There is a serious gap in the law concerning the inheritance of bank accounts. The problem turns on the lack of clarity as to the intent of the bank account creator as to how a bank account is to pass to his or her beneficiaries upon the creator’s death. Buffington Law Firm’s trust litigation team sees this problem recur repeatedly, and the lack of clarity on this issue is quite honestly baffling and infuriating in equal measure. The problem lies with the question as to whether a given person is actually supposed to be a “pay on death beneficiary.” This determination can be far-reaching. When a bank account holder makes a given person a “pay on death beneficiary” this means that the contents of the bank account pass to the beneficiary completely outside of the bank account owner’s estate plan. Upon the creator’s death, the “POD Beneficiary” immediately becomes the owner of the bank account. The provisions of the creator’s will or trust do not control and are, in fact, completely irrelevant. Title to the bank account passes to the POD Beneficiary in much the same fashion as title to real property passes outside of any estate plan when a party makes another party a joint tenant on a real property parcel.
This can literally render most or all of an otherwise carefully crafted estate plan completely irrelevant — frustrating the actual intent of the decedent. Buffington Law Firm’s trust litigation team has frequently encountered situations where it was quite plain that a trustmaker intended for his or her estate to pass (for example) equally among several beneficiaries, e.g. the trustmaker’s children, But one child helped the trustmaker pay bills and the trust maker had placed that child on the bank account as a signatory and either inadverently made that child the POD Beneficiary on the account, or worse, the bank paperwork is ambiguous on this point. When the trustmaker passes, the co-signatory on the bank account quietly writes a check to him or herself, closes the account, and that’s that. The actual testamentary intent of the decedent, however clearly stated in the subject trust or will, may become irrelevant.
The problem is amplified by the problem that bank account documentation is often ambiguous. Banks often call signatories “co-owners” which may be completely untrue. California law does not make someone who is merely a signatory a “co-owner” no matter what the often poorly-drafted bank documentation may say. 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); see also Lee v. Yang (2003) 111 Cal. App. 4th 481, 490–494 (boyfriend had no right to reimbursement of funds disproportionate to contributions which were withdrawn by girlfriend from account to which she was added as signatory; due to her unrestricted right to withdraw and apply funds, ownership of any withdrawn funds passed to her by way of gift)]. If a party makes an excess withdrawal [see Prob. Code § 5301(f)(definition)] from an account, the other parties to the account have an ownership interest in the excess withdrawal in proportion to the net contributions of each to the amount on deposit in the account immediately following the excess withdrawal, unless there is clear and convincing evidence of a contrary agreement between the parties [Prob. Code § 5301(b)]. A court, in its discretion, and in the interest of justice, may reduce any recovery to reflect funds withdrawn and applied for the benefit of the claiming party [Prob. Code § 5301(c)] In the case of a 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)].
Whether the account documentation seems to make a co-signatory on an account a POD Beneficiary is not absolute. 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 paramount such that the surviving account holder’s presumed right of survivorship can be overcome by just about any sort of admissible evidence, as long as it is clear and convincing. People whom the bank deems to be “co-owners” may not have any ownership interest in the account at all, either during the life of the creator of the account, or after his or her passing. A right of survivorship in a joint account is not absolute. Whether a joint account has a right of survivorship will turn on evidence of the decedent’s intent, which can include statements made in a will.
In our experience, trial courts as well as banks are often obtuse on this area of law. When trust beneficiaries discover that one child of a decedent has walked away with a disproportionate share of the estate because that person was a signatory on a bank account (and often intended to be nothing more) it can be an uphill battle convincing a trial court that this was improper. Trial courts are often deferential to the determination of the subject bank on this. They should not be. In our experience banks are rarely knowledgeable about the law as it applies to the post-death disposition of a bank account, and it is the duty of the trial court to be prepared to review such determination when litigation is brought before the trial court.
If you are dealing with this type of situation, or any kind of trust or inheritance dispute, Buffington Law Firm’s trust litigation attorneys offer a free legal consultation at which you may discuss your case confidentially. All consultations are with an experienced trust litigation trial attorney, and there is never any obligation or charge.