Articles

01
By Larry Raymond

A joint bank account can be a very useful device if used carefully and if the person who establishes it understands the implications of what he is doing.

A joint bank account is a form of a Non-Probate Transfer. Its ownership is established when the account is created and when the person establishing it dies, it does not pass through his probate estate. It passes in accordance with the way in which it was set up.

Article IV of the Maine Probate Code addresses the kind of transfers that include what is commonly referred to as “joint bank accounts”.

That Article calls these transactions “Non-probate Transfers”, and defines an Account as:

“… a contract between a customer and a financial institution in the nature of a deposit of fund … and includes a checking account, savings account, certificate of deposit, share account, repurchase agreement and other like arrangement.”

The Article states that a ‘multiple-party account’ can be any of the following types: (i) a joint account; (ii) a P.O.D. account; or (iii) a trust account. A joint account is defined as ‘an account payable on request to one or more of two or more parties whether or not mention is made of any right of survivorship”. A “P.O.D.” account (payable on death) means an account payable on request to one person during lifetime, and on that person’s death, to one or more P.O.D. payees.

In Maine, joint accounts are useful because we can name another person (or persons) on them. The GOOD NEWS is that it offers a depositor the flexibility that the depositor may be looking for. A child, a relative, or a friend, who is named on the joint account, could have easy access to the funds. If it becomes difficult for mother, dad, or some other elderly person to access the funds, the younger joint tenant has the ability to do so.

Who owns the joint account while the older person is alive? Section 6-103 of Maine’s Probate Code, specifically states that a joint account belongs, during the lifetime of all the parties, to the parties in the proportion of the net contribution by each to the sums on deposit, “unless there is clear and convincing evidence of a different intent”. If the younger person has, for example, contributed nothing, the older person owns the full account during his or her lifetime.

The BAD NEWS is that there are often misunderstandings about the availability of funds during the lifetime of the person who establishes the account and about what will happen to the account when that person dies. Section 6-104 of the Probate Code, under Right of Survivorship, states: “Sums remaining on deposit at the death of a party to a joint account belong to the surviving party or parties as against the estate of the decedent unless there is a clear and convincing evidence of a different intention at the time the account is created”.

In my experience, I find that persons who create a joint account (especially an elderly person adding a younger relative’s name to the account), often do not understand that upon their death, the account will automatically become the property of the joint owner without the need of probate or any other legal act from their estate. Sometimes, this may be just what the depositor desired, but in many instances, the addition of the second person as a joint tenant is made only for the convenience of the older person with the understanding that at death, the amount on deposit will be distributed pursuant to the terms of that person’s Will or to his heirs, and is and is is not to become the property of the joint owner. Depositors often do not understand the importance of the words that are outlined in Section 6-104.

Often, when the deposit is made in joint names or when an additional name is added as a joint owner, the e financial institution simply presents the depositor with a small card with a tiny text that states that the ownership of the entire account will be transferred at death to the surviving owner. Seldom, if ever, are the legal implications discussed with the depositor at the time. Obviously, it becomes a very difficult problem after the death of the depositor for the depositor’s estate to prove that there was a “different intention at the time the account was created”.

In addition, a little known section of the Code, [Section 6-104 (e)], states that a right of survivorship which arises from the joint account cannot be changed by will. The general public and many employees of financial institutions are not aware of this provision. The way the joint account is set up, and not the Will, will prevail.

More often than not, joint accounts work very well as a convenience and in many instances, the surviving joint owner will be honest enough to agree that there was an understanding with the depositor that upon death, the funds will be distributed in accordance with the Will or as directed by the depositor. However, there is no certainty that this will happen and there are Federal Gift Tax implications when the survivor distributes the funds. Controversies arise when there is no mention of distribution by the depositor prior to death and the joint owner tells those who are named in the Will that “he wanted me to have it at death or he wouldn’t have put my name on the account”. This can lead to dissension and family problems that are difficult to solve and live on for years.

When creating a joint account, a depositor should be aware of the legal significance of the ownership of the balance in the account at death and should insure that any contrary distribution intended is made known to the financial institution at that time. If the depositor does not wish to make a gift of the balance to the surviving joint owner, there must be “clear and convincing” evidence of a different intention “at the time the account is created”. This is seldom, if ever, provided.

In addition, it should be noted that Section 6-109 of the Code states as follows:

“Any sums in a joint account may be paid, on request, to any party without regard to whether any other party is incapacitated or deceased at the time the payment is demanded.”

Essentially, this means that the financial institution can permit the joint owner to withdraw funds at any time during the lifetime of the depositor without the depositor’s knowledge. The financial institution may make payment at any time to the surviving joint owner, and it is fully protected in doing so. A quick withdrawal by a joint owner immediately upon death of the depositor often raises suspicions among family members who anticipated sharing in the funds.

All of this can be avoided if sufficient care is taken when the account is established. If the depositor, on his death, does not want the joint owner to acquire the entire account, he should make that clear in writing at that time.

The GOOD NEWS is that as a convenience factor, joint bank accounts are available. The BAD NEWS is that unless the depositor realizes the significance of adding a person to the account as a joint owner, the result may be far different from that desired and leave a legacy of family discord for years to come.

        Larry Raymond is a founding partner of Isaacson & Raymond. He specializes in probate, trusts, estate planning, elrobate, trusts, estate planning, elder law and related litigation. Larry recently completed 33 years as Androscoggin County Probate Judge.

[from The I & R Connection Volume 2; Issue 1 - Spring 2000]

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