Non-probate assets such as joint accounts are frequently the subject of litigation, usually after an account owner dies. Yet little if any thought is given when a depositor opens an account or changes the title.
Usually bank accounts are opened or modified following a routine exchange with a bank employee and not an attorney. These accounts are fraught with potential problems. Inconsistencies in various bodies of law abound, leaving a playing field rife with opportunity for post-death disputes, many of which are not worthy of the assets involved. This article focuses on the pitfalls of non-probate banking products that await the unwary.
Probate vs. Non-Probate
Non-probate assets are those assets that pass by operation of law to a designated beneficiary regardless of what a decedent states in his or her last will and testament. The non-probate asset becomes the property of the joint owner or designated beneficiary immediately. Examples of non-probate property include bank accounts held as joint tenants with rights of survivorship, "in trust for" (ITF) accounts (also known as Totten Trusts), and payable on death (POD) accounts, as well as most retirement accounts such as IRA, 401(k), and 403(b) accounts.
Many laypeople assume that joint accounts automatically pass to the survivor when the other depositor dies, thus avoiding probate. The rights of survivorship in a joint account are not immune from challenge. Once funds are deposited into a joint account, a question may later arise as to whether it was a "joint account" or "convenience account." These questions can arise during marital discord but also when joint accounts are held by unmarried persons, whether minor children and parents; elderly parents and adult children; cohabitating, unmarried persons; and business partners.
New York law provides that the making of a deposit into a joint account with rights of survivorship is prima facie evidence of the depositor's intent to create a joint tenancy and vest title in the other. N.Y. Banking Law §675. The presumption requires that the deposit be "in the name of the depositor and another person in a form to be paid or delivered to either, or the survivor, is the property of those persons as joint tenants." Id. Any deposits or accrual may be paid or delivered to either person during their lifetime, or to the survivor of the two. Id. The statutory presumptions of §675 extend to joint brokerage accounts. See Matter of Corcoran, 63 A.D.3d 93, 877 N.Y.S.2d 522 (3d Dept. 2009); see also Rev. Rul. 69-148.
The presumption is not immune from challenge and may be rebutted by clear and convincing evidence that the account is a "convenience account." N.Y. Banking Law §678; see Viggiano v. Viggiano, 136 A.D.2d 630 (2d Dept. 1988). A "convenience account" is one where deposits are made "for the convenience" of the depositor, which do not affect title, are not deemed a gift of one-half of the deposit or any additions or accruals, and do not confer a right of survivorship. Id. The burden is on the party challenging the joint nature of the account to either (1) establish fraud, undue influence, or lack of capacity (Matter of Corcoran, supra, fn. 2, citing Banking Law §675(b), Matter of Stalter, 270 A.D.2d at 595-96, 703 N.Y.S.2d 600); or (2) tender direct or circumstantial proof to support an inference "that the joint account was established as a convenience and not with the intention of conferring a present beneficial interest on the other party to the account." Id. (citations omitted); Matter of Kleinberg v. Heller, 38 N.Y.S.2d 836 (1976).
The establishment of joint accounts can transform otherwise straightforward estate administrations into complicated messes unworthy of the fights that ensue. Thus, in Estate of Sanabria, 2011 N.Y. Slip. OP 51802(U), a son challenged a joint account between his mother and sister. The Surrogate preliminarily enjoined the sister from withdrawing funds from the account based on the absence of survivorship language in the signature card (it listed the decedent "or" the daughter as account holders). Id. Similarly, in Matter of Richichi, 38 A.D.3d 558, 559 (2d Dept. 2007), a child overcame the presumption where his sibling's joint account with his father held only the father's contributions; the sibling never exercised control over the account or withdrew funds, and admitted that the account was a "dual signature account" to "safeguard" her father's money; and a joint account with rights of survivorship was inconsistent with the father's will.
Other courts have held that the presumption did not attach at all in the absence of any survivorship language on the signature card itself. See, e.g., Matter of Coon, 148 A.D.2d 906 (3d Dept. 1989) (only "J" circled on signature card); Matter of Seidel, 134 A.D.2d 879 (4th Dept. 1987) (no survivorship language and no contributions by survivor); cf. Sutton v. Bank of N.Y., 250 A.D.2d 447 (1st Dept. 1998) (presumption sustained and unrebutted where signature card signed by both account holders had requisite survivorship language).
Although not expressly stated, courts seem more inclined to uphold a joint account with rights of survivorship account between spouses. A joint bank account between spouses appears to create a conclusive presumption that each spouse contributed half the funds, even if they did not actually do so. Tayar v. Tayar, 208 A.D.2d 609, 610, 618 N.Y.S.2d 35 (2d Dept. 1994); Johnson v. Kilpatrick, 233 A.D.2d 205, 649 N.Y.S.2d 686 (1st Dept. 1996) (citations omitted); In re Butta, 192 Misc.2d 614, 746 N.Y.S.2d 586 (Bronx Cty. 2002); see EPTL §5-1.1-A(b)(2)). Where the funds for the account come solely from that spouse's separate property, the presumption can be overcome if there is proof of a lack of intention of creating a beneficial interest. Matter of Storozynski, 60 A.D.3d 754, 874 N.Y.S.2d 575 (2d Dept. 2009); Coffey v. Coffey, 119 A.D.2d 620, 501 N.Y.S.2d 74 (2d Dept. 1986); Filippi v. Filippi, 53 A.D.2d 658, 384 N.Y.S.2d 1010 (2d Dept. 1976) (presumption rebutted where joint funds came solely from husband's profit sharing plan, he maintained control of passbooks and certificates, and testimony showed purpose of funds was for him to invest in or establish a business).
The key factors are whether (i) the signature card states that the account is "with rights of survivorship"; (ii) rights of survivorship is inconsistent with the decedent's testamentary plan; (iii) the conduct of depositor and survivor during the decedent's lifetime, and whether the survivor made contributions or withdrawals, or exercised control over the account. See, e.g., Matter of Zorskas, 20 Misc. 3d 1110(A) (Surr. Ct. Nassau Cty. 2008; In re Gilman, 6 Misc. 3d 1001(A), at *7 (Surr. Ct. N.Y. Cty. 2004); Matter of Stalter, 270 A.D.2d at 595-96, 703 N.Y.S.2d 600. Extrinsic evidence is permitted. Estate of Harrison, 184 A.D.2d 42, 590 N.Y.S.2d 318 (3d Dept. 1992).
The greatest weight is seemingly placed on survivorship language on the signature card itself and not incorporated by reference to the bank's policies. Estate of Magacs, 227 A.D.2d 760, 642 N.Y.S.2d 361 (3d Dept. 1996). Where the signature card is unavailable, some courts have considered language on the bank's forms used at the moment the account was opened, but this is rare. In re Jelnek, 3 Misc.3d 725, 777 N.Y.S.2d 871 (N.Y. Queens 2004); Stalter, 270 A.D.2d 594, 703 N.Y.S.2d 600 (3d Dept. 2000). The signature card is the best but not exclusive proof. Butta, 192 Misc. 2d 614, 746 N.Y.S.2d 586 (Bronx Cty. 2002).
In Estate of Stalter, 270 A.D.2d 594, 703 N.Y.S.2d 600 (3d Dept. 2000), the party challenging the joint nature of the account offered proof that the depositor was the sole contributor of funds to a savings account opened seven years before her death in the name of the depositor and her friend. The depositor retained sole possession of the passbook until shortly before her death. The challenging party also offered an undated letter from the depositor to her attorney found in a locked box after her death indicating that account was established to permit friend to pay bills while depositor was "laid up," and that depositor did not want funds to be given to friend upon depositor's death.
All of this evidence, held the court, was insufficient to rebut the presumption of joint tenancy that arose from the creation of the account with survivorship language on signature card. The court stated that it would have considered the letter had it been authored shortly after the account was opened. As it was undated, the court found that the letter could have been authored at any point after the account was opened and in the seven ensuing years before the depositor's death, leaving the court to only speculate as to whether the letter reflected decedent's intent in opening the account in the first instance.