San Antonio Express-News
June 24, 2003

Texas does Allow POD on Brokerage Accounts

copyright 2003, Paul Premack

The "pay-on-death" (POD) arrangement that you refer to is a way to avoid probate of a particular asset when you die. By contract with the financial institution, the account is controlled by you during your life, but is paid when you die to the persons you designated in writing. No courtroom process is required, and that is why it is often a desirable arrangement.

I could understand if your individual broker was confused over this point, but it is most daunting that the attorneys at the brokerage firm’s home office misunderstood Texas law. Yes, Texas law does allow a POD designation on a brokerage account. This is expressly allowed by the provisions of the Texas Probate Code.

Section 450 of the Texas Probate Code authorizes use of the POD arrangement for securities, mutual funds and any account with a financial institution. Section 436(c) defines "financial institution" to include "brokerage firms that deal in the sales and purchases of stocks, bonds, and other types of securities."

That law is very clear, and I have never run into a brokerage firm that refused to follow it. Perhaps this St. Louis firm is confused because of the way that Texas handled a proposed statute called the "Uniform Transfer of Securities on Death Act." This proposal, which was supported by many brokerage firms, would have created a new system for pay-on-death securities in brokerage accounts. It would have been incompatible with the Texas Probate Code, giving us different rules for banks and for brokers. It would have allowed each brokerage to set its own conditions for allowing a depositor to use a POD designation.

The Texas legislature and the Governor took that proposal for an interesting ride back in 1997. The Legislature passed the law, and the governor signed it. Then they reconsidered its incompatibility with the Texas Probate Code and rushed another bill through the legislature to revoke what they had just passed into law. Hence, the "Uniform Transfer of Securities on Death Act" was law in Texas for an instant, but was repealed before it had any effect.

However, 46 other states have passed the Uniform Transfer of Securities on Death Act. As a result, the St. Louis brokerage probably made its decision to refuse you a POD account because Texas is not on the list of states that do have that Uniform law. They need to look deeper.

Even though our Texas law is not the same as those 46 states, we do have Section 450 of the Texas Probate Code authorizing POD accounts at brokerages. The attorneys at that brokerage firm need to re-do their research and change their answer. If they will not, then perhaps you should consider moving your business to a firm that pays better attention to the laws of Texas.