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Designating beneficiaries of pay-on-death accounts in Colorado

Colorado enacted new legislative changes concerning distributions to beneficiaries of amounts on deposit in pay-on-death (POD) accounts at financial institutions. Upon the death of the sole or last account holder of a POD financial account , the new law permits the non-equal distribution of funds from accounts which have two or more beneficiaries.

Prior law required that accounts with POD designations naming two or more beneficiaries must be paid to the surviving beneficiaries in equal shares. The account owner could not legally designate different proportions to each beneficiary.

The new law provides that funds may be distributed to the beneficiaries in the proportions specified in the written designation kept on file in the records of the financial institution. If no proportions are specified, the funds are evenly divided between the beneficiaries.

What if a beneficiary predeceases the account owner?

If there are two or more beneficiaries, and a beneficiary predeceases the account owner, the designation goes back to equal distribution unless the POD designation is changed by the account owner to state otherwise. As under prior law, if none of the designated beneficiaries survive the account owner, sums remaining on deposit belong to the estate of the last surviving account owner.

Some pros and cons

POD accounts can be a useful alternative used in estate planning since they generally permit bank account assets to avoid probate. After the account holder’s death, such funds can be distributed to the beneficiaries designated by the account owner outside probate. Beneficiaries have no rights to the money during the account owner’s lifetime. Beneficiary designations on POD financial accounts also take precedence over conflicting provisions of a will.

One possible disadvantage to allowing non-equal distributions POD account designations is that it could give rise to disputes among the beneficiaries. Litigation could result to resolve claims regarding the intent of the account owner or the validity or the correct interpretation of the account owner’s distribution instructions.

Effective date

The new law was signed and took effect on March 29, 2013, and affects all accounts containing the POD designation, created before, or on, or after March 29, 2013.

Estate planning can be a complex process and state and federal laws affecting estate planning are subject to frequent changes. Individuals desiring assistance in these matters should consult with an experienced estate planning attorney who stays current in this field in order to ensure that it is done correctly.