Case Review: Treviño V. Treviño (In Re Estate Of Treviño)

  • Estate Planning
  • , Estates
March 31, 2021

In the Summer of 2020, the Colorado Court of Appeals was faced with an issue of first impression: whether a Payable on Death (POD) account that is subject to a pledge agreement can also be subject to the authority of the Personal Representative of a decedent’s estate. The answer? It depends.

Ordinarily, POD accounts are not subject to probate and have been considered, until now, strictly a “non-probate asset.” This means that that the asset passes automatically to the named beneficiary and is not considered part of the decedent’s estate, thereby taking the asset out of the purview of the Personal Representative’s authority. However, the court in Trevino ultimately held that, when a POD account that is owned by a decedent at his or her death is subject to a pledge agreement, the Personal Representative of the Decedent’s estate maintains authority over the POD account only as to the amount secured by the pledge agreement. The Court further held that, where there are available estate assets in addition to the funds held in the pledged POD account, the Personal Representative must use such estate funds first before using any of the POD account funds or otherwise face potential liability for breach of his or her fiduciary duty to the beneficiary of the POD account.

In Trevino, the decedent, during life, was the sole owner of a financial account that named his son as the pay-on-death beneficiary—otherwise known as a POD account. Prior to Decedent’s passing, the POD account in question had been pledged as collateral to a loan, in which Decedent and his Wife Victoria were jointly and severally liable. Upon Decedent’s death, Victoria was appointed as Personal Representative. Victoria, in her capacity as Personal Representative, and through her attorney, sent a letter to the bank permitting it to release the funds held in the POD account to satisfy the remaining loan debt. Importantly, the value of the POD account was in excess of the remaining loan balance. Further, there was approximately $2,415.61 available in the estate to satisfy at least a portion of the remaining balance of the loan.

The named-beneficiary-son on the POD account filed a petition in which, among other things, he asserted that Victoria lacked authority over the POD account because it was a non-probate asset, and Victoria’s use of the funds in the account to satisfy the estate’s obligation under the pledge agreement was a breach of her fiduciary duty.

In coming to a determination on this issue, the court looked to other states’ statutory and case law, as well as the Amicus Brief filed by the Colorado Bar Association. The Court overruled the lower court and found that where a POD account is pledged as collateral pursuant to a pledge agreement, the Personal Representative has authority only over those funds necessary to satisfy amount secured by the pledge agreement, but he or she must first utilize any available estate funds, no matter how nominal, to pay down such amount prior to applying the pledged loan funds. Failure to do so, the Court opined, is a breach of the Personal Representative’s fiduciary duty to the beneficiary of the POD account. The Court reasoned that Victoria benefited from her use of the POD account funds to satisfy the debt, as she was both the only beneficiary of the remaining estate assets and as the remaining co-obligor under the pledge agreement. The Court remanded the case back down to the lower court to consider a surcharge judgment in the amount of the $2,415.61 in liquid estate assets.

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