It has been said that bank tellers conduct the majority of estate planning in the United States. With the increasing prevalence and simplicity of survivorship and payable on death features of financial products and accounts, online will and estate planning document providers, and the general desire for “probate avoidance” among a large segment of the American public, there is much truth in that statement. The availability of joint ownership, survivorship and payable on death features with bank accounts oftentimes leads to unintended circumstances, and thus significant litigation, regarding the disposition of a decedent’s assets. There are literally hundreds of reported cases regarding the depositor’s intent in creating a joint account with rights of survivorship or adding another individual as an additional signer to an account. Gregory Eddington, Survivorship Rights in Joint Bank Accounts: A Misbegotten Presumption of Intent, 15 Marquette Elder’s Advisor (Issue 2 Spring) 176 (2014).
Consider an elderly person who lives alone and desires some assistance with the payment of bills. The elderly person, rather than seeking legal advice, discusses the problem with the teller at the local bank branch, who suggests adding a child or relative as an additional signer on his or her bank accounts — an easy fix. If the bank teller simply adds the individual as an authorized signer on the account (absent concerns of abuse during the elderly person’s lifetime), this may be a perfectly workable solution to the problem. Suppose, on the other hand, that the bank teller, eager to be helpful, also suggests adding the additional signer as a joint owner with right of survivorship to make things “simple” in the event of the elderly person’s death. Such a change, even if made with innocent intentions, can have disastrous consequences and unwittingly alter the disposition of the elderly person’s estate in a manner he or she never intended.
At the death of the elderly person, the personal representative of the estate must determine the ownership of the funds in the account. Are the funds the property of the estate or do the funds belong to the joint owner? May the funds be used to pay claims against the decedent’s estate? The decedent’s heirs or estate beneficiaries will likely contend that the funds belong to the estate, while the joint owner may contend that the decedent, fully aware of the consequences of the account designation, intended to make him or her a joint owner, and that he or she is the rightful owner of the account as the surviving joint tenant; litigation ensues. Such litigation usually involves allegations of mental incapacity, undue influence, or constructive fraud. These issues are discussed in more detail in the section “Will Contests”. In addition, it is important to determine whether the necessary formalities were observed in the creation of the account.
Joint accounts with rights of survivorship and payable on death features can create difficult issues upon death of the account owner. In addition to disputes over ownership, if properly created, the accounts do not immediately become property of the decedent’s estate, but can be added to the estate to pay claims and debts, if necessary. See N.C.G.S. §§ 28A-15-10(a) and 41-2.1(b).
The vast majority of personal property can be held with a right of survivorship if the document creating the joint ownership or survivorship interest meets the applicable statutory requirements. N.C.G.S. §§ 41-2, 41-2.1, 53C-6-6, 53C-6-7, 54-109.58, 54B-129, and 54C-165. Retirement accounts and other types of deferred compensation accounts cannot be held jointly with a right of survivorship. Retirement accounts are typically inherited by a transfer on death designation. If a joint account is subject to a right of survivorship, the funds automatically become the property of the other joint account owner(s) upon the death of another joint account owner. Similarly, the payable on death beneficiary of an account automatically becomes the owner of the funds in the account upon the death of the account holder. In each case, the funds are not property of the estate, but may be added to the estate if needed to pay claims. Id. As discussed above, under North Carolina law, survivorship is not an incident of joint tenancy and, in order to create a survivorship right, the agreement creating the joint account must comply with certain statutory requirements.
In order to create a joint account with right of survivorship, the account holder(s) must comply with one or more of the following statutes, as applicable:
While there are multiple statutes that allow for the creation of a joint account with right of survivorship, each statute employs essentially the same requirements to create a right of survivorship in the joint account (except those governing the creation of joint accounts with right of survivorship among multiple beneficiaries of payable on death accounts, discussed at section E infra). North Carolina courts require strict compliance with these statutory requirements, and if these requirements are not met, a right of survivorship will not exist in the account. See Mut. Cmty. Say. Bank, S.S.B. v. Boyd, 125 N.C. App. at 121, 479 S.E.2d at 493 (holding that statutory requirements must be met to create right of survivorship); In re Estate of Heffner, 99 N.C. App. 327, 328-29, 392 S.E.2d 770, 773 (1990) (highlighting the necessity of statutory compliance to establish a right of survivorship).
The instrument establishing the joint account must be written; most often, the signature card or separate account agreement serves as this writing. See N.C.G.S. §§ 41-2, 412.1, 53C-6-6, 53C-6-7, 54-109.58, 54B-129, and 54C-165. The instrument must contain some indication that the instrument was intended to govern the joint account at issue, either pursuant to its own terms or pursuant to other documents creating the account. See Napier v. High Point Bank & Trust Co., 100 N.C. App. 390, 393-94, 396 S.E.2d 620, 621 (1990). Generally, each time two or more persons open a joint account with right of survivorship, the account agreement or signature card will contain the account number to which it relates. If the same parties desire to open a new account with right of survivorship, a new account agreement or signature card is required, as survivorship rights do not transfer from one account to another, even if the accounts are at the same financial institution. See Horry v. Woodbury, 189 N.C. App. 669, 659 S.E.2d 88 (2008), rev’d 363 N.C. 7, 673 S.E.2d 127 (2009) (per curiam) (adopting McCullough, J. dissenting).
Nor does a right of survivorship remain with funds if transferred from one account to another and the right to survivorship terminates when the account that created such right is closed. See Napier, 100 N.C. App. at 393-94, 396 S.E.2d at 622 (holding that no survivorship right existed in funds withdrawn from certificate of deposit with right of survivorship and used to purchase second certificate of deposit with no designated right of survivorship and where no indication in the signature card of the first CD purported to govern the second); Horry, 363 N.C. 7, 673 S.E.2d 127. In State ex rel. Pilard v. Berninger, the court of appeals held that survivorship rights of the surviving spouse were extinguished with respect to the joint account at the time the funds in the joint account were converted and the account closed, thus the surviving spouse could not claim a survivorship interest in the converted funds. 154 N.C. App. 45, 56, 571 S.E.2d 836, 844 (2002). Prior to the decedent’s death, the decedent and his wife owned various certificates of deposit with a right of survivorship, as well as a demand deposit account. Id. at 48, 571 S.E.2d at 838. Pursuant to the bank’s original regulations, the demand deposit account would be paid fifty percent (50%) to the decedent’s estate and fifty percent (50%) to the surviving spouse. During the decedent’s incapacity, his wife forged the decedent’s signature on a signature card to change the demand deposit account to a one hundred percent (100%) survivorship account. Id. at 49, 571 S.E.2d at 839. Days before the decedent’s death, the wife then transferred $225,000.00 from the demand deposit account into certificates of deposit solely in her name. Id. The wife argued that her conversion of the funds was of no consequence because the demand deposit account was an account with right of survivorship. Id. at 56, 571 S.E.2d at 843. However, the court held that the forgery invalidated the more recent signature card, and therefore, no survivorship right was held in the new demand deposit account.
An exception does exist with respect to this requirement when a master account agreement creating a joint account by its terms applies to multiple specific accounts or generally to all accounts of the depositor with the financial institution. In Albert v. Cowart, the parties had executed separate agreements with a financial institution that served as master agreements for all accounts of the parties with the financial institution and provided that all joint accounts opened with the institution would incorporate right of survivorship. 200 N.C. App. 57, 58, 682 S.E.2d 773, 775 (2009). The purpose of the master agreement was to eliminate the necessity of additional signature cards for subsequent accounts. Id. at 65, 779. Each master agreement contained the requisite statutory language for the creation of a right of survivorship, but the agreements were executed separately. The court held that the separate master agreements were sufficient to establish a right of survivorship with respect to any joint account opened by the parties. Id. A critical fact in Albert is that both of the parties had executed a master agreement; had only one party executed a master agreement, the result likely would have been different.
Survivorship rights may not be created by oral agreement and, in order to create survivorship rights, all joint owners of an account must sign the account agreement creating the survivorship right. See O’Brien v. Reece, 45 N.C. App. 610, 613, 263 S.E.2d 817, 819 (1980). Each account owner must sign a written agreement evidencing their intent to create a right of survivorship in the joint account. See Heffner, 99 N.C. App. 327, 392 S.E.2d 770; Horry, 363 N.C. 7, 673 S.E.2d 127 (holding all account owners must sign statement creating account); Powell v. First Union Nat’l Bank, 98 N.C. App. 227, 229, 390 S.E.2d 461, 462 (1990) (holding that no right of survivorship was created, despite clear intent, where one joint account owner died before execution of the signature card).
In Heffner, the decedent-husband opened an account in the name of his wife and himself and “checked the box” on the account signature card that the account would have a right of survivorship among the account owners. 99 N.C. App. 327, 392 S.E.2d 770. The decedent’s wife, however, did not execute the signature card. Upon the death of the decedent, the wife asserted ownership of the account by virtue of the “checked box” indicating that a right of survivorship was elected in the account. The court declined to find that a right of survivorship existed because the wife had not executed the signature card. Id. In this instance, when there are two parties to an account but one does not sign the account agreement, then a rebuttable presumption arises that the account is owned equally by the parties as tenants-in-common. Powell, 98 N.C. App. at 229, 390 S.E.2d at 462, citing McAuliffe v. Wilson, 41 N.C. App., 117, 254 S.E.2d 547 (1971).
The account agreement or signature card must expressly state that a right of survivorship is intended by the parties. See N.C.G.S. §§ 41-2.1(a) (which requires that the instrument creating the joint account must explicitly state that a right of survivorship is intended), 53C-6-6(f), 53C-6-7, 54-109.58, 54B-129, and 54C-165 (each statute provides that all parties to the account must sign a statement evidencing their election of a right of survivorship). The name of the account or designation of a certificate of deposit as subject to a right of survivorship is insufficient to establish such right if it is not stated in the account agreement; the right of survivorship must be clearly stated in the account agreement. Obrien, 45 N.C. App. at 617, 263 S.E.2d at 822.
In Obrien, two depositors opened an account with a bank and deposited a certificate of deposit with the bank in the account that was designated as having survivorship rights among the parties. Id. at 617-18, 263 S.E.2d at 821. The parties both executed the signature card for the account, but failed to check the box indicating that they had elected a right of survivorship in the account. Id. The court declined to find a right of survivorship, holding that the signature card, not the certificate of deposit, served as the governing document for the account, and without an express election of survivorship, no such rights existed. Id.
An important distinction exists between N.C.G.S. § 41-2.1 and N.C.G.S. §§ 53C-6-6(f), 53C-6-7, 54-109.58, 54B-129, and 54C-165, in that the former does not require any particular language to create a right of survivorship, but the latter all contain specific language that must be clearly and conspicuously stated in the account agreement in substantially the same language as appears in the statutes. N.C.G.S. § 41-2.1(g) contains suggested language that may be utilized to create a joint account with right of survivorship, but it has been held that suggested language is not required for the right of survivorship to be effective. Harden v. First Union Nat’l Bank, 28 N.C. App. 75, 78, 220 S.E.2d 136, 138 (1975). With respect to accounts created under N.C.G.S. §§ 53C-66(f), 53C-6-7, 54-109.58, 54B-129, or 54C-165, if the signature card or account agreement fails to include substantially the same language as required in each of those statutes, a right of survivorship may not be created unless the agreement provides that the account is also governed by N.C.G.S. § 41-2.1, which must be expressly stated.
Parties may not present extrinsic evidence of their intent to create right of survivorship if the right of survivorship is not clearly contained in the account agreement. See Powell, 98 N.C. App. at 229, 390 S.E.2d at 462 (holding that even where it was the clear intention of the parties to create a right of survivorship, none existed for failure to comply with the applicable statute); Heffner, 99 N.C. App. 329-30, 392 S.E.2d at 771-72 (holding that allowing the parties’ subjective intent to govern rather than the strict requirements of the statute would create uncertainty and increased litigation for financial institutions and depositors); Mut. Cmty. Say. Bank, S.S.B., 125 N.C. App. at 122, 479 S.E.2d at 493 (holding that extrinsic evidence is inadmissible, even where some ambiguity existed in signature cards).
In Mut. Cmty. Say. Bank, S.S.B. v. Boyd, the court held that the testimony of a bank employee and an affidavit from the surviving joint account owner regarding the intent of parties to create a right of survivorship in the account was not admissible and the ownership of the account at issue must be determined solely on the basis of the signature cards. 125 N.C. App. at 122, 479 S.E.2d at 493. At issue in the case were two certificates of deposits (CDs). The signature cards for the CD contained two boxes, one indicating that the account was an “individual account” and another indicating that the account was “joint.” Underneath the box labeled “joint” was a paragraph with language that stated the parties intended the account to be joint with right of survivorship and presumptively complied with N.C.G.S. § 41-2.1. Neither of the boxes were checked on either signature card, and while the court stated this created an ambiguity on the face of the signature cards, the parties clearly failed to comply with the statutory requirements as a result of the ambiguity, and thus extrinsic evidence would not be considered. Id. Meredith Stone Smith, Estate Administration: Joint Accounts with A Right of Survivorship, Estate Admin. Bull. No. 2014/02 (UNC School of Government, March 2014).
Under the current North Carolina statutes, payable on death accounts may be created by one or more persons who own the account. The owner(s) may name one or more individuals or one entity as beneficiary(ies) of the account. N.C.G.S. §§ 53C-6-7, 54-109.57A, 54B-130.1 and 54C-166.1. If there are multiple owners of a payable on death account, the account is joint with right of survivorship. Id. With respect to the account, any owner may (1) change or revoke the beneficiary of the account during his or her lifetime by written direction to the financial institution and (2) withdraw funds from the account. Id. If all beneficiaries who are natural persons or an entity beneficiary cease(s) to exist, the account will lose its payable on death status and will be deemed a single account (if only one account owner) or a joint account with right of survivorship (if there are multiple account owners). Id.
The beneficiary of a payable on death account has no ownership interest in the account before the death of all owners of the account. Upon the death of all owners of the account, the surviving beneficiary will become the owner of the account. Id. If there are multiple surviving beneficiaries, they will own the account as joint tenants with right of survivorship. Upon receipt of proof of death of all owners, the financial institution will pay the account to the surviving beneficiary(ies). Id. Andrew L. Nesbitt, Handling Assets: Bank Accounts, Certificates of Deposit and Other Depository Accounts, in NORTH CAROLINA ADMINISTRATION MANUAL IX-24 to -25 (Jessica M. Hardin & Heidi E. Royal eds. 2014 & Supp. 2016).
2) Requirements for Creation
Payable on death accounts are statutory creatures and therefore are governed entirely by statute. In order to create an account with a payable on death beneficiary, the owner must create the account pursuant to N.C.G.S. § 53C-6-7, 54-109.57A, 54B-130.1 or 54C-166.1. Under each of N.C.G.S. § 53C-6-7, 54-109.57A, 54B-130.1 or 54C-166.1, language that is substantially similar to that appearing in the respective statutes must be set forth in a conspicuous manner on the signature card or other account agreement or instrument governing the account, and the signature card, agreement or instrument must be signed by all owners of the account. As discussed above with respect to joint accounts with right of survivorship, strict compliance with the statutory requirements is necessary to create a payable on death account. If an account owner does not strictly comply with statutory requirements, a payable on death beneficiary will not be found.