A Guide to Wills, Estate, Trust and Guardianship Litigation
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XI. Accounts With Right of Survivorship and Pay on Death Accounts
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).
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).
Creation of Joint Accounts with Right Of Survivorship
Generally
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.
Requirements for Creation
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:
- financial institution;
- N.C.G.S. § 53C-6-6, relating to joint deposit accounts at a bank;
- N.C.G.S. § 53C-6-7, relating to joint payable on death accounts at a bank;
- C.G.S. § 54-109.57A, relating to joint payable on death accounts at a credit union;
- N.C.G.S. § 54-109.58, relating to joint deposit accounts at a credit union;
- N.C.G.S. § 54B-129, relating to joint withdrawable accounts at a savings and loan association;
- N.C.G.S. § 54B-130.1, relating to joint payable on death accounts at a savings and loan association;
- C.G.S. § 54C-165, relating to joint deposit accounts at a savings bank; and
- N.C.G.S. § 54C-166.1, relating to joint payable on death accounts at a savings bank.
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).
Payable On Death Accounts
1) Generally
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.