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.
The signature card was also afforded great weight in In re Jelnek, 3 Misc. 3d 725, 777 N.Y.S.2d 871 (Queens Cty. 2004) to conclude that an account between a woman and her fiancée who died on Sept. 11 was a true joint account. The specific signature card was destroyed in the World Trade Center attacks and was not available. Although the signature card was not available, all signature cards used at that time contained the language “accounts with multiple owners are joint, payable to either owner or the survivor.” This language, held the Jelnek court, created a presumption of a joint account with rights of survivorship.
Commingling assets in the allegedly joint account can serve as proof of intention that the funds be deemed joint. Schwalb v. Schwalb, 50 A.D.3d 1206, 854 N.Y.S.2d 802 (3d Dept. 2008). Between unmarried persons, however, the absence of a gift tax return for deposits exceeding the the annual gift exclusion (currently $14,000) can undermine any argument that the deposit was, in fact, intended to be a gift. On the other hand, evidence of a gift tax return filing can help bolster the argument that it was intended to be a gift.
The presumption is not automatically rebutted where a depositor exclusively controlled the account (in the pre-digital era, with a passbook), or that the decedent was the sole contributor to the account. Matter of Ricci, 18 A.D.3d 663, 795 N.Y.S.2d 672 (2d Dept. 2005); see also Matter of Stalter, 270 A.D.2d at 595. But see Chamberlain v. Chamberlain, 24 A.D.3d 589, 808 N.Y.S.2d 352 (2d Dept. 2005) (husband overcame presumption to recover proceeds of his personal injury award deposited in a joint account with wife).
Testimony of Intent
Good, old-fashioned testimony impacts the presumption in varying degrees. In Matter of Mullen, a daughter took the proceeds of her mother’s joint account and placed it into a joint account with her husband after her mother’s death. The brother challenged the account; the daughter died during the action and her husband claimed rights in the account. The court excluded the brother’s testimony that he had “suggested that the bank accounts be transferred into joint accounts”; the court disregarded the brother’s opinion of the nature and purpose of the joint accounts as irrelevant since he was never a joint tenant to any of decedent’s accounts. In re Mullen, 218 A.D.2d 50, 56-57, 636 N.Y.S.2d 783, 787 (1st Dept. 1996). Although the mother’s will favored the brother, the court gave greater weight to decedent’s creation of 16 joint accounts—eight with each of her two children—demonstrating a methodical intent to divide her estate equally notwithstanding her will. The court upheld the joint account. See also Estate of Magacs, 227 A.D.2d 760, 762, 642 N.Y.S.2d 361 (3d Dept. 1996) (excluding proposed testimony that decedent’s intent in creating the “joint” accounts was to equalize gifts); Sutton v. Bank of N.Y., 250 A.D.2d 447 (1st Dept. 1998) (excluding plaintiff’s testimony regarding her own intent in opening account that was not based on any conversations with decedent).
Where Is Presumption Overcome?
Just as many cases abound overcoming the presumption. The court in Matter of Corcoran held that the decedent’s exclusive possession of account checks and the respondent’s failure to receive account statements and withdraw account funds for her own expenses, as well as her admission that the account was her mother’s and that she lacked knowledge where the funds would go when the mother died, all supported the court’s finding that the account was one of convenience. See also Chamberlain v. Chamberlain, 24 A.D.3d 589, 808 N.Y.S.2d 352 (2d Dept. 2005) (husband’s personal injury settlement deposited in joint account not marital property where only he managed the account and wife had no involvement).
Cases involving elderly parents are perhaps more likely to be deemed convenience accounts. Thus, in Camarda’s Estate, 63 A.D.2d 837, 406 N.Y.S.2d 193 (4th Dep’t. 1978), the decedent was an elderly Italian woman who could neither read nor write in English or Italian, and was dependent on her children to conduct her business affairs. Id. at 838-39. The mother’s will expressed her intention that her four children share equally in her estate. The bank accounts in question were a substantial portion of that estate, it was not likely she intended to give one daughter rights of survivorship in that portion and nothing to her other children.
“In Trust for” Accounts
In contrast to a joint account, an in-trust for account is “a revocable trust created by one’s deposit of money in one’s own name as a trustee for another” and does not technically confer any lifetime rights on a named beneficiary. See Black’s Law Dictionary at p. 886 (citing In re Totten, 71 N.E. 748 (N.Y. 1904)). Deposits in an ITF account are not completed gifts, as the owner may modify, amend, or revoke the account, or change or delete the beneficiary, during his or her lifetime, or even at death, in a will. The ITF account may be revoked by the depositors withdrawal of the account proceeds, in an acknowledged writing naming the beneficiary and the banking institution delivered to the bank during his or her lifetime, or in a will also identifying the account, banking institution, and change of beneficiary. Matter of Beck, 63 N.Y.2d 1026 (1984); EPTL §7-5.2(1). ITF designations to a former spouse are automatically revoked by divorce or annulment. EPTL §5-1.4 (Revocatory Effect of a Divorce).
Although not encompassed by Banking Law §§675-678, some Surrogate’s Courts have applied the concepts and analysis of those provisions to ITF accounts just as if they were joint accounts. This means that the nature of an ITF account can still be the subject of a turnover proceeding pursuant to S.C.P.A. §2103 to “claw back” the asset. Matter of Camarda, 63 A.D.2d 837, 406 N.Y.S.2d 193 (4th Dept. 1978).
Power of Attorney Transactions
The pitfalls of non-probate accounts are exacerbated when the actions are performed not by the depositor, but by an agent under a power of attorney. An agent may only act within the scope of the authority granted to the agent, whether that authority is express (as in a power of attorney) or implied. As a matter of law, transactions undertaken by an agent under a power of attorney are subject to a different analysis than transactions by a principal herself. See General Obligations Law (“GOL”) §5-1514 (post-2009 amendment) and GOL §1502M (pre-2009 amendment); Matter of Ferrara, 7 N.Y.3d 244, 819 N.Y.S.2d 215 (2006).
The question of whether the joint tenancy will be upheld seems to turn more on a question of an agent’s self-dealing. The facts of Ferrara illustrated the damage that can be imposed by an agent seeking to do an “end run” around a testator’s will by manipulating non-probate banking products. In Ferrara, the decedent’s will specifically disinherited all family members and left his entire residuary estate to the Salvation Army. While on his deathbed, his nephew procured his uncle’s power of attorney (removing the $10,000 limitation on gifts to family members) and transferred $820,000 in assets—the bulk of his uncle’s estate—to himself.
Referencing G.O.L. §5-1502M, the Court of Appeals’ decision reaffirmed the previously existing law that an agent must act in the principal’s best interests whether or not the authority is accompanied by additional language extending the gift-giving power. Gifts in a principal’s “best interests” are those that carry out their financial, estate or tax plans, as demonstrated by the principal’s dispositive plan expressed in his or her will. Ferrara, 7 N.Y.3d 244, 819 N.Y.S.2d 215 (2006).1 Extensive research has not yielded any guidance on whether “best interests” of a principal who is intestate means that any transfers must be consistent with the laws of intestacy.
An agent engaged in self-gifting must still prove it was in the principal’s best interest and carried out the financial, estate, or tax plans, even if he shows the principal intended the gift, to overcome the inherent appearance of impropriety. Matter of Cipriani, 2009 N.Y. Slip. Op. 51254U at *7 (Surr. Ct. Bronx County. 2009). Nor can the agent favor himself or family members over others that the principal intended to benefit from his or her estate assets. Semmler v. Naples, 166 A.D.2d 751, 752, 563 N.Y.S.2d 116, 116 (3d Dept. 1990); In re Leeds, 2007 WL 2815554, Sept. 10, 2007, at *1 (Surr. Ct. N.Y. County); Matter of Naumoff, 301 A.D.2d at 803.
In Leeds, the decedent’s will reflected his desire that his estate be divided equally between his three children. His son, who was his agent under a power of attorney, retitled an account as a joint account with him and his father, creating a tenancy in common. The court found that under his power of attorney, the son was not authorized to convert the account into a tenancy in common. Doing so constituted a gift of one-half the funds to himself and without specific authorization, the agent cannot make a gift to himself in excess of $10,000. Id.; see also Matter of Audrey Carlson Revocable Trust, 59 A.D.3d 538, 541 (2d Dept. 2009) (remanded for determination of whether agent’s actions were valid under the power of attorney and whether (1) the agent acted in the principal’s best interest in amending the trust to name herself as sole beneficiary; (2) the principal’s intent was to make a gift to the agent by having her named as sole beneficiary of the trust; and (3) the agent’s actions were free of fraud, deception, or undue influence).
Totten Trusts, Powers of Attorney
What about an agent who creates a Totten Trust account, as opposed to a joint account, by using a power of attorney? The issue intersects with the law of gifts. A Totten Trust is not technically a “gift” because it does not create an immediate or present interest in the beneficiary. Can an agent avoid Ferrara‘s limitations simply by placing assets in a Totten Trust, and not a joint, account by claiming that it is beyond the restrictions on gift-giving authority?
Despite its non-probate and non-gift nature, an ITF account created by a power of attorney remains subject to the gift-giving limitations in the power of attorney and GOL §5-1514(c)(3) (GOL §5-1502M (pre-2009 amendment)).2 Matter of Clinton, 1 Misc. 3d 913(A) (transfer to Totten Trust was analyzed as gift transaction); In re Mueller, 19 Misc. 3d 536 (tenancy agreement analyzed as a gift); Wilder v. Tomaino, 2008 NY Slip Op 5687 (2d Dep’t. 2008) (restrictions on gifts of decedent’s property included transfers to corporations). SCPA §2103 does not make any distinction and confers upon the court the power to recover all “Property” of the decedent. See SCPA §2103(2).
In Clinton, several Chase accounts were changed from decedent’s name to “Carrie Clinton ITF [In Trust For] Shirley Sidbury,” making them payable on death to Sidbury. Matter of Clinton, 1 Misc.3d 913(A). Decedent’s testamentary plan contradicted the transfers. Two days prior to decedent’s death (while decedent was hospitalized in critical condition), Sidbury used a power of attorney from decedent to write a check for $230,000 on an account in decedent’s sole name at another bank (not Chase) and deposited it into one of the ITF accounts at Chase for Sidbury’s benefit. Sidbury claimed that the transfer was not a gift because she lacked present interest in the funds. The court rejected her argument, holding that the same gifting standard under the power of attorney applied when used to transfer to a Totten Trust as opposed to another type of account, and directed the bank to return the funds. Id.
When an ITF account is created by a power of attorney, it adds a layer of analysis under GOL §5-1514/§1502M and Matter of Ferrara that removes it from a flat application of EPTL §7-5.2(4). By contrast, ITF accounts created by the depositor himself or herself do not encounter this same problem. Estate of Fayo, 7 A.D.3d 795, 776 N.Y.S.2d 855 (2d Dept. 2004); Matter of Bobeck, 143 A.D.2d 90, 531 N.Y.S.2d 340 (2d Dept. 1988); Eredics v. Chase, 100 N.Y.2d 106, 109, 760 N.Y.S.2d 737 (2003).
Although beyond the scope of this article, “a quandary lurks in the issue of how much of a joint brokerage or joint bank account may be disclaimed in New York.” H. Esterces, “Disclaimer of Jointly Held Real Estate, Bank and Brokerage Accounts,” NYSBA Trusts and Estates Section Newsletter, Winter 2010 (Vol. 43 No. 4) at p. 19. That same quandary exists in regard to how much of the joint asset will be includible in the decedent’s estate. Another dilemma is often presented to executors of taxable estates with a tax apportionment clause who is responsible for filing a tax return and satisfying the tax liability when a non-probate beneficiary is unwilling to voluntarily contribute his or her fair share of the tax liability. The executor or person acting as executor may be held personally liable for unpaid estate tax if he or she distributes assets to a beneficiary of the estate before payment in full of the New York state estate tax.
Non-probate assets are often created for convenience but prove to be anything but convenient when disputes arise. Inconsistencies in the law can only embolden the litigious to advance what are tenuous positions. It is prudent to discuss these issues with clients. Doing so can help illuminate the clients’ true intent and objective in opening and maintaining their non-probate assets.
Alison Arden Besunder, of Arden Besunder P.C. in Manhattan, is of counsel to Bracken Margolin Besunder in Islandia.
1. The Ferrara case precipitated the changes to the power of attorney law in New York in 2009 as amended in 2010, with specific authority required to allow the agent the scope of authority to make gifts.
2. GOL §5-1514 states that the principal may authorize the agent to “make gifts in any of the following ways: […] (3) opening, modifying or terminating a bank account in trust form as described in [EPTL §7-5.1] and designate or change the beneficiary or beneficiaries of such account.” GOL §5-1514(c)(3). Even before the Sept. 1, 2009 amendments, the statute construed transfers made “either outright or to a trust for the sole benefit of one or more of said persons” to be a gift when made pursuant to a power of attorney; such gifts could not exceed $10,000 absent a special rider. GOL §5-1502M (2009).