POD Accounts Excluded from Bankruptcy Estate
It is very common in Alabama, and I'm sure elsewhere (as you're about to read) for customers to create accounts that are payable on death to designated beneficiary. In a bankruptcy case out of Wisconsin, the debtor received such a distribution from an account owner who died 26 days after debtor filed bankruptcy. The trustee argued that the payment was a "bequest, devise or inheritance" under 541(a)(5)(A), and therefore property of the estate. It was a nice try.
The court in In re Holter, 401 B.R. 372 (Bankr. W.D. Wis. 2009), applying state law, held that the terms "bequest," "devise" and "inheritance" meant property that passed by will or by intestate succession. The POD account was a contractual payment that just happened to be triggered by the death of the account's owner. The payment was on a contract right, and since it accrued post-petition, it was not property of the bankruptcy estate. And again, while it was a good try on the part of the trustee, the legal conclusions of the bankruptcy judge strike me as pretty solid.
