and again, it helps if they have discussed this with their attorneys or estate planners.
- Be sure that you understand exactly what trust the member is naming, getting the correct legal name, address, and any other identifying information that is available. The credit union should be certain it knows exactly how it is to disburse the funds when the member passes away. A certification of trust should be obtained, and it would be helpful if it tells you who the successor trustee will be, so that you can contact and disburse the trust’s money to the trust (via the successor trustee) after your member’s death. It will then be up to that successor trustee to handle the funds as required by the trust itself.
- The NCUA rules on share insurance recognize that organizations are sometimes named as POD beneficiaries. Under the rules, the NCUSIF insures POD accounts up to $250,000 per beneficiary – but only if the beneficiaries are real people or charitable and non-profit organizations recognized as tax exempt by the IRS. Other types of organizations could be named, but they would not qualify the account for the extra coverage. (See the NCUA brochure “Your Insured Funds” for details.)