Introduction: Authorized Multi-Party Accounts

From time to time, we at Wolters Kluwer hear from an institution having problems because it offered its customers a form of account ownership that isn’t recognized by the law of the state in which the institution is located. What has usually happened is something like this: The institution allows the customer to open, let’s say, a “pay-on-death” (POD) account. This sort of account, in states that recognize it, is treated as the individual account of the depositor, as long as the depositor is alive; but once the depositor dies, the funds are automatically owned by the beneficiary named by the depositor. In states that do not recognize this form of ownership, the transfer at death is seen as a violation of the statutes specifying the requirements of a will. The transfer, therefore, is invalid. The problems begin when, long after the institution has paid the funds to the named beneficiary, the representative of the depositor’s estate comes in and demands the account balance, arguing that the institution had no right to pay the funds to the beneficiary since the particular state’s law does not recognize such an account or such a transfer.

Because this sort of problem can be expensive, we think it is important for financial institutions to know what types of account ownership are recognized by their states. This section is a state-by-state review of what forms of account ownership are recognized by statute. Some states may recognize other types of ownership through court rulings but we only address state statutes. Because the problems most frequently arise with respect to joint accounts with survivorship, revocable trust accounts, and “pay-on-death” accounts, we are limiting the scope of the review to those types of accounts. (In general, we refer to these types of accounts as multiple-party accounts.) Let’s make clear what we mean by each of these.

Joint accounts with survivorship are accounts owned jointly by more than one person. Generally, each of the owners has the right to make deposits and withdrawals from the account on his or her own signature, although the parties can agree otherwise. When one of the account owners dies, the ownership of the balance in the account is automatically transferred to the surviving owner or owners. If more than one owner survives, then these surviving owners continue to own the account jointly and with survivorship.

Revocable trust accounts, sometimes called “Totten trusts,” are opened by an individual who retains complete control over the account during his or her lifetime. This individual names a beneficiary who will acquire ownership of the balance of the account upon the death of the original depositor. A revocable trust account is different from a joint account with survivorship in that the person who is to acquire ownership upon the death of the original owner has no interest in the account before that. The beneficiary cannot make deposits to or withdrawals from the account until the original owner dies. Also, the original owner can change beneficiaries or change the form of ownership at any time, and the beneficiary will have no legal grounds to complain.

A “pay-on-death” account is functionally the same as a revocable trust account. The owner names a beneficiary who will own the account upon the death of the original owner. Prior to the original owner’s death, the beneficiary has no rights in the account and cannot make deposits to or withdrawals from the account. The original owner can change beneficiaries or change the form of ownership at any time at his or her discretion.

Sometimes, revocable trust accounts and pay-on-death accounts are established by more than one person. In such an account, the original owners generally own the account jointly with survivorship. The beneficiary does not obtain any rights in the account until the last of the original owners has died.

The original owner of a revocable trust account or a pay-on-death account can name more than one beneficiary. If more than one beneficiary survives the original owner, the beneficiaries will generally own the account in equal shares, without right of survivorship. However, this varies somewhat from state to state. Also, in some states the original owner could specify that the beneficiaries are to own the funds in other than equal shares.

The chart in this section will indicate whether or not the particular form of account ownership is recognized by the statutes of each jurisdiction for the type of financial institution indicated. A “Yes” in a column means that state statutes recognize the form of account ownership. A “No” means that we were unable to find a statutory authority for the form of ownership. The fact that no statutory authority exists does not necessarily mean that the form of ownership is invalid, but that is the likely result. If the form of ownership is recognized, the chart will also give a citation to the provision of law that recognizes the form of account. The Code in which the provision appears is listed immediately after the state name.

We strongly encourage you to look up the provisions cited for your jurisdiction. Many states put conditions on the validity of the forms of accounts authorized and you should familiarize yourself with those conditions. For instance, some statutes require that the document that creates a revocable trust account also include the name and address of all beneficiaries. If such a condition is not met, the survivorship aspect of the form of ownership might not be valid and your customer’s intentions would not be carried out.

You should study your state’s laws for several other reasons as well. First, you should try to determine how reliable these sorts of accounts are in effecting your customers’ intentions. While you probably don’t want to hold yourself out as an estate planner of any sort, you also don’t want to mislead your customers about the effectiveness of joint, POD, or revocable trust accounts in passing assets. In some states that recognize these forms of account ownership, the survivorship provision can be overcome by some sort of proof to the effect that the original depositor did not really intend to have the funds pass as indicated by the account-ownership provision. Other states hold that establishing an account in one of these forms is conclusive proof of the depositor’s intent, and the courts will not admit any evidence to the contrary. If you are located in a state that allows proof of contrary intent, you might want to ask your legal counsel about ways to ensure that the customer’s designation in the account agreement is effective.

Second, on the other end of the time line, when an account owner dies, you need to know what circumstances allow you to (or prohibit you from) paying the account balance to a beneficiary. For example, what evidence should you have that the owner of a pay-on-death or revocable trust account has died, making it safe for you to pay a beneficiary? Even if you are certain the owner has died, what should you do if the administrator of the owner’s estate tells you not to pay the beneficiary?

Third, many states have provisions specifically protecting financial institutions from liability when the institution pays a joint account holder or beneficiary in reliance on survivorship provisions in the account agreement. For example, Wisconsin law says:

Incidentally, the Wisconsin statute also applies simultaneous death rules to deposit accounts. For example, Person A survives the death of Person B only if it can be established by clear and convincing evidence that Person A survived the death of Person B by at least 120 hours. Otherwise, Person A is deemed to have predeceased Person B. This requirement can be altered by contract, however. [W.S.A. 854.03(1), (2), and (5)]

For another example of a state law that attempts to address these issues, see Washington’s “Testamentary Disposition of Nonprobate Assets Act,” Wash. Rev. Code Ann. 11.11.003, et seq.