MULTI-PARTY ACCOUNTS IN TEXAS

By GLENN M. KARISCH
Barnes & Karisch, P. C.
2901-D Bee Caves Road
Austin, Texas 78746
(512) 328-8355/FAX (512) 328-8413
email: karisch@texasprobate.com
www.texasprobate.com

Copyright © 2000 By Glenn M. Karisch, All Rights Reserved

Table of Contents

1. Introduction.

2. An Historical Perspective.

3. Current Statutory Framework.

a. Section 46.

i. Presumption: No Survivorship Right is Established.
ii. Survivorship May Be Created By Written Agreement.
iii. Section 46 Does Not Apply to Community Property.

b. Sections 436 - 449 (Chapter XI, Part 1).

i. Applicability: "Accounts" at "Financial Institutions."
ii. Rules Govern Ownership, Not Withdrawal Rights.
iii. Right of Survivorship.

(1) Requirements for Survivorship Agreement.
(2) Magic Words.
(3) Pay-on-Death (P. O. D.) and Trust Accounts.

iv. Convenience Accounts.
v. The Uniform Single-Party or Multiple-Party Account Form.
vi. Account Ownership While All Account Holders Are Alive.

(1) Joint Accounts.
(2) P. O. D. Accounts.
(3) Trust Accounts.

vii. Account Funds Available to Pay Claims Against Decedent's Estate.

c. Section 450 (Chapter XI, Part 2).

i. Provisions Covered.
ii. Types of Contracts.

d. Sections 451 - 462 (Chapter XI, Part 3).

i. Right of Survivorship in Community Property.
ii. Agreement Formalities.
iii. Ownership and Management Rights.
iv. Revocation of Agreement.
v. Proof of Survivorship Agreement.
vi. Rights of Creditors.
vii. Protection of Third Parties.

4. Stauffer v. Henderson and Its Offspring.

a. Stauffer v. Henderson.

i. Section 439 Is Exclusive.
ii. There Must Be a Written Agreement Signed by the Decedent.
iii. Extrinsic Evidence is Not Admissible.

b. Cases Since Stauffer.

5. Selected Practical Problems with Multi-Party Accounts.

a. Bank Signature Cards and Account Agreements are Confusing.
b. The Underfunded Credit Shelter Trust.
c. The Caregiver Problem.
d.  The Guardianship/Power of Attorney Problem.
e. Self-Help Estate Planning.

6. Current Forms Used at the Five Largest Banks.

a. Frost National Bank.
b. Bank One, Texas, N. A.
c. Bank of America.
d. Chase Bank of Texas, N. A.
e. Wells Fargo Bank.

7. Conclusion.

APPENDIX A - SURVIVORSHIP CASES SINCE 1990

APPENDIX B - FROST NATIONAL BANK ACCOUNT DOCUMENTS

APPENDIX C - BANK ONE, TEXAS, N. A. ACCOUNT DOCUMENTS

APPENDIX D - BANK OF AMERICA ACCOUNT DOCUMENTS

APPENDIX E - CHASE BANK OF TEXAS, N. A. ACCOUNT DOCUMENTS

APPENDIX F - WELLS FARGO BANK ACCOUNT DOCUMENTS

Multi-Party Accounts in Texas

1. Introduction.

Multi-party accounts are the estate planner's nemesis and the litigator's friend. Estate planners hate them because they can be the undoing of a well-conceived plan. How frustrating can it be to see a perfectly good credit shelter trust plan go up in smoke because 75% of the marital assets are held with right of survivorship? On the other hand, litigators love them because, despite the efforts of the legislature and the courts alike, there appears to be no end to litigation over the rightful owner of money and property in these accounts.

Of course, it is myopic to view multi-party accounts just from the perspective of lawyers, whether the lawyers are "writers" or "fighters." The real key, the thing that makes this a topic we still write about and discuss, is that clients love 'em. Despite all our preaching and despite all the litigation and problems they cause, lay people create multi-party accounts all the time with little or no thought (or, at least, little or no understanding) of the consequences.

It is just and right, then, for us to take a closer look at multi-party accounts. This paper begins with an historical perspective. Next, it covers the current statutory framework in Texas regarding multi-party accounts. Next, it discusses recent case law developments, beginning with the leading case on survivorship issues, Stauffer v. Henderson, 801 S. W. 2d 859 (Tex. 1990). Finally, it examines the signature cards and account agreements used in the summer of 2000 by the five largest banks in Texas for quirks which might affect the creation of survivorship accounts.

The author wishes to thank Professor Thomas M. Featherston, Jr., of the Baylor University School of Law for his help on this paper. The author also wishes to thank Frost National Bank, Bank One, Texas, N. A., Bank of America, Chase Bank of Texas, N. A., and Wells Fargo Bank for providing their signature cards and account agreements for this paper. Finally, the author wishes to thank S. Joyce Crivellari, attorney, and Jeannie Johnson, legal assistant, of Barnes & Karisch, P. C., for their help with this paper.

2. An Historical Perspective. ⁽¹⁾

If two or more persons jointly own a piece of property and one of the joint owners dies, does the property pass according to the deceased owner's will (or by intestacy if he or she has no will) or does the deceased owner's interest in the property pass to the other co-owners? The form of ownership and applicable state law provides the answer to this question. In general, if title passes to the other co-owners, the property is subject to a "right of survivorship," and title passes by "nontestamentary transfer" - free of the probate process.

At common law, a conveyance of land to two or more persons presumptively created a joint tenancy - with right of survivorship -- rather than a tenancy in common - with no right of survivorship. Many states, including Texas, passed statutes either reversing the presumption or abolishing joint tenancies with right of survivorship entirely. Texas's first statute on the subject - the forerunner to Section 46 of the Texas Probate Code - was enacted in 1848, and it opted for abolishing joint tenancy with right of survivorship rather than merely reversing the presumption. The Texas Supreme Court in 1889 announced: "The distinction which existed at common law between estates held by joint tenants, coparceners, and tenants in common, do not obtain in this state. The holders of such estates are tenants in common without regard to the manner in which such estates are acquired." Peterson v. Fowler, 73 Tex. 524, 11 S. W. 534 (1889).

Then came Chandler v. Kountze, 130 S. W. 2d 327 (Tex. Civ App. - Galveston 1939, writ ref'd), in 1939, which permitted the creation of a joint tenancy with right of survivorship where the conveyance was expressly made to two persons "as joint tenants with right of survivorship." The rationale of the Chandler case was that, while the legislature abolished joint tenancies with rights of survivorship that were created by operation of law, it did not prohibit parties to a contract from agreeing to create that form of ownership.

This result was codified into Section 46 of the new Texas Probate Code in 1955, which prohibited creation of joint tenancies with rights of survivorship by operation of law but permitted joint owners to agree in writing to create such estates.

Section 46 of the Probate Code proved to be inadequate in dealing with the explosive demand for multi-party survivorship accounts. There was much litigation over whether the parties to joint accounts intended to create survivorship rights and in fact did create survivorship rights. Finally, in 1979 the Texas Legislature enacted Chapter XI of the Texas Probate Code, entitled "Nontestamentary Transfers." These statutes, which have been amended several times since 1979, established ownership rules for such accounts and provided "safe harbor" language for persons wishing to create survivorship accounts.

Meanwhile, another quirk of Texas law was having a dramatic effect on the development of the law in this state regarding rights of survivorship. The most common type of joint ownership with right of survivorship in other states was between spouses. Joint tenancy with right of survivorship between spouses is called "tenancy by the entireties" in many states. Obviously, many spouses would like the property they hold jointly with their spouses to pass to the surviving spouse free of probate, so this form of ownership is quite attractive. For most of the 20th century, however, this type of ownership between spouses was effectively blocked in Texas because of our community property system. In the leading case of Hilley v. Hilley, 161 Tex. 569, 342 S. W. 2d 565 (1961), the Texas Supreme Court held that a husband and wife could not create a valid survivorship estate with community property unless they first partitioned the community property into separate property by written partition agreement.

The Hilley result did not sit well with the Texas legislature. There were increasing demands for effective right of survivorship ownership between spouses in Texas - especially with respect to bank and brokerage accounts - and constituents put pressure on their legislators to fix Hilley. In 1987, Section 15 of Article XVI of the Texas Constitution was amended to provide that "spouses may agree in writing that all or part of their community property becomes the property of the surviving spouse on the death of a spouse." In 1989, Sections 451 - 462 of the Texas Probate Code were enacted (Part 3 of Chapter XI) to provide a statutory framework for survivorship agreements involving community property. Note, however, that agreements between spouses that their community property be held subject to a right of survivorship technically does not create "joint tenancy with right of survivorship" property; rather, it creates a Texas-only hybrid called "community property with right of survivorship."

As will be discussed below, the statutory framework - Section 46 and Sections 436 - 462 of the Texas Probate Code - has made the law regarding multi-party accounts clearer in Texas, but it has not stopped the flood of litigation over such accounts.

3. Current Statutory Framework.

a. Section 46. Texas's original statute regarding joint tenancies and rights of survivorship is still on the books. Section 46 of the Texas Probate Code is short and sweet and makes three basic points:

i. Presumption: No Survivorship Right is Established. The first sentence of Section 46 reads:

If two or more persons hold an interest in property jointly, and one joint owner dies before severance, the interest of the decedent in the joint estate shall not survive to the remaining joint owner or owners but shall pass by will or intestacy from the decedent as if the decedent's interest had been severed.

This is straightforward. If property is conveyed to two persons and the conveyance is silent as to the form of ownership, title is taken not as joint tenants with right of survivorship but as tenants in common. It is important to remember this default rule - it takes something specific in the conveyance or agreement to create a right of survivorship, and if the specific language is not there, then there's no right of survivorship.

ii. Survivorship May Be Created By Written Agreement. The second sentence of Section 46 reads:

The joint owners may agree in writing, however, that the interest of any joint owner who dies shall survive to the surviving joint owner or owners, but no such agreement shall be inferred from the mere fact that the property is held in joint ownership.

To overcome the presumption of no right of survivorship found in Section 46(a), the joint owners must agree in writing that the interest of a deceased joint owner will pass to the other joint owners by survivorship. Note that, while the agreement regarding survivorship must be in writing, the statute does not say whether or not all - or any - of the joint owners must sign the written instrument creating the survivorship right. In Chandler v. Kountze, 130 S. W. 2d 327 (Tex. Civ. App. 1939, writ ref'd), the acceptance of a deed by the co-owners as joint tenants with right of survivorship was held to create a survivorship right. In that case, the court does not make clear whether or not the grantees on the deeds (who accepted title as joint tenants with right of survivorship) signed the deeds; common practice at the time was that grantees did not sign deeds. Thus, Chandler may be some authority for the proposition that joint tenants need not sign the written instrument creating the right of survivorship, as long as a written instrument exists. However, the Chandler case was decided in 1939, before the adoption of Section 46 of the Probate Code and at a time when the predecessor statute made no provision for overriding the presumption against survivorship.

iii. Section 46 Does Not Apply to Community Property. Section 46(b) reads:

Subsection (a) does not apply to agreements between spouses regarding their community property. Agreement between spouses regarding rights of survivorship in community property are governed by Part 3 of Chapter XI of this code [§§451 - 462].

Thus, while Section 46 continues to offer an alternative - if antiquated and ambiguous - way to create survivorship rights between nonspouses and between spouses as to separate property, it is not available as an alternative to Sections 451 - 462 to create survivorship rights in community property.

b. Sections 436 - 449 (Chapter XI, Part 1). Originally enacted in 1979 and amended several times since then, Chapter XI, Part 1 of the Texas Probate Code provides a much more detailed and thorough treatment of the subject of multi-party accounts at financial institutions.

i. Applicability: "Accounts" at "Financial Institutions." Part 1 of Chapter XI applies to accounts at financial institutions. An "account" is "a contract of deposit of funds between a depositor and a financial institution, and includes a checking account, savings account, certificate of deposit, share account, and other like arrangement." Tex. Prob. Code Ann. §436(1). A "financial institution" is:

[A]n organization authorized to do business under state or federal laws relating to financial institutions, including, without limitation, banks and trust companies, savings banks, building and loan associations, savings and loan companies or associations, credit unions, and brokerage firms that deal in the sales and purchases of stocks, bonds, and other types of securities.

Tex. Prob. Code Ann. §436(3).

While brokerage firms are considered "financial institutions," the only accounts which are governed by Part 1 of Chapter XI are "contracts of deposit of funds." Does this mean that these statutes apply to securities held in street name at a brokerage firm? Probably not. There are no Texas cases on the subject, but that is probably because the language of the statute is clear enough on the subject. In 1997, the legislature enacted the "Uniform Transfer on Death Security Registration Act" that would have specifically addressed survivorship rights in securities. Despite the efforts of probate lawyers' groups, the Governor signed the bill into law. After the bill became law but before the end of the 1997 legislative session, Governor Bush's staff had a change of heart and, with the Governor's backing, the uniform act was repealed before its effective date and "securities" and "accounts at financial institutions" were added to the list of permitted nontestamentary transfers in Section 450 of the Probate Code (discussed in more detail below). Therefore, conventional wisdom is that Part 1 of Chapter XI (Sections 436 - 449) do not govern securities held in brokerage accounts; rather, those arrangements are governed by Section 46 and/or Section 450.

ii. Rules Govern Ownership, Not Withdrawal Rights. Largely as a salve for financial institutions, and admittedly as a recognition of the reality of the situation, the provisions of Sections 438 - 440 of the Probate Code concerning beneficial ownership between parties to accounts, pay-on-death (P.O.D.) beneficiaries and their creditors "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." Tex. Prob. Code Ann. §437. Sections 437 - 449 are full of protections of financial institutions. For example, in MBank Corpus Christi, N. A. v. Shiner, 840 S. W. 2d 724 (Tex. App. - Corpus Christi 1992, no writ), the bank was held to be not liable to the estate for paying money on deposit in a non-survivorship account to a joint account holder after the death of the depositor.

As a result, conflicts regarding whether an account is a survivorship account or not almost always involve the surviving account holder and the estate of the deceased account holder and not financial institutions. This makes collectability of a judgment against a surviving account holder an issue, since the money at issue usually has been withdrawn from the financial institution before the litigation is commenced.

iii. Right of Survivorship. Section 439 is faithful to the presumption created in Section 46 that joint ownership of an account does not mean that the account is a survivorship account unless the parties otherwise expressly agree. Section 439 goes much further than Section 46, however, by setting forth the requirements for a survivorship agreement regarding multi-party accounts, by listing magic words or phrases which can be used to create such accounts and by providing for the nontestamentary transfer of funds held in pay-on-death (P. O. D.) and trust accounts.

(1) Requirements for Survivorship Agreement. Under Section 439(a), an agreement to make an account a survivorship account must be:

(a) In writing (same as Section 46); and

(b) Signed by the party who dies (more specific than Section 46).

This means that an agreement signed by just one of the account holders can create a right of survivorship if the person who signs the agreement is the person who dies. In most cases, the written agreement which meets this requirement will be the signature card, the depository agreement with the bank, or some combination of the two. However, according to a 1995 court of appeals decision, any written agreement regarding the accounts may suffice, even if it is not in the bank's custody. Cweren v. Danziger, 923 S. W. 2d 641 (Tex. App. - Houston [1st Dist.] 1995, no writ).

(2) Magic Words. Section 439(a) provides the ultimate guidepost for financial institutions and their customers who wish to create survivorship accounts - it says exactly what language is sufficient to create such an account:

Nothwithstanding any other law, an agreement is sufficient to confer an absolute right of survivorship on parties to a joint account under this subsection if the agreement states in substantially the following form: "On the death of one party to a joint account, all sums in the account on the date of the death vest in and belong to the surviving party as his or her separate property and estate."

[Emphasis added] One would think that this provision, enacted in 1987, would effectively end all disputes regarding survivorship of multi-party accounts, since financial institutions obviously would use this safe-harbor language in their account agreements. One would be wrong, however, as explained below.

(3) Pay-on-Death (P. O. D.) and Trust Accounts. Often a depositor does not wish to list someone as a co-owner, or joint tenant, of an account during the depositor's lifetime, but nevertheless wants the funds remaining in the account to be paid to someone else as a nontestamentary transfer at his or her death. Section 439(b) expressly provides for this type of "pay-on-death," or P. O. D., account. Similarly, depositors may want to create a poor-man's trust account (often called "Totten trusts) in which the depositor is the one with signature authority on the account, but on the depositor's death the assets in the account belong to a person listed as the beneficiary of the trust. Section 439(c) expressly provides for this type of account.

iv. Convenience Accounts. In 1993, the legislature added Section 439A to the Probate Code. This section permits a depositor to name a co-signer on his or her account without giving the co-signer ownership rights before or after the depositor's death. In theory, this form of account could fill a much-needed void - a way for elderly persons to allow a loved one to help them pay bills and handle other bank transactions without intentionally or unintentionally giving the loved one any ownership interest. In practice, this type of account is unavailable at many banks.

v. The Uniform Single-Party or Multiple-Party Account Form. The legislature promulgated a "uniform single-party or multiple-party account form" when it enacted Section 439A in 1993. This form, set forth below, gives easy-to-understand descriptions of each type of account:

Note that the account titles and descriptions used in the statutory form in Section 439A are neutral as to community property or separate property. Rather than calling an account with two or more persons with survivorship rights a "joint tenancy with right of survivorship," which spouses still theoretically cannot create because of the rule in Hilley v. Hilley, 161 Tex. 569, 342 S. W. 2d 565 (1961), or having a separate account for spouses with community property called "community property with right of survivorship" (see the discussion of Sections 451 - 462 below), the legislature wisely and simply sidestepped the issue by providing for the creation of a "multiple-party account with right of survivorship." Thus, if the statutory form is used properly, a right of survivorship can be created between spouses with community property or between others with non-community property without any dispute over the "joint tenancy" nomenclature.

Section 439A(a) provides that deposit agreements containing provisions substantially the same as in the statutory form "establishes the type of account selected by a party." Thus, if a bank uses the statutory form, the form and Section 439A establish the type of account, not Section 439(a). A deposit agreement that does not contain provisions substantially the same as the statutory form "is governed by the provisions of this chapter [Chapter XI of the Probate Code] applicable to the account that most nearly conforms to the depositor's intent." Tex. Prob. Code Ann. §439A(a).

Again, it is clear that the legislature is just begging financial institutions and their customers to use this form to assure that the customers' intentions are clear regarding survivorship rights. To its credit, the Texas Bankers Association apparently recommends the use of this form for its member institutions. Unfortunately, as will be seen below, bank use of this form is far from universal, and multi-party account cases continue to end up in the courts.

vi. Account Ownership While All Account Holders Are Alive. Most disputes over ownership of funds in multi-party accounts arise after the death of one of the account holders. Section 438 addresses another important issue: who owns the money in multi-party accounts while all account holders are alive? Under this section:

(1) Joint Accounts. Money in joint accounts belongs to the parties (account holders) in proportion to the net contributions by each to the sums on deposit, unless there is clear and convincing evidence of a different intent. Thus, in the typical case, if Aunt Suzy has contributed 100% of the money to an account on which niece Kate is also an account holder, during Aunt Suzy's lifetime all of the money in the account belongs to her, regardless of whether or not the account is a survivorship account.

(2) P. O. D. Accounts. Money in a pay-on-death (P. O. D.) account belongs to the the original payee (depositor) during the payee's lifetime and not to the P. O. D. payee or payees. If there are two or more original payees (depositors), ownership rights during their lifetimes are governed by the rules applicable to joint accounts (described above).

(3) Trust Accounts. Money in a trust account belongs beneficially to the trustee during the trustee's lifetime, unless a contrary intent is manifested by the terms of the account or deposit agreement or there is clear and convincing evidence of an irrevocable trust. If there is an irrevocable trust, the account belongs beneficially to the beneficiary. If there is no irrevocable trust but more than one "trustee," then ownership rights during the "trustees'" lifetimes are governed by the rules applicable to joint accounts. This rule is a recognition that most depositors creating "Totten trust"-type accounts intend for themselves to be owners of the funds while they are alive even though the account is called a trust account.

What happens if there are multiple trustees of a trust account and only one of the trustees dies? That fact situation was presented in Stegall v. Oadra, 868 S. W. 2d 290 (Tex. 1993). There, a son put money in a "revocable trust" account with himself and his mother listed as trustees and various other persons listed as beneficiaries. The son died. The court of appeals applied Section 438 to say that the money in the account belonged solely to the surviving trustee - the son's mother - rather than to the son's estate or the beneficiaries. The Supreme Court, however, held that the money did not survive to the mother (as surviving trustee) or to the beneficiaries (since one trustee remained alive); rather, the money passed as part of the son's estate.

vii. Account Funds Available to Pay Claims Against Decedent's Estate. Just because funds in an account may pass from the decedent to a joint account holder or P. O. D. beneficiary does not mean that the funds are not subject to the creditors of the decedent. Section 442 of the Probate Code provides that the survivorship rights are not effective against the estate of a deceased account holder "to pay debts, taxes, and expenses of administration, including statutory allowances to the surviving spouse and minor children, if other assets of the estate are insufficient." Note that the survivorship account assets are liable only if the other assets of the estate (presumably this means the probate estate) are insufficient. Thus, funds in survivorship accounts enjoy a privileged status with respect to creditors' claims.

Section 442 provides that the joint account holder or P. O. D. beneficiary who receives payment from a multi-party account after the death of the deceased account holder is "liable to account" to the personal representative "for amounts the decedent owned beneficially immediately before his death" to the extent necessary to discharge the claims and allowances. As a protection to the joint account holder or P. O. D. beneficiary who has withdrawn funds, the personal representative is not permitted to institute a suit to assert this liability unless a creditor, the surviving spouse or a person acting for a minor child has made a "written demand" on the personal representative, and the personal representative must commence the suit no later than two years following the death of the decedent. It is unclear whether the "written demand" required by Section 442 must be a demand specifically to pursue the funds which passed by survivorship or merely a demand to be paid from the estate. There are no reported cases on this subject. Professor Thomas M. Featherston, Jr., of the Baylor University School of Law believes that the statute means a specific demand for survivorship funds, not just a claim or demand for allowance against the estate. Thus, one can imagine a personal representative telling a creditor that there are insufficient assets in the probate estate to pay all creditors' claims, but there may be funds in survivorship accounts. The creditor presumably then would make a written demand that the personal representative pursue survivorship account assets, enabling the personal representative to bring the suit described in Section 442. The two-year deadline for suits of this type could present a problem in a complex estate, since the personal representative and creditors may not know if the probate estate will be insufficient to satisfy all claims until after the two-year period expires. Also, Section 442 fails to make clear what happens to any funds taken from a survivorship account which are in excess of creditors' claims and allowances. Surely any excess funds should be returned to the joint account holder or P. O. D. beneficiary, but Section 442 does not make this clear.

The liability of nonprobate assets for claims against a decedent's estate is a thorny issue. Section 442 provides some clarity with respect to multi-party accounts, but there is no comprehensive treatment of the issue in Texas statutes, especially as to the liability of assets in revocable trusts for estate claims and allowances. Of course, if the same person or group of persons is the recipient of all probate and nonprobate assets in the same proportions, then the issue does not arise. On the other hand, if a decedent had a valid multi-party account with right of survivorship with one person, a revocable trust leaving trust property to a second person, a will leaving property to another person, and debts which may exceed the value of probate assets, the personal representative of the decedent's estate may be faced with this prospect:

• First, all probate estate assets must be exhausted (since Section 442 permits resorting to survivorship assets only if "other assets of the estate are insufficient").
• Second, assets in multi-party accounts which can be recovered under Section 442 must be exhausted (since there is no statute similar to Section 442 applicable to revocable trusts which gives the personal representative a right to go against trust assets, although clearly they are subject to the decedent's debts).
• Third, creditors must be advised to pursue claims against the revocable trust or its beneficiaries directly since there is no statutory basis for the personal representative of a decedent's estate to pursue revocable trust assets to satisfy claims.

Probate lawyer groups involved in the legislative process have considered a fix to this problem for some time, but none seems likely to be proposed in the 2001 legislative session.

For a further discussion of the liability of nonprobate assets such as survivorship property for a decedent's debts, see Thomas M. Featherston, Jr., and Lynda S. Still, "Marital Liability in Texas . . . Till Death, Divorce, or Bankruptcy Do They Part," 44 Baylor Law Review 1 (1992).

While the probate estate may have to be exhausted before creditors' claims can affect funds in a survivorship account, those funds are liable for payment of the share of estate taxes apportioned to them under Tex. Prob. Code Ann. §322A, unless the deceased account holder overrides the statutory apportionment scheme by including a contrary provision in his or her will.

c. Section 450 (Chapter XI, Part 2). Section 450 of the Probate Code was enacted in 1979 at the same time as Sections 436 - 449, and it seems clear that Section 450 was intended to cover nontestamentary transfers other than multi-party accounts at financial institutions. Later amendments (discussed below) muddy the waters a bit.

i. Provisions Covered. Section 450 contains a laundry list of contract types (discussed below) and provides that any of the following nontestamentary disposition provisions are valid in those contract types:

• Provisions that money or other benefits shall be paid after a decedent's death to a person designated by the decedent in either the contract itself or a separate writing, including a will, executed at the same time as the contract or subsequently.
• Provisions that money due under the contract ceases to be payable in the event of the death of the promissor or promisee.
• Provisions that property shall pass to a person designated by the decedent in either the contract itself or a separate writing, including a will, executed at the same time as the contract or subsequently.

The first and third of these types of provisions are classic survivorship and beneficiary designation situations. The second applies to forgiveness (gift?) of debt upon the death of the maker or payee of a note.

ii. Types of Contracts. Section 450 applies to the following types of contracts:

[A]n insurance contract, insurance policy, contract of employment, bond, mortgage, promissory note, deposit agreement, employees' trust, retirement account, deferred compensation arrangement, custodial agreement, pension plan, trust agreement, conveyance of real or personal property, securities, accounts with financial institutions as defined in Part 1 of this chapter, or any other written instrument effective as a contract, gift, conveyance, or trust . . . .

Tex. Prob. Code Ann. §450(a). "Securities" and "accounts with financial institutions as defined in Part 1 of this chapter" (Sections 436 - 449, discussed above) were added to the list in 1997. ⁽²⁾ In 1990, the Texas Supreme Court held that Section 439 was the exclusive means for creating a right of survivorship in joint accounts. Stauffer v. Henderson, 801 S. W. 2d 859, 862 (Tex. 1990). The inclusion of "accounts with financial institutions" in Section 450 means that funds in those accounts are potentially subject to that section as well as Section 439. Community property accounts held with right of survivorship are subject to Sections 451 - 462 (discussed below), so there is some confusion about which statutes apply.

If Section 450 applies to accounts in financial institutions, does it override some of the requirements of Section 439? For example, what about the requirement that the agreement be in writing and signed by the decedent - a requirement imposed by Section 439 but is missing in Section 450? Also, Section 450 does not use the magic words set forth in Section 439 and 439A - provisions that money "paid" (not "belong to" or "vest in") to a person designated by the decedent after his death are valid under Section 450 but would seem to fall short of the statutory and case law standards otherwise applicable to such accounts.

While nontestamentary transfers by contract are permitted by Section 450, this section has been held to prohibit the nontestamentary transfer of a decedent's entire estate. Hibbler v. Knight, 735 S. W. 2d 924 (Tex. App. - Houston [1st Dist.] 1987, writ ref'd n.r.e.). ⁽³⁾

d. Sections 451 - 462 (Chapter XI, Part 3). Because of the rule stated in Hilley v. Hilley, 161 Tex. 569, 342 S. W. 2d 565 (1961), spouses were unable to create survivorship accounts with community property until the constitution was amended in 1987 to permit community property with right of survivorship. ⁽⁴⁾ In 1989, the legislature enacted Part 3 of Chapter XI (Sections 451 - 462) to provide a statutory framework for agreements by spouses to create survivorship rights with their community property.

i. Right of Survivorship in Community Property. The 1987 constitutional amendment read (in pertinent part): "[S]pouses may agree in writing that all or part of their community property becomes the property of the surviving spouse on the death of the spouse." Tex. Constitution, Art. XVI, Sec. 15. When the legislature enacted Section 451 in 1989 to further enable the constitutional amendment, it addressed the potential problem of after-acquired property:

At any time, spouses may agree between themselves that all or part of their community property, then existing or to be acquired, becomes the property of the surviving spouse on the death of a spouse.

Tex. Prob. Code Ann. §451. Thus, under Section 451, if both spouses sign an account agreement at a financial institution for creation of a community property with right of survivorship account, then funds deposited in the account after its creation will be subject to the right of survivorship.

ii. Agreement Formalities. Unfortunately, the legislature has given us yet another statute setting forth the requirements for creating a survivorship right with more and different requirements. Fortunately, Section 452 - which sets forth the requirements for spousal agreements to create rights of survivorship in community property (and not just in accounts at financial institutions) - gives Texans more magic words that supposedly assure creation of the right of survivorship, even if the magic words are not the same as the magic words in Sections 439 and 439A. Section 452 reads:

An agreement between spouses creating a right of survivorship in community property must be in writing and signed by both spouses. If an agreement in writing is signed by both spouses, the agreement shall be sufficient to create a right of survivorship in the community property described in the agreement if it includes any of the following phrases:

(1) "with right of survivorship";

(2) "will become the property of the survivor";

(3) "will vest in and belong to the surviving spouse"; or

(4) "shall pass to the surviving spouse."

An agreement that otherwise meets the requirements of this part, however, shall be effective without including any of those phrases.

[Emphasis added].

Note that agreements to create a right of survivorship in community property must be signed by both spouses, not just the account holder who dies, as is the case with respect to non-community property multi-party accounts with rights of survivorship under Section 439.

iii. Ownership and Management Rights. Section 453 provides that the ownership and management of community property with right of survivorship during the lifetime of both spouses remains the same as it would have been had the right of survivorship not existed. Thus, the funds in a community property with right of survivorship account are subject to the rules applicable to all community property and are available to the court for equitable division upon divorce. Similarly, if the property in a particular account is the sole management community property of one spouse, that spouse's sole management community property management rights are not affected simply because the account is held with right of survivorship.

iv. Revocation of Agreement. If the agreement creating the right of survivorship in community property contains provisions which set forth the manner in which the agreement may be revoked, then those revocation provisions control. If the agreement creating the right of survivorship is silent, Section 455 provides that the agreement may be revoked either:

(1) By a written instrument signed by both spouses; or

(2) By a written instrument signed by one spouse and delivered to the other spouse.

In Haas v. Voight, 940 S. W. 2d 198 (Tex. App. - San Antonio 1996, no writ), the husband and wife had three accounts which were community property with right of survivorship accounts. The husband and his son signed new account agreements with respect to these accounts, naming themselves as joint tenants with right of survivorship. The court held that the community property with right of survivorship agreements for the accounts were not properly revoked because the wife had not signed the new account agreements (the revocation instrument).

Section 455 also provides that the agreement may be revoked with respect to specific property by disposition of that property by one or both of the spouses, if the disposition is not inconsistent with the specific terms of the agreement and applicable law. Thus, if the agreement between the spouses is silent on this subject and a spouse disposes of his sole management community property in a manner which is permitted by Texas law (presumably this means not in violation of the fraud on the community principle), then the disposition of the property terminates the right of survivorship as to the disposed property. Similarly, if both spouses dispose of joint management community property, the disposition terminates the right of survivorship with respect to the disposed property.

v. Proof of Survivorship Agreement. Because Sections 451 - 462 deal with agreements creating community property with right of survivorship in all types of property and not just multi-party bank accounts, the statutes contain a procedure to prove the existence of the survivorship agreement for purpose of establishing title to survivorship property. These procedures are set forth in Sections 456 - 459 of the Probate Code. This usually is not a factor with respect to multi-party accounts, since the surviving spouse usually gains possession of the funds without the need to resort to the courts. Section 456 provides that agreements creating community property with right of survivorship arrangements are effective without an adjudication, so rarely will such issue need to be adjudicated with respect to bank accounts.

vi. Rights of Creditors. Section 461 makes an ambitious attempt to explain the rights of creditors in community property with right of survivorship property. First, it attempts to differentiate property in multi-party accounts in financial institutions from other property, saying that Part 1 of Chapter XI (Sections 436 - 449, and principally Section 442) governs property in multiple-party accounts.

Second, with respect to other community property held subject to a right of survivorship (in other words, non-multiple-party account property), property subject to the sole or joint management of the deceased spouse continues to be subject to that spouse's liabilities upon death without regard to the survivorship status. The statute does not address the liability of the surviving spouse's sole management community property with right of survivorship for the deceased spouse's debts, but presumably the rules expressed in Tex. Fam. Code §3.202 apply, so that it is liable for the tortious liability of the deceased spouse but not liable for his or her nontortious liability.

Third, like Section 442 (with respect to multiple-party accounts), Section 461 provides that a personal representative cannot pursue community property with right of survivorship in the hands of the surviving spouse to pay the decedent's liabilities "unless the personal representative has received a written demand by a creditor," but unlike Section 442, Section 461 does not appear to require the exhaustion of the decedent's probate estate before any survivorship property can be touched. ⁽⁵⁾ Suits to recover community property which passed by right of survivorship must be commenced within two years.

vii. Protection of Third Parties. Section 460 contains provisions intended to protect third parties who buy, sell or otherwise deal with community property subject to a right of survivorship without knowledge of the right of survivorship. These provisions generally affect non-multi-party account property more than multi-party account property.

4. Stauffer v. Henderson and Its Offspring.

In 1990, the Texas Supreme Court set out to issue the definitive decision on right of survivorship accounts which, together with Chapter XI of the Probate Code, would settle the right of survivorship issue once and for all. In Stauffer v. Henderson, 801 S. W. 2d 859 (Tex. 1990), Justice Hecht carefully recited the history of right of survivorship in Texas and stated what seemed to be simple straightforward rules.

Unfortunately, the Supreme Court's attempt to inoculate Texans from the litigation bug regarding survivorship accounts didn't take. Since the Stauffer case, there have been at least a dozen more reported cases on the subject.

In this section, this paper examines the Stauffer decision and the cases which have been decided since then on this narrow issue: did the depositors successfully create a multiple-party account with right of survivorship (meaning that the property in the account passed to the survivor), or not (meaning that the property in the account passed to the estate of the deceased account holder).

a. Stauffer v. Henderson. The Stauffer case followed these legislative developments:

• The 1979 enactment of Chapter XI of the Probate Code (Sections 436 - 450), including Section 439 dealing specifically with rights of survivorship in joint accounts.
• The 1987 amendments to Section 439, adding the "magic words" to create a right of survivorship in a joint account.

Writing for the majority, Justice Hecht clearly believed that the time had come to bring some certainty to the frequent disputes over survivorship rights in multi-party accounts. After tracing the history of joint accounts in Texas, Justice Hecht announced these simple rules:

i. Section 439 Is Exclusive. Section 439 is the exclusive means for creating a right of survivorship in joint accounts. The Stauffer court concluded that "the Legislature has replaced the various legal theories which have been used to determine the existence of a right of survivorship in a joint account with section 439." 801 S. W. 2d at 863. ⁽⁶⁾ Thus, even though Section 46 may otherwise seem to apply to multi-party accounts, Stauffer says it doesn't.

ii. There Must Be a Written Agreement Signed by the Decedent. Justice Hecht stated that Section 439 of the Texas Probate Code was derived from Section 6-104(a) of the Uniform Probate Code, which reads:

Sums remaining on deposit at the death of a party to a joint account belong to the surviving party or parties against the estate of the decedent unless there is clear and convincing evidence of a different intention at the time the account is created.

[Emphasis added] Justice Hecht noted that, in adopting Section 439, the Texas legislature dropped the italicized UPC language quoted above in favor of "if, by a written agreement signed by the party who dies, the interest of such deceased party is made to survive to the surviving party or parties." He concludes that, for proving survivorship, the Texas legislature "has determined that clear and convincing evidence is not enough, and that a written agreement signed by the decedent is required." 801 S. W. 2d at 863.

iii. Extrinsic Evidence is Not Admissible. Prior to Stauffer, many Texas courts permitted the introduction of extrinsic evidence regarding the depositor's intent with respect to a joint account in order to prove survivorship status. These courts sometimes said that there was a rebuttable presumption that the depositor intended to create a right of survivorship.

Stauffer unequivocally holds that Section 439 allows neither extrinsic evidence nor a rebuttable presumption to create a right of survivorship which is not established by a written agreement signed by the deceased joint account party. 801 S. W. 2d at 865. If a right of survivorship is established, it must be established within the four corners of the written agreement itself - outside testimony about what the depositor intended is not admissible.

Based on these standards, the Supreme Court concluded that the account in Stauffer did not create a right of survivorship, since the account agreement said the property was "payable to" or "may be withdrawn by" the surviving party, rather than the "vest in" or "belong to" language of Section 439. Authorizing payment of funds to the survivor at the other party's death does not create a right of survivorship. 801 S. W. 2d at 865-6.

b. Cases Since Stauffer. Attached as Appendix A is a chart summarizing the survivorship cases in Texas since 1990, starting with Stauffer v. Henderson. ⁽⁷⁾ It is easier to digest these cases in tabular format since there are so many of them and they are decided on such similar issues. A quick study of this chart will give the reader a good idea where the courts are on this frequently litigated subject.

While it is somewhat dangerous to assume that one can glean trends and general rules from a dozen or so cases such as those on Appendix A, it nevertheless is fun to try. Here are some of the author's conclusions about these cases:

• The trend is toward finding that a right of survivorship exists. Prior to 1994, the majority of cases mentioned in Appendix A founding no right of survivorship. From 1994 forward, the majority of cases found a right of survivorship to exist. The author believes that this is an indication that banks are increasingly getting it right (so that their signature cards and account agreements are working better), rather than a change in the courts' attitude toward these accounts.
• The cases pretty universally hold that extrinsic evidence is not admissible, so weird facts surrounding the execution of the agreement generally do not help or hurt either party. A couple of the cases ⁽⁸⁾ did permit evidence that the card was changed after the decedent signed it, and in those cases the right of survivorship was found not to exist. Also, a P. O. D. case (which is not included in Appendix A because it was not a right of survivorship case) left the door open for extrinsic evidence to prove the depositor's intent where both the "individual account" and "P. O. D" boxes were checked. Cummings v. Cummings, 923 S. W. 2d 132 (Tex. App. - San Antonio 1996, writ denied).
• Most of the cases since Stauffer permit the language creating the survivorship right to be included on the signature card itself or elsewhere in the bank’s account agreement without a detailed analysis of the "incorporation by reference" issue. An exception is McNeme v. Hart, 860 S. W. 2d 536 (Tex. App. – Waco 1993, no writ), which was first decided in the estate’s favor (in other words, that no right of survivorship existed) based solely on the signature card but then was decided in favor of survivorship on rehearing when the bank raised the incorporation by reference issue in an amicus brief. McNeme was a no writ case. Incorporation by reference was not an issue in Stauffer nor in any of the survivorship cases on which the Supreme Court has denied writ since Stauffer. The Supreme Court may not permit incorporation by reference for Section 439 purposes when and if it ever addresses the issue. ^(8.1) The safe way for banks to assure that their agreements create valid rights of survivorship are (1) to include the Section 439 "magic words" on the signature card itself or (2) use the statutory account form of Section 439A.
• In general, "Joint - With Survivorship" is not sufficient on its own to create a survivorship right, but "Joint tenants with the right of survivorship" is.
• The burden of establishing the survivorship right falls on the party seeking survivorship, not on the party asserting that no survivorship right exists.
• Failure to check any box on a signature card is almost certain to result in a determination that no right of survivorship exists. Similarly, checking more than one conflicting box on a signature card is almost certain to result in a determination that no right of survivorship exists. ⁽⁹⁾
• Most of the cases involve financial institutions which did not use the magic words provided in Section 439(a) or the legislatively-approved account form provided in Section 439A. If banks would simply follow the statutory language, most of these cases would go away (except cases where there are errors or questions related to which boxes on the card are checked, if any).
• While the failure of certain banks to have adequate signature cards and account agreements caused much of the litigation in this area since 1990, in only two cases ⁽¹⁰⁾ was the bank a named party, and the bank faced possible liability in only one of those cases. If banks were held liable because of the insufficiency of their account documents, perhaps more banks would have adequate documents, reducing the amount of this litigation. ⁽¹¹⁾

5. Selected Practical Problems with Multi-Party Accounts.

There are more problems with multiple-party bank accounts than simply trying to determine if the account meets the survivorship standard under Texas law. Here are a few:

a. Bank Signature Cards and Account Agreements are Confusing. Signature cards and account agreements vary from bank to bank. Savvy estate planning lawyers like the author have trouble making sense of these agreements (as will be demonstrated below), so it is unlikely that most lay persons fully understand the importance of the account terms. It is likely, therefore, that many account agreements fail to reflect the true, informed intent of the account holders with respect to the survivorship issue. Even the banks recognize this, and some go so far as to make the account holders indemnify them from liability for failing to get it right. See, e. g., Chase Bank of Texas, N. A.'s signature card on Appendix E, page 1 (discussed below).

b. The Underfunded Credit Shelter Trust. Until Congress repeals the federal estate and gift tax, the bread-and-butter estate tax planning technique for married couples with estates worth more than the applicable exclusion amount will be the credit shelter trust, or "bypass trust." The trick is to put a portion of the property of the first spouse to die (usually by means of a formula gift clause, which makes the amount of the gift equal the unused applicable exclusion amount) into a trust so that it will not be included in the surviving spouse's estate. In the typical case, the estate planning attorney will put one of these trusts in each spouse's will so that when the first spouse dies the trust will be created.

Assets which pass by right of survivorship pass immediately upon death to the survivor and are not subject to the decedent's will. This means that survivorship assets generally are unavailable to place in a bypass trust. ⁽¹²⁾ If the couple holds a significant amount of their marital property as community property with right of survivorship or as joint tenants with right of survivorship, there may be insufficient assets to fully fund the bypass trust. Even if there are sufficient other assets, the existence of the survivorship accounts may make it necessary to place undesirable assets into the bypass trust, since the cash in the survivorship accounts is unavailable.

Clients with bypass trusts in their wills should be told to avoid survivorship property, except for relatively minor or insignificant accounts. These clients are not going to be able to avoid probate anyway, so there is no reason for them to have the bulk of their investment assets in survivorship form.

c. The Caregiver Problem. Single elderly persons often wish for a caregiver to be able to write checks, make deposits and otherwise deal with their bank accounts. These caregivers usually are relatives - a son or nephew who lives close by, for example - and usually are beneficiaries under the elderly persons' wills (or heirs under the intestacy laws). Occasionally they are unrelated to the elderly person.

In the vast majority of cases, the caregiver is given access to the account so that he or she may act as an agent for the elderly person. Only occasionally does the elderly person wish to make a gift of the money in the account to the caregiver. Unfortunately, in the typical case the only documentation of this agency arrangement is the signature card and account agreement at the bank, and these documents usually are silent as to the nature of the relationship between the elderly person and the caregiver. The signature card and account agreement is completed by an officer at a bank, who becomes the de facto estate planner when he or she fills out the card: If the signature card creates a valid right of survivorship, the caregiver is entitled to the money in the account when the elderly person dies. If, on the other hand, he or she fills out the card so that a survivorship account is not created, the elderly person's will (or the intestacy laws) determines who gets the money in the account at death. Does the way in which the card is filled out accurately reflect the elderly person's intentions? One can only hope so, since extrinsic evidence of intent is inadmissible in a dispute over the money left in the account at death.

Accepting the benefit of being named a party to a survivorship account can create a fiduciary relationship, meaning that the conduct of the party will be judged by the high equitable standards imposed on fiduciaries. Texas Bank and Trust Co. v. Moore, 595 S. W. 2d 502, 508-9 (Tex. 1980). Therefore, even if the account agreement properly creates a survivorship right favoring the caregiver, the actions of the caregiver, including his or her actions related to the creation of the survivorship right, is subject to greater scrutiny. Unfortunately, fiduciary litigation tends to be messy and expensive, and in many cases the amount in controversy does not warrant the cost of litigation. Caregiver abuse of survivorship accounts and powers of attorney can lead to criminal liability as well. See, e. g., Porter v. State of Texas, 2000 Westlaw 863092 (Tex. App. – San Antonio 2000, unpublished opinion).

Texas law provides a simple solution to this problem: the elderly person can set up a "convenience account" under Section 438A of the Texas Probate Code. This means that the caregiver's name is on the account just "for the convenience" of the elderly person, and no ownership interest or survivorship right is created. Unfortunately, many banks do not offer convenience accounts. Of the five biggest banks in Texas, only Frost National Bank offers a convenience account (see below). Thus, even if the elderly person knew what he or she wanted and asked his or her bank expressly for a convenience account, he or she would be frustrated. At most banks, the next best thing is a "tenants in common" account. This type of account connotes ownership rights (although, under Texas law, while both account holders are alive, ownership of funds on deposit is based on the account holders' relative contributions to the account, so if the caregiver puts none of his or her money in the account, then he or she should own none of the account) and can create a problem for the elderly person if the caregiver has creditor problems and the creditor attempts to seize assets in the account. (If the caregiver owes money to the bank which issued the account, the bank may have the right to offset money from the tenants in common account.)

With very few exceptions, survivorship accounts for caregivers should be avoided, and convenience accounts (or, if a convenience account is unavailable, a tenants in common account) should be used. From the elderly person's perspective, it is better to include a provision benefitting the caregiver in a will than to rely on the survivorship account. If a survivorship account is used, the account balance will fluctuate, varying the size of the gift. If a survivorship account is used, the caregiver has a disincentive to use the money in the account to take care of the elderly person. Including a gift in a will (if one is intended) fixes the amount of the gift and takes away the caregiver's self-interest in avoiding use of the money in the account. From the caregiver's perspective, being a party on a survivorship account can cause others to question his or her actions and intentions. Often the caregiver will say that he or she plans to give the other estate beneficiaries their proportionate share of the money which passes by survivorship. This can result in gift tax liability for the caregiver, however. From the perspective of other persons interested in the elderly person's estate (the daughter that lives in another state, for example), discouraging the use of survivorship accounts can make it possible to avoid ill will and suspicions with the caregiver at a time when everyone's focus should be on celebrating the life of the elderly loved one.

d. The Guardianship/Power of Attorney Problem.  The person appointed guardian of the estate for an incapacitated person or the agent on a power of attorney of a clearly incapacitated person can face very difficult choices if the incapacitated person holds funds in one or more survivorship accounts.

Assume, for example, that the guardian discovers upon his or her appointment that the incapacitated person has a joint tenancy with right of survivorship account naming someone as joint tenant:

• ssume that there are suspicious facts surrounding the creation of the survivorship account. Should the guardian challenge the survivorship status? Does the guardian have a duty to challenge the survivorship status? Or should the guardian leave the fight over the validity of the survivorship account to be fought after the death of the incapacitated person?
• Does the court supervising the guardianship have the power to undo a survivorship designation?
• Does the guardian have a duty to take control of and manage the funds in the survivorship account? If so, how does he or she do that? Surely the other joint tenant cannot be allowed to retain withdrawal rights on the survivorship account while the guardianship is pending.
• If the incapacitated person has funds in both survivorship and nonsurvivorship accounts, which funds should the guardian expend for the care of the ward? If the guardian spends survivorship funds, this reduces the property passing to the joint tenant by survivorship. If the guardian spends nonsurvivorship funds, this increases the property passing to the joint tenant by survivorship.

All of these issues affect the decisions of an agent under a power of attorney as well as a guardian. If a statutory durable power of attorney was used, and if the principal authorized "banking and other financial institution transactions" on the power of attorney, then Tex. Prob. Code Ann. §496 gives the agent the power to "continue, modify, or terminate an account or other banking arrangement" and to "establish, modify, or terminate an account or other banking arrangement." This appears to authorize the agent to terminate, modify or initiate accounts with rights of survivorship or pay-on-death (P. O. D.) designations. Any such action may expose the agent to breach of fiduciary duty claims (especially if the agent personally benefits from the change at the expense of another party), but remember that the fiduciary duties the agent owes are to the principal and not to third parties. For this reason, the agent may face little or no exposure for terminating survivorship arrangements (since this means that the assets will be solely in the principal’s name and pass as part of the principal’s estate) while facing greater exposure for initiating new survivorship arrangements, if the persons benefitting from the survivorship arrangement are not also heirs or estate beneficiaries.

The author found no reported appellate cases on this subject. In Pressler v. Lytle State Bank, 982 S. W. 2d 561 (Tex. App. – San Antonio 1998, no writ), a guardian (after qualifying as guardian) placed another person’s name on an account holding guardianship property as a "beneficiary" (presumably as a pay-on-death beneficiary), but no dispute over the account arose until after both the ward and the guardian died and the propriety of naming a party with survivorship or P. O. D. rights in a guardianship account was not discussed. In Terrill v. Davis, 418 S. W. 2d 333 (Tex. Civ. App. – Eastland 1967, writ ref. n. r. e.), a guardian unsuccessfully attempted to repudiate a contractual right of survivorship in real property, but that should be irrelevant in determining if a guardian may terminate a right of survivorship where the ward is under no contractual obligation not to terminate the survivorship right.

Here are the author’s thoughts about this problem:

• If a guardian discovers the existence of survivorship accounts, he or she can ask the court for instructions. Asking the judge for instructions may effectively protect the guardian from claims that he should have done something, or should have refrained from doing something, about survivorship accounts. On the other hand, if the guardian files a motion for instructions and gives the joint tenant notice of the motion, the joint tenant may withdraw funds from the joint account prior to the hearing on the motion, jeopardizing the ward’s estate. To prevent this, the guardian may couple his or her motion for instructions with a request for a temporary restraining order to protect the funds in the joint account pending the hearing. This is a lot of trouble to go to, however, so the guardian may wish to withdraw the funds from the joint account without notice and then ask the court for instructions. If the court determines that the right of survivorship should still exist, it can order that the funds be returned to a survivorship account or to a pay-on-death (P. O. D.) account naming the former joint tenant as beneficiary.
• As a practical matter, it is more difficult for agents acting under powers of attorney to ask a court for instructions. They can file a declaratory judgment action on this subject, but that is an expensive and burdensome process.
• Unless the court otherwise orders, the guardian probably has a duty to get all funds belonging to the ward, including funds in survivorship accounts, into the guardian’s name and subject to the guardian’s control. Tex. Prob. Code Ann. §771. This probably means that the guardian must remove the ability of other persons (such as joint tenants) to access guardianship funds, which in turn probably means that the guardian must terminate joint tenancy and tenancy in common accounts. This action probably will destroy the right of survivorship unless something is done to preserve it.
• The guardian may be able to preserve survivorship rights by using a safekeeping agreement (see Tex. Prob. Code Ann. § 703(d)). Under the agreement, the joint tenant and the financial institution would have to agree to prohibit withdrawals by anyone other than the guardian absent a written court order authorizing such withdrawals. Any such arrangement would work only if approved by the court, however.
• The guardian of an estate should have standing to challenge a suspicious survivorship designation. The guardian of an estate is entitled to possession and management of all property belonging to the ward, to collect claims due to the ward, to enforce all obligations in favor of the ward and to bring suits by the ward. Tex. Prob. Code Ann. § 768; see also Tex. Prob. Code Ann. §§ 772 and 773. Whether or not the guardian has an affirmative duty to challenge a suspicious survivorship designation is a question for the court.
• The court supervising a guardianship should have the power to terminate survivorship accounts or authorize the guardian to terminate survivorship accounts. See Tex. Prob. Code Ann. §§ 606, 607, 768, 771, 772, 773 and 774.
• Conversion of survivorship accounts to P. O. D. accounts in the guardian’s name may be an effective workaround in cases where there is no reason to doubt the appropriateness of the survivorship arrangement. Such arrangements must be approved by the court, however. The author is aware of one guardianship where there were multiple survivorship accounts with different joint tenants. The various survivorship accounts were closed and all of the money was transferred to a common guardianship account under the guardian’s control with P. O. D. designations favoring the former joint tenants in proportion to the size of the various survivorship accounts. This enabled the guardian to use funds for the ward’s care while maintaining the proportional benefits to be paid to the former joint tenants on the ward’s death.

e. Self-Help Estate Planning. There are times when a survivorship account or P. O. D. account makes sense. If a person has very little property, use of survivorship and P. O. D. accounts may avoid the need for any type of probate proceeding.

Unfortunately, many people are infected with "probatitis." The prospect of any probate proceeding is so unpleasant that they will do whatever it takes to avoid it. The living trust mills largely are responsible for this condition, and it is not uncommon for someone to buy a defective and inadequate living trust from a nonlawyer for three or four times as much as a lawyer would charge for a complete, customized estate plan.

Many probatitis victims see survivorship accounts as a panacea. Many are under the mistaken impression that property in survivorship accounts is not subject to the federal estate tax. For whatever reasons, many people have large amounts of cash and securities in survivorship accounts. As noted above, these accounts can frustrate effective estate tax planning. If there is more than one "beneficiary" of a survivorship account, there can be a number of problems when one party dies. Here are some examples:

• Assume Mom has a survivorship account with Son and Daughter. If Daughter dies before Mom, leaving two children, and Mom fails to change the account, Son gets all of the funds when Mom dies, disinheriting Daughter's children.
• Assume Mom has a survivorship account with Son and Daughter. Mom dies, and before the account is divided Daughter dies, leaving two children. The money in the survivorship account goes to Son, and Daughter's children are disinherited.
• Assume Mom has a survivorship account with Son, and Mom, Son and Daughter have an unwritten agreement that Son will give Daughter half of the money in the account when Mom dies. Mom dies and Son refuses to give Daughter her share. Daughter has no recourse, other than perhaps a fraud claim against Brother.
• Assume Mom has a survivorship account with Son, and Mom, Son and Daughter have an unwritten agreement that Son will give Daughter half of the money in the account when Mom dies. Mom dies, and Son gives daughter half of the money in the account. Son's transfer to Daughter probably is a taxable gift. To the extent it exceeds $10,000, a gift tax return must be filed and a portion of the Son's applicable exclusion amount must be allocated to the gift. If the property so paid to Daughter exceeds the applicable exclusion amount, gift tax may be due. ⁽¹³⁾

Estate planning attorneys constantly engage in "what if" thinking. A well-drafted will carries the "what ifs" out further than most lay persons are likely to think. Survivorship agreements occasionally work well, but all too often they stop two or three "what ifs" short of what is needed.

6. Current Forms Used at the Five Largest Banks.

Attached as appendices are the signature cards and related account agreements used at the five largest banks in Texas in the summer of 2000. These five banks account for more than 40% of the funds on deposit in Texas, according to the 2000 - 2001 Texas Almanac:

Here are the author's comments about the signature cards and account agreements of each of these banks:

a. Frost National Bank. In the author's opinion, the signature card and account agreement at Frost (see Appendix B) are far-and-away the best of the five biggest banks. Primarily this is due to the fact that Frost uses the Uniform Single-Party or Multiple-Party Account Form promulgated by the legislature in Section 439A of the Probate Code. Unlike Bank One (see below and in Appendix C), Frost uses the statutory form verbatim (or substantially verbatim). Thus, Frost's customers get the chance the legislature intended them to have to pick exactly the kind of account they want - including convenience accounts, which is an option the other four banks do not offer.

The first page of the signature card on a Frost account is computer-generated and contains no boxes to check. If the customers indicate they want a "multiple-party account with right of survivorship," then the form generates with "Multiple-Party with Right of Survivorship" in the "Account Ownership" block. There are no boxes to check or initial on page one of the signature card - all of the initialing and checking happens on the Uniform Single-Party or Multiple-Party Account Form.

Among the few problems the author sees with the Frost documents are these:

• The customer may not fill out the Uniform Single-Party or Multiple-Party Account Form correctly. For example, the customer may choose more than one account type.
• The bank officer completing the first page of the signature card may specify an account type other than the one specified by the customer on the Uniform Single-Party or Multiple-Party Account Form. What happens if the customer properly completes the "Multiple-Party Account With Right of Survivorship" option on the uniform form but the bank officer enters something else on the first page of the signature card? Under Stauffer v. Henderson and the cases following it, the written agreement must unambiguously create the right of survivorship, so the party seeking to establish survivorship probably would lose if there were conflicting indications on the forms.

These problems are minimal, however. Thus, Frost customers are probably the most likely (among the customers of the five largest banks) to get the kind of account they want. Perhaps this is due to the fact that Frost is the only native Texas bank among the five.

b. Bank One, Texas, N. A. Bank One makes use of the Uniform Single-Party or Multiple-Party Account Form, but they try to fit it into a multi-state account framework, with mixed results.

The good news is that the survivorship language on the signature card (see Appendix C)by itself should be sufficient to create a survivorship account under Section 439(a) without anything else, if the box on the card is checked. The wording opposite the box to be checked states: "JROS - On the death of one party to this account, all sums in the account on the date of death vest in and belong to the surviving party or parties as his or her or their separate property and estate." That language tracks the "magic words" in Section 439(a) almost exactly.

Another good thing about Bank One's signature card form is that there are is only one box to be checked. On many cards, the customer must select from several alternatives and check the appropriate one. On Bank One's card, either the "JROS" box is checked or it isn't, making it pretty easy to decide after the fact whether the account is a survivorship account or not.

To back up the customer's choice regarding survivorship, the bank officer completing the form is supposed to show the account title as "Party A or Party B (JROS)" if the customer chooses the survivorship option, while showing the account title simply as "Party A or Party B" (in other words, without adding "JROS") if the customer does not choose the survivorship option. While this "JROS" designation in the account name may help, the Bank One documents do not make it a requirement (unlike Chase Bank of Texas, N. A., described below, where the survivorship feature fails even if the correct box is checked if the bank officer fails to put "JTWROS" or something similar in the account style).

Bank One also tries to make use of the Uniform Single-Party or Multiple-Party Account Form, but it does so in a somewhat troublesome way. The first thing that appears in the account agreement under the heading "Form of Account Ownership" is the following:

If the Bank at which you maintain your Account is located in the state of Texas, refer to the "Texas Uniform Single or Multiple-Party Account Selection Form Notice" section on Page 28 for additional information regarding your Account.

When the customer turns to Page 28, he or she finds this:

Additional information and agreements regarding an Account maintained at a Bank located in the State of Texas are found in the following provisions.

What follows is Bank One's derivation of the Uniform Single-Party or Multiple-Party Account Form. However, certain types of accounts are omitted (most notably, the convenience account). Also, the names of the accounts in Bank One's version of the uniform form do not match precisely the account names used on the signature card. This makes it unclear whether the account is governed by Section 439(a), since the language on the signature card matches the magic words from Section 439(a), or by Section 439A, since Bank One seems to be trying to substantially comply with that statute. Also, Bank One's version of the uniform form is a disclosure only - Bank One has eliminated all of the places on the uniform form for the customer to indicate his or her choice.

As a result of Bank One's approach, the author believes that there will be very little doubt about whether or not a Bank One account is subject to a right of survivorship or not - if the "JROS" box is checked, it will be; if the box is unchecked, it won't be. Whether this represents the customer's wishes is less clear, since he or she is not given the opportunity to complete the Uniform Single-Party or Multiple-Party Account Form as he or she sees fit. Also, the customer may be frustrated if he or she wishes to create a type of account other than joint tenancy with right of survivorship. There is no way to create a convenience account at Bank One, for example. Also, since the signature card tracks Section 439(a) - which applies to non-community property accounts - rather than Section 439A - which is neutral in its treatment of community property and non-community property, there is a small doubt of the effectiveness of a "JROS" designation on an account between a husband and wife that contains community property. This probably is not worth worrying about, since the courts tend to ignore this issue (see, e. g., Rogers v. Shelton, 832 S. W. 2d 709 (Tex. App. - Eastland 1992, writ denied), and Banks v. Browning, 873 S. W. 2d 763 (Tex. App. - Fort Worth 1994, writ denied)), but Bank One does not eliminate this problem entirely by using the Uniform Single-Party or Multiple-Party Account Form as it was intended by the legislature.

c. Bank of America. Bank of America makes no attempt to use the Uniform Single-Party or Multiple-Party Account Form, but its account agreement includes Texas-specific provisions which make it likely that customers who think they are getting a survivorship account will probably succeed in getting that type of account.

The signature card (see Appendix D) instructs the customer to "Sign the blank(s) below if applicable" and then gives the customer these choices: "Joint with Right of Survivorship," "Payable on Death ('POD')" and "Totten Trust account." Each choice has a box to the left which can be checked but, more importantly, has a space to the right for the customer to sign the appropriate choice.

The account agreement informs the customer that the Bank's rights and liabilities for payment of any sums on deposit in the account shall be governed by Part 1 of Chapter XI of the Texas Probate Code, as amended from time to time. It does not say that the relative rights of the depositors are governed by Part 1 of Chapter XI. However, it includes the following regarding survivorship accounts:

Survivorship. Unless you so elect and have indicated on the signature card, time deposit receipt or certificate of deposit that a joint account is "with right of survivorship," there shall be no right of survivorship for the parties to the account. In the event a joint account is designated with right of survivorship:

(a) If none of you are married to each other, funds shall be held by you as joint tenants with right of survivorship.

(b) If any of you are married to each other:

(i) Funds in your account that are your separate property shall be held by you as joint tenants with right of survivorship;

(ii) Funds in the account that are your community property, upon the death of one of you, shall become the property of the survivor. Having chosen that funds pass "with right of survivorship," such married persons hereby jointly and severally agree to hold us harmless from any loss and liability arising in connection with such account designation and warrant that they have entered into all appropriate partitioning or other agreements necessary or required by law, including Part 3 of Chapter XI of the Texas Probate Code, to make such designation lawful.

(c) If survivorship is designated, on the death of one party to a joint account, all sums in the account on the date of the death vest in and belong to the surviving party as his or her separate property and estate.

That language, coupled with the language on the signature card, should successfully create a survivorship account, whether it is a joint tenancy with right of survivorship with separate property or community property with right of survivorship with community property.

The Bank of America agreement does not adequately describe the disposition of Totten Trust assets. Hopefully the "trust account" provisions of Section 438(c) and 439(c) of the Probate Code will suffice to fill in the gaps.

The account agreement does not provide for the creation of a convenience account.

Bank of America's signature card presents the possibility of problems in completing it. For example, what if the customer checks the box opposite "Joint with Right of Survivorship" but fails to sign it opposite that space? What if the surviving account party (in other words, not the decedent) signs the "Joint with Right of Survivorship" space but the decedent only signs in the space provided below for each depositor's signature? In that case, the decedent would have signed the account agreement, which may be all that Section 439(a) requires, but not the specific survivorship declaration. Hopefully the bank officer will help the customer complete the form in such a way that this is not a problem.

d. Chase Bank of Texas, N. A. Chase does some things right and other things wrong in their signature card and account agreement. The signature card in the appendix (see Appendix E) did not reproduce well, so it is excerpted in more detail here. It says:

"Check if any of the statements below apply to the Account and print the full name as applicable. The Account is:"

[] P. O. D. Account (Payable on Death Account)(Payable in equal amounts to each P. O. D. payee)

Payable on Death Payee(s):____________________________________

__________________________________________________________

[] Totten Trust Account (No trust instrument on file):

Trustee(s): _________________________________________________

Beneficiary(ies): ____________________________________________

[] Joint Tenants with Right of Survivorship (see reverse for agreement regarding right of survivorship)

The reverse side states:

By signing this card and checking the box on the front of this card marked "Joint Tenancy with Right of Survivorship" [Note: the language opposite the box on the front of the card says "Joint Tenants with Right of Survivorship," not "Joint Tenancy with Right of Survivorship], the Depositors stipulate and agree with each other and with Bank that the following terms and conditions shall apply to the Account:

(1) If husband and wife, each Depositor hereby agrees with the other and Bank that existing community funds on deposit and community funds to be deposited in the future and any interest and income shall be held in joint tenancy and shall pass by right of survivorship pursuant to the terms hereafter set forth.

(2) Depositors agree that, on the death of one party to the joint account listed on the reverse side, all sums in the account on the date of the death shall vest in and belong to the surviving party as his or her separate property and estate. If there are two or more surviving parties, their respective ownerships during lifetime shall be in proportion to their previous ownership interests under the Texas Probate Code, Section 438, augmented by an equal share for each survivor of any interest the deceased Co-Depositor may have owned in the Account immediately before his or her death, and the right of survivorship shall continue to be in full force and effect between the surviving parties.

(3) DEPOSITORS AGREE TO INDEMNIFY AND HOLD BANK HARMLESS FROM LIABILITY ARISING FROM THE FAILURE OF THIS JOINT TENANCY WITH RIGHT OF SURVIVORSHIP AGREEMENT, FOR ANY REASON, INCLUDING THE BANK'S NEGLIGENCE TO CREATE A VALID JOINT TENANCY WITH RIGHT OF SURVIVORSHIP.

(4) This agreement regarding the right of survivorship will be effective only if the Account styling includes "Joint Tenants with Right of Survivorship," "JTWROS," or words or abbreviations of similar import.

On the positive side, at least Chase's signature card addresses the community property with right of survivorship problem. The form of the signature card creates problems, however. Hopefully the silly incorrect cross-reference ("Joint Tenants" instead of "Joint Tenancy") will not be a problem, although there probably are strict-constructionist judges who would have fun with that. The biggest problem, however, is likely to be condition (4) of the survivorship agreement. Even if the depositors check the survivorship box (Query: what happens if the bank officer types an "X" in the box rather than having the customers check the box?), if the bank officer fails to include "JTWROS" or something similar in the "account styling" (and there's no space on the signature card called "account styling," by the way), then condition (4) wipes out the survivorship status. Worse still, and somewhat offensively, condition (4) is immediately preceded by condition (3), in which the depositors indemnify the bank from liability arising from the failure of the survivorship agreement, even if the failure was due to the bank's negligence to create a valid joint tenancy with right of survivorship! Part 1 of Chapter XI of the Probate Code contains loads of protection for the bank in multiple-party account situations, but Chase didn't want to stop there.

Things get worse (for the customer, at least) when one turns to Chase's deposit agreement (see Appendix E, pages 2 - 4). The agreement reaffirms that, to be a survivorship account, the account must be styled as such. In one interesting, and potentially beneficial, twist, the account agreement appears to permit the parties to come up with their own survivorship agreement and file it with the bank. Perhaps this is the ultimate solution for estate planners - send the client to the bank with a survivorship agreement drafted by the client's lawyer. However, note that the account must be styled correctly even in this case.

The really bad thing about Chase's account agreement is that it may require the customer to submit to binding arbitration. The arbitration provision states that it does not apply if it is prohibited by applicable law, but it purports to cover "any controversy or claim relating to your accounts." This may be broad enough to cover disputes between co-depositors over the terms of the account, even if the dispute does not involve the bank. (How could the dispute involve the bank with the indemnity and exculpatory language contained in the account agreement?) The author found no express prohibition against including an arbitration agreement in a deposit agreement (although the author admits to being in over his head on this issue). Generally, arbitration agreements are valid in Texas, Tex. Civ. Prac. & Rem. Code §171.001, but agreements to arbitrate are not enforceable if the are unconscionable when made, Tex. Civ. Prac. & Rem. Code §171.022.

e. Wells Fargo Bank. Of the account documents of the five biggest banks, Wells Fargo's documents were the most disappointing to the author. They seem to incorporate the worst flaws of the other banks, plus add a few of their own. Consider:

• The only place to indicate joint tenancy with right of survivorship status on the signature card (see Appendix F) is a box marked "Joint Tenants" (with nothing about survivorship) in a section of the card marked "Bank Use Only - Information Required." That same section also includes boxes marked "Tenants in Common" and "Community Property." The same section has the following space for someone to enter information: "% Ownership Interest Customer 1 ________ Customer 2 _________ = 100%."
• The account agreement provides:

The type of account and ownership you select has tax and estate planning consequences and may determine how the funds in the account pass on at your death . . . . Depending on the state where you are located and the state laws that control your account, we offer the following types of account ownership . . . . Please note: Your will may not control the disposition of funds held in some of these accounts . . . . Joint Tenancy With Right of Survivorship - All owners of the account have equal and undivided ownership in the entire account during their lifetimes. When an owner dies, the funds in the account belong to the surviving owners automatically. . . . Tenancy in Common (not available in all states) - All owners of the account have ownership in the account, but the size of each owner's interest may vary. When an owner dies, that owner's share in the account belongs to the owner's estate and passes to the owner's successor in interest through a will or by transfer to the estate . . . . Community Property (not available in all states) - The owners of the account are husband and wife, and each has an interest in the account. When one spouse dies, ownership does not automatically pass to the surviving spouse because the deceased spouse can pass his or her interest through a will to someone else.

Nowhere in the account agreement does it state what the effect is of checking the "Joint Tenants" box on the signature card. Is one supposed to assume that checking "Joint Tenants" means you want the provisions in the account agreement labeled "Joint Tenancy With Right of Survivorship" to apply? That goes against the Texas presumption that a survivorship right is not presumed merely because of joint ownership.

While the signature card and account agreement address community property, the "Community Property" account clearly has no right of survivorship. How does a married couple create a "community property with right of survivorship" account at Wells Fargo? For that matter, how does anyone create a "joint tenancy with right of survivorship" account at Wells Fargo?

What is the effect of completing the space on the signature card for ownership percentages? Parts 1 and 3 of Chapter XI of the Texas Probate Code provide comprehensive means for determining ownership of funds in multi-party accounts. Does the ownership percentage designation on the signature card override these Texas provisions?

Like Chase, the Wells Fargo account agreement includes an arbitration provision. Wells Fargo goes a step further, however, by attempting to make the account agreement be governed by California law. None of the other banks tried that. Does this mean that the depositors' relative rights to multi-party accounts are governed by California law? Does it mean that the rights of the personal representative of a Texas decedent's estate is stuck with California law on issues involving the bank account? Texas law may prohibit a bank from enforcing a choice of law provision with respect to Texas depositors. ⁽¹⁴⁾ Also, it is possible to read the choice of law provision (see Appendix F, page 5) as applying only to disputes between the depositor and the bank and not to disputes between a surviving depositor and a deceased depositor's estate. Nevertheless, the problems with the Wells Fargo documents are serious enough to make creating any survivorship agreement there a dicey proposition at best.

7. Conclusion.

While the area of multi-party accounts remains thorny, the law in the area becomes clearer and clearer. Now if only the banks will take advantage of this clarity in the law, Texans may have fewer reasons to sue each other.

APPENDIX A - SURVIVORSHIP CASES SINCE 1990