Payable-on-death (“POD”) accounts pass directly to named beneficiaries upon death through the contract with the financial institution. Probate court would seem the natural fit when disputes arise over who validly changed those designations.
When someone dies, leaving bank accounts behind, family members typically expect the probate court to oversee the distribution of the funds. But what happens when the decedent used payable-on-death designations that were later changed under questionable circumstances? Can the resulting dispute be heard in federal court instead of the state-level probate court?
The “probate exception” generally bars federal courts from getting involved in probate cases. However, as the recentJPMorgan Chase Bank, N.A. v. Houston, No. 4:25-cv-3245 (S.D. Tex. Dec. 17, 2025), shows, the federal courts can and do hear disputes over POD accounts. This case offers an opportunity to examine how Texas law treats these accounts and why federal courts can adjudicate ownership disputes over them.
Facts & Procedural History
Johnson had three accounts with JPMorgan Chase Bank (“Chase Bank”). He had more than $1 million in the accounts. In 2012, Johnson signed signature cards designating Lard as the POD beneficiary on all three accounts.
In 2024, Houston presented Chase with a durable power of attorney dated August 30, 2024, purportedly signed by Johnson. The document granted Houston authority to “add or change beneficiaries, including myself or any other person.” Houston then submitted new signature cards in 2024 to change the POD beneficiary from Lard to herself. These cards were not signed by Johnson but contained notations stating “signature on file” or “not present” in the signature space.
Johnson died in 2025. Chase Bank had competing claims from both Houston and Lard to the account funds based on the conflicting POD designations. Rather than risk paying the wrong claimant and facing liability to the other, Chase filed an interpleader action in federal court in 2025. The bank asked the court to determine ownership and allow the claimants to litigate their dispute.
Houston and Lard moved to dismiss, arguing the federal court lacked subject matter jurisdiction under the probate exception. They contended the dispute belonged in the Texas probate court because any relief would interfere with the probate of Johnson’s estate.
What Are POD Accounts Under the Texas Estates Code?
The Texas Estates Code defines an “account” as a contract of deposit of funds between a depositor and a financial institution. Section 113.004(4)(A) describes a POD account as one payable to a person during their lifetime and then, after death, to one or more POD payees. The account holder retains complete control during life.
Section 113.152 establishes that when an account is a POD account with a written agreement signed by the original payee, the remaining funds belong to the POD payee upon death. This transfer happens automatically through the account contract itself. For example, a daughter named as POD beneficiary can present a death certificate to the bank. The bank will then transfer the funds based solely on the signature card without a court order or executor involvement.
Section 113.158 makes explicit that POD transfers are not testamentary transfers. Wills require the testator’s signature, two witnesses, and statutory compliance. POD accounts bypass these formalities. The account holder simply signs a signature card without witnesses or notarization. Valid and undisputed POD accounts do not enter probate because they transfer by contract before any probate proceedings begin.
What Makes an Asset a Probate Asset Versus a Non-Probate Asset?
Probate assets pass through estate administration under court supervision. These typically include property owned solely by the decedent with no beneficiary designation or joint ownership arrangement. Real estate held in the decedent’s name alone, bank accounts with only the decedent listed as owner, and personal property such as vehicles and furniture normally require probate administration.
Non-probate assets transfer through mechanisms operating independently of probate. Property held in joint tenancy with right of survivorship passes automatically to the surviving joint tenant. Real estate subject to a transfer on death deed does the same. Life insurance proceeds go directly to named beneficiaries. Retirement accounts transfer to designated beneficiaries. Trust assets are distributed according to trust terms. POD bank accounts belong to this category.
The question for POD accounts is whether the asset’s transfer depends on estate administration. If the personal representative must take action to transfer the asset to heirs or beneficiaries, the asset is probate property. If the asset transfers by operation of law or contract without involvement of the estate administration process, it is usually a non-probate asset.
Does the “Probate Exception” Change the Court for a POD Dispute?
The probate exception is a jurisdictional doctrine that prevents federal courts from probating wills or administering estates, reserving those matters to state probate courts.
The doctrine has what courts call a “distinctly limited scope.” It bars federal courts from two main things:
- Probating or annulling a will and administering a decedent’s estate
- Trying to dispose of property that’s actually in the custody of a state probate court
But the exception doesn’t stop federal courts from hearing cases that fall outside these boundaries, even when they involve property from a deceased person’s estate. Federal courts regularly resolve disputes over beneficiary designations on non-probate assets. Life insurance and retirement account disputes frequently end up in federal court when beneficiaries are diverse, and the amount exceeds jurisdictional minimums. POD accounts fit this category.
In the Fifth Circuit, which includes Texas, courts use a two-part test to decide whether the probate exception applies:
- Is the disputed property estate property within the custody of the probate court?
- Would the plaintiff’s claims require the federal court to take in rem jurisdiction over that property?
If both answers are yes, the probate exception kicks in and blocks federal diversity jurisdiction.
In the present case, the court found the exception didn’t apply because the POD accounts weren’t in the custody of any probate court. As noted above, under Texas law, POD accounts transfer directly to the named beneficiary when the account holder dies—they don’t pass through the estate. That made them non-probate assets, so the federal court could hear the case.
The defendants in this case might have hoped the probate exception would apply because the dispute involved allegations of invalid changes to POD designations. The underlying question is one of contract interpretation and validity. Did the account holder validly modify the contract to change the beneficiary? If a power of attorney was used, did it authorise the change? Were banking law formalities satisfied?
The nature of the dispute does not change the character of the asset. A POD account remains non-probate regardless of whether the beneficiary designation is disputed. A federal court can examine the signature cards, evaluate the power of attorney, and decide whether the cards validly modified the account contracts. None of this requires probating a will or administering an estate.
The Takeaway
POD accounts offer a straightforward way to transfer bank account funds outside of probate administration. However, these accounts retain their non-probate character even when disputes arise over who validly changed the beneficiary designation. Because POD accounts transfer by contract rather than through estate administration, they might not enter probate court custody. In the cases where the bank does not pay the funds over to the probate court, the probate exception to federal jurisdiction would not prevent federal courts from resolving ownership disputes over these accounts when diversity jurisdiction exists. This dual jurisdiction can add a layer of complexity and expense for the contestants as they have to maintain litigation in two courts at the same time.
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The content of this website is for informational purposes only and should not be construed as legal advice. The information presented may not apply to your situation and should not be acted upon without consulting a qualified probate attorney. We encourage you to seek the advice of a competent attorney with any legal questions you may have.
