An increasingly common issue that Buffington Law Firm’s trust litigation attorneys are having to deal with concerns the ownership of parents’ bank accounts after the parents have passed away. The best practice is for bank accounts to be titled in the name of their family trust. This way, if elderly parents need help managing their affairs in their later years, they (or the surviving parent if one has passed) can simply appoint the appropriate person, often one of their children, as a successor-trustee and the successor-trustee can then approve the appropriate charges out of the bank account for the parent/trustmakers’ bills. A well-crafted California Living Trust will have provisions for just this kind of situation, so that in the trustmakers’ declining years the successor-trustee can administer the trust for the benefit of the trustmakers. In classic estate planning this is how things should be set up. In such a case, when the trustmakers finally pass, the bank account is an asset of the trust and is disposed of, i.e. gifted, in accordance with the terms of the trust along with all of the other estate assets; such as the family home, for example. Unfortunately, too often this is not what trustmakers do.
Often, the trustmakers’ main bank account is not titled in the name of the trust at all, but instead is held in one of the trustmaker’s individual names. When the parent decides that he or she needs help with his or her finances, the trustmaker will add one of the children as a signatory on the account. Now that child can assist mom or dad with administering and paying household expenses. What could possibly go wrong?
As it turns out, plenty can go wrong. Often, once the parent passes away the child who was added as a signatory on the main bank account decides that as the surviving signatory of the account, he or she is now the owner of the account. Banks often think so too. Since the child is still a signatory, he or she simply writes a check transferring the funds in the account to one of his or her own personal bank accounts. The child takes the legal position that he or she was the owner of the account and had every right to do this, notwithstanding the parents’ Living Trust provisions, which may have (and usually have) provided that the parents’ assets were to pass equally to the parents’ several children in equal shares. Often this is done subtly. If the child who took the funds is also successor-trustee (frequently the case) the new successor-trustee simply omits that bank account as a trust asset, arguing that it was not suchj. When the successor-trustee does a trust accounting, this account is simply omitted from the list of trust assets to be distributed.
Naturally, when one of the other Living Trust beneficiaries discovers this omission, conflict ensues. Sometimes this will involve considerable amounts of money. But who is correct?
During the lifetime of the two account holders, there is little or no doubt. During the lifetime of all parties, an account belongs to the parties in proportion to the net contributions by each, unless there is clear and convincing evidence of a different intent [Prob. Code § 5301(a); see Prob. Code §§ 5134, 5150 (“net contribution” and “sums on deposit” defined). In the case of a Pay-On-Death (P.O.D.) account, the P.O.D. payee has no rights to the sums on deposit during the lifetime of any party, unless there is clear and convincing evidence of a different intent [Prob. Code § 5301(d)]. Thus (as frequently happens) if the child acting as co-signatory takes money out of the account for his or her personal benefit, absent clear and convincing evidence of the parent’s approval, this may be characterized as a wrongful taking. This can open the taker up to claims of conversion, or even Financial Elder Abuse.
But what if the child on the account waits for the parent to die before he or she takes the money? Ownership of the account essentially depends upon the applicable facts and circumstances. In Placencia v. Strazicich [2019) 42 Cal. App. 5th 730] the Court of Appeal clarified that the intent of the person who established the account is controlling;l the surviving account holder’s presumed right of survivorship (or whatever is the basis for the claim on the account) can be overcome by just about any sort of admissible evidence, as long as it is clear and convincing. In the opinion of Buffington Law Firm’s trust litigation team, this often means that the account is subject to a court order that it be returned to the trust as a trust asset. This determination is, of course, fact-driven and each case is different.
Disputes over bank accounts such as described here is one of many forms of trust disputes. If you are involved in a dispute concerning a California Living Trust, Buffington Law Firm’s trust litigation attorneys invite you to contact us for a free legal consultation. There is never any charge or obligation, all consultations are with an experienced living trust litigation attorney, and fully protected by the attorney-client privilege.
By: Roger J. Buffington