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. Rather than listing specific people as payable on death (POD) beneficiaries for his account, our member simply wants to note that the funds should be divided among his “heirs.” Should we allow this?
A. A credit union should insist that an account holder identify specific beneficiaries by name, for these key reasons:
- The credit union should not be put in the position of having to identify all of the potential heirs, but who should? Is that a job for a probate court? It would seem not, since the point of naming POD beneficiaries is to allow funds to pass outside of the probate process. Could potential heirs be asked to sign affidavits naming all potential heirs? Could those who receive money be asked to indemnify the credit union in case new heirs come forward after the funds are disbursed? Maybe, but we have no forms for those purposes.
- Dividing funds among heirs can be especially confusing if some of the heirs have died and have heirs of their own. That’s because legally, there are two ways to determine how to divide the funds: “per capita” or “per stripes” (which are Latin for “by the head” and “by the root”).
Here’s how it works: Suppose the member has two children. One of them has two daughters and the other one has three sons. (Five grandchildren total). Suppose the two children die before the account owner. How are the funds divided among the remaining heirs – the five grandchildren? Does each grandchild get 1/5 (the per stirpes method)? Or do the two granddaughters split half, and the three grandsons split the other half (the per capita method)? Many members may prefer per stirpes if given the choice, but many others may not.
Unless your POD instructions very clearly define whether funds are to be distributed “per capita” or “per stirpes,” there are likely to be disputes. League account forms are simply not designed for this, but if you use forms from another vendor, check with them for guidance.
- Even if a credit union correctly identifies the people who qualify as “heirs,” it might still go wrong. The Wisconsin Statutes define the term “POD Beneficiary” to mean: “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.” If a credit union pays to heirs outside of probate (despite the fact that those heirs were not persons specifically named by the account holder) it might be challenged as going beyond what the statute permits. A non-heir who claims under a will, or a creditor might be able to recover from the credit union, and the credit union may find itself without important protections that the statutes provide for proper payouts to POD beneficiaries.
If the account holder wants someone to determine who his/her heirs are after death, and then distribute the account funds among them, he/she would be better off not completing the POD designation at all. That way, either a personal representative appointed by a probate court or someone with a valid Transfer by Affidavit would claim the funds and see to their distribution.