With Right of Survivorship – or Perhaps Not?

by Carlena L. Tapella
The Trusts & Estates Law Blog

In advising clients regarding the rights afforded to joint tenants on a bank account, most practitioners would say that the agreement with the financial institution generally would control, with the surviving joint tenant succeeding to the funds remaining in the account on the death of the other joint tenant. California’s Multiple-Party Accounts Law (Prob. Code, §§ 5100, et seq.) governs ownership of accounts with multiple parties and the disposition of those accounts upon the death of one of the parties to the account. Probate Code section 5302, subdivision (a) provides, in pertinent part, that, “Sums remaining on deposit at the death of a party to a joint account belong to the surviving party or parties as against the estate of the decedent unless there is clear and convincing evidence of a different intent. (Prob. Code, § 5302(a).) Subdivision (c) further provides that, “A right of survivorship arising from the express terms of the account or under this section, a beneficiary designation in a Totten trust account, or a P.O.D. payee designation, cannot be changed by will.” (Prob. Code, § 5302(c).)

Probate Code section 5303 goes on to set forth how the form of the account can be changed once it is established: “(a) The provisions of Section 5302 as to rights of survivorship are determined by the form of the account at the death of a party. (b) Once established, the terms of a multiple-party account can be changed only by any of the following methods:

(1) Closing the account and reopening it under different terms.

(2) Presenting to the financial institution a modification agreement that is signed by all parties with a present right of withdrawal. If the financial institution has a form for this purpose, it may require use of the form.

(3) If the provisions of the terms of the account or deposit agreement provide a method of modification of the terms of the account, complying with those provisions.

(4) As provided in subdivision (c) of Section 5405 (which relates to payment as discharging the financial institution based on specific written instructions).

What happens if the deceased joint tenant states in a will that he or she expressly does not want the account to pass by right of survivorship and, instead, wants the account to pass as set forth in the will? The California Court of Appeal, Fourth Appellate District, Division Three, addressed that question in the case of Placencia v. Strazicich (2019) 42 Cal.App.5th 730. In Placencia, Ralph Placencia, the father of three daughters, established a joint tenancy account with Franklin Fund almost 24 years prior to his death. The account was opened as a joint tenancy account with right of survivorship in Lisa, one of his daughters. Lisa never contributed any funds to the account. Ralph executed a will shortly before his death in which he expressly stated that he wanted to “remove” Lisa as the “beneficiary” of the account and, instead, have all three of his daughters be the beneficiaries, with the funds deposited into his trust (of which the three daughters were the sole and equal beneficiaries) and to be used to pay off the mortgage on his residence.

After Ralph’s death, Lisa transferred the funds in the joint tenancy account into an account in her own name. Naturally, a dispute arose among the sisters as to several matters, including the ownership of the account after Ralph’s death. At trial, the court concluded that the will, and conversations Ralph had with his brother-in-law confirming that intent, amounted to clear and convincing evidence that Ralph intended to revoke Lisa’s right of survivorship in the account. Lisa appealed the trial court’s decision.

The Court of Appeal acknowledged that “at first blush,” the statutory scheme would seem to support Lisa’s position. After all, the expression of Ralph’s intent was contained in his will and subdivision (c) of Probate Code section 5202 specifically states that the right of survivorship arising from the express terms of the account cannot be changed by will. The court found that the “key to harmonizing” these two statutes lies in the “distinction between the express terms of the account and the beneficial interests in the account.” (Id., at p. 738.)

The appellate court looked at Probate Code section 5201, which stated that the provisions of “Chapter 3 (commencing with Section 5301) concerning beneficial ownership as between parties . . . are relevant only to controversies between these persons and their creditors and other successors, and have no bearing on the power of withdrawal of these persons as determined by the terms of account contracts.” (Ibid., emphasis in original.)

In the court’s opinion, the distinction between these two terms – the terms of an account and the ownership of beneficial interests – is key to interpreting section 5303. The court determined that the terms of a multiple-party can be changed only by utilizing one of the methods listed in Probate Code section 5303. By contrast, the court stated, Probate Code section 5302 concerns the beneficial interests as between the parties to the account: “Sums remaining on deposit at the death of a party to a joint account belong to the surviving party or parties as against the estate of the decedent unless there is clear and convincing evidence of a different intent.” (Ibid., emphasis in original). The court found further support for its determination, by pointing out that subdivision (d) of Probate Code section 5302 contains the following “catchall”: “In other cases, the death of any party to a multiparty account has no effect on beneficial ownership of the account other than to transfer the rights of the decedent as part of the decedent’s estate.” (Id., at p. 739, emphasis in original.) The court went on to say that the fact that the catchall is “explicitly framed in terms of the ownership of beneficial interests strongly suggests that subdivisions (a) through (c) also concern the ownership of beneficial interests.” (Ibid.)

The court viewed Probate Code section 5303 as applying to the obligations of the financial institution to pay the funds to the surviving joint tenant in accordance with the account agreement and Probate Code section 5302 as applying to a claim that the decedent’s estate may have for the funds against the surviving joint tenant.

But, what about the fact that subdivision (e) of Probate Code section 5302 specifically states that the “right of survivorship” cannot be changed by a will? The court addressed this by stating that the will is not effective to change the “right of survivorship” agreement as between the deceased joint tenant, the financial institution, and the surviving joint tenant. However, the will can be considered as evidence of the decedent’s intent as to the disposition of the funds in that account as between the surviving joint tenant and the decedent’s estate. This, the court stated, would be consistent with the “modern trend toward favoring the decedent’s intent over formalities.” (Id., at p. 41, citing Estate of Duke (2015) 61 Cal.4th 871.)

The appellate court did not agree with the trial court’s decision that the funds in the account were to be administered as part of Ralph’s trust. Rather, the terms of Probate Code section 5302, subdivision (d) required the funds to be part of Ralph’s personal estate.

As stated in the Placencia opinion, the courts are continuing the trend towards recognizing the decedent’s intent, including examining evidence that previously would not have been admitted at trial. While in Placencia, the statement in the will did not have the effect of changing the terms of the account so that the financial institution would have been compelled to pay the account directly to Ralph’s executor, it did evidence Ralph’s intent that Lisa not succeed to the account and that, instead, it be included as part of Ralph’s estate.

Given that the court looked at Ralph’s will for the purpose of determining intent, practitioners should not limit their examination of a decedent’s papers exclusively to the will. It seems reasonable to conclude that, had Ralph signed a letter to Lisa telling her that he had no intention of her succeeding to the account as a surviving joint tenant and, instead, wanted it shared with all of his daughters, the result would have been the same.