“THE LEGAL CORNER”
By Sam A. Moak
Multiple Party Accounts
The information in this column is not intended as legal advice but to provide a general understanding of the law. Any readers with a legal problem, including those whose questions are addressed here, should consult an attorney for advice on their particular circumstances.
I have found it is common for families to use multiple party accounts to assist in paying bills and transferring assets. Multiple party accounts are important non-probate transfer mechanisms because these accounts are used widely, easy to understand, and inexpensive to obtain. Therefore, in this week’s column I will discuss three of the most recognized types of multiple party accounts.
The three most recognized multiparty accounts are: (1) the joint account, which may transfer ownership rights to the account’s balance to the surviving party; (2) the agency or convenience account, which does not transfer the account’s balance upon the death of one of the parties; and (3) the payable on death account, which causes the balance to belong to the surviving payees upon the death of the depositor(s).
These multiple party accounts are typically checking accounts, savings accounts, and certificates of deposit, but may also include brokerage accounts, investment accounts, and IRA’s. They involve contractual arrangements for the deposit of money with financial institutions such as state or national banks, savings and loan associations, credit unions, and brokerage and investment companies. The disposition of the funds remaining in these accounts upon the death of one of the depositors depends on the type of account, the account contract and the applicable state law.
A joint account is an account that is payable on request to one or more of two parties. While all parties to a joint account are alive, the parties own the funds in the account in proportion to their net contributions unless there is clear and convincing evidence of a different intent.
Unlike many states, the presumption in Texas is that an account in two or more names does not have the survivorship feature. In fact, the presumption in Texas is that the funds pass into the deceased party’s estate. However, it can pass to the surviving party if there is a written survivorship agreement, signed by the deceased party and that contains language expressly making the deceased party’s interest pass to the surviving party. What language is sufficient to create the survivorship feature is determined by the Texas Probate Code and case law.
A convenience account is an account established by a depositor in the names of the depositor and a co-signer. The terms of the account must provide that the sums on deposit are paid or delivered to the depositor or to the co-signer “for the convenience” of the depositor. The depositor is not considered to have made a gift of any interest in the account to the co-signer. Additionally, any deposits to the account by anyone other than the depositor are considered to have been made by the depositor. Thus, it appears that the depositor is the owner of all funds in the account. However, the statute also states that “the making of a deposit in a convenience account does not affect the title to the deposit. So, if the co-signer deposits funds into the account, it is unclear whether the co-signer has made a gift to the depositor or if the co-signer retains ownership of the deposited amount. Both have the right to withdraw from the account as long as the depositor is alive.
After the death of the depositor, then the entire balance remaining in the convenience account passes into the depositor’s estate. The co-signer has no survivorship rights.
A pay on death account is an account payable on request to one or more depositor during the depositors’ lifetimes and on the death of all of the depositors to one or more P.O.D. payees. A written agreement signed by the depositor(s) and P.O.D. payee(s) is required.
A P.O.D. account belongs to the depositor or depositors during their lifetimes and not to the P.O.D. payee or payees. If there are two or more depositors, during their lifetimes, rights between them are governed by the rules applicable to joint accounts and belong to the depositors in proportion to the net contributions by each to the sums on deposit, unless there is clear and convincing evidence of a different intent.
During the lifetime of the depositor or depositors, a P.O.D. account may be paid, on request, to any depositor to the account. No notice to or consent of the P.O.D. payee is required. The P.O.D. payees have no withdrawal rights while any depositor is alive.
On the death of the last living depositor, any sums remaining on deposit belong to the P.O.D. payee or payees if surviving, or to the survivor of them if one or more die before the original depositor.
Common issues to all of these multiple party accounts are:
effect of depositor’s incapacity;
rights of a living party’s creditors;
rights of a deceased party’s creditors;
stopping payment from a multiple party account;
effect of divorce; and
conflicting disposition by Will.
It is likely many of you have multiple party accounts. While they can be useful tools in your estate plan, you should consult with your estate planning attorney to make sure they have the effect you intended and do not conflict with your estate planning documents.
Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.