BILL ANALYSIS Ó
AB 1624
Page 1
Date of Hearing: March 20, 2012
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 1624 (Gatto) - As Amended: March 15, 2012
SUBJECT : Multiple-Party Accounts
KEY ISSUE : Should a party's proportional ownership interest in
a multi-party account include money withdrawn by another party,
and not just the money that remains in the account?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
California's Multi-Party Accounts Law regulates the ownership
interests of parties to a joint account in a bank, credit union,
or other financial institution. As a general rule, the
ownership interest of non-married parties is based on their
respective net contributions to the account, unless a written
agreement or some other clear or convincing evidence indicates a
different intent. If the net contributions cannot be
determined, the parties to the account are generally assumed to
have an equal interest in the account. Until 2003, it was
generally assumed that a party retained a proportional ownership
interest in any funds withdrawn by another party. However, in
Lee v. Yang (2003), a California appellate court held that the
proportional ownership rule only applied to the "sums on
deposit." Under the reasoning of Lee v. Yang, when one party
withdraws funds from a joint account those funds are assumed to
be a "gift" to the withdrawing party; the other party loses its
ownership interest in the withdrawn funds. In other words, as
happened in Lee v. Yang, one party could unilaterally empty all
funds from a joint account and the other party would have no
recourse. In response to this decision and its troubling
implications, the California Law Revision Commission (CLRC) came
up with a simple solution that would effectively overturn Lee v
Yang: delete the words "sums on deposit" from the existing
statute to clarify that a party's proportional ownership
interest extends to the funds generally, even after they are
withdrawn, and not only to the amount that happens to remain on
deposit. This bill adopts the CLRC approach and makes
corresponding changes to provisions on rights of survivorship in
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withdrawn funds. As noted in the analysis, the author has
recently amended the bill to address criticisms that this bill
would not sufficiently protect a party who in good faith expends
withdrawn funds for the benefit of the other party. This
author-sponsored bill is based on the recommendations of the
California Law Revision Commission and is supported by the
Conference of California Bar Associations, the Trusts and Estate
Section of the State Bar, and the American Association of
Retired Persons (AARP). There is no known opposition to this
bill.
SUMMARY : Clarifies that a person's ownership interest in a
multi-party account is based on that person's net contribution
to the account and makes corresponding changes relating to
rights of survivorship with respect to withdrawn funds.
Specifically, this bill :
1)Provides that, during the lifetime of all parties, a
multi-party account belongs to the parties in proportion to
the net contributions of each, unless there is clear and
convincing evidence of a different intent.
2)Provides that withdrawal of funds from a multi-party account
by one party eliminates the right of survivorship with respect
to the funds withdrawn to the extent of the withdrawing
party's net contribution to the account.
3)Specifies that, notwithstanding the above, if one party makes
a withdrawal from the account and uses the funds withdrawn
solely for the benefit of another party, and the benefitted
party or its estate, heir, or agent subsequently seeks to
recover a proportion of the amount withdrawn from the party
that made the withdrawal, a court may, at its discretion and
in the interest of justice, reduce the benefitted party's
ownership interest in the amount withdrawn.
4)Clarifies that financial institutions have no responsibility
to inquire into the source of deposited funds or the use of
funds withdrawn from an account; to determine the net
contribution of parties to an account; or to limit withdrawals
based on a party's net contribution to an account.
EXISTING LAW :
1)Regulates, under the California Multi-Party Accounts Law, the
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ownership interest of parties to a multi-party account.
(Probate Code Sections 5301 et seq.)
2)Provides that during the lifetime of all parties, an account
belongs to the parties in proportion to the net contribution
by each to the sums on deposit, unless there is clear and
convincing evidence of a different intent. (Probate Code
Section 5301 (a).)
3)Provides that during the lifetime of a party, the terms of a
multi-party account may be changed, as specified, to eliminate
or to add rights of survivorship. Specifies that withdrawal
of funds from an account by a party with a present right of
withdrawal during the lifetime of the party also eliminates
rights of survivorship upon the death of that party with
respect to the funds withdrawn. (Probate Code Section
5303(c).)
4)Specifies that, for a multi-party account, a financial
institution is not required to inquire as to the source of the
funds received for deposit, or inquire as to the proposed
application of any sum withdrawn, for purposes of establishing
net contributions; determine any party's net contribution; or
limit the withdrawals or any other use of an account based on
the net contributions of any party, whether or not the
institution has actual knowledge of each party's contribution.
(Probate Code Section 5401 (c).)
COMMENTS : This bill seeks to overturn Lee v Yang, a decision
that the author, supporters, the and California Law Revision
Commission believe overturned the long-standing interpretation
of California's Multi-Party Accounts Law (CAMPAL). First
enacted in 1990, CAMPAL regulates the ownership interests of
parties to a joint account in a bank, credit union, or other
financial institution. As a general rule, the ownership
interest of non-married parties is based on their respective net
contributions to the account, unless a written agreement or some
other evidence indicates a different intent. (The ownership
interests of married couples are additionally governed by
community property principles and are not affected by this
bill.) If the net contributions to the account cannot be
determined, or if a different intent is not indicated, the
parties to the account are generally assumed to have an equal
interest in the account. Until 2003, it was generally assumed
that a party retained a proportional ownership interest in any
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funds withdrawn by another party. However, in Lee v. Yang
(2003) 111 Cal. App. 4th 481, a California appellate court held,
by a very strict reading of the statute, that the ownership
interest of the parties only applied to the "sums on deposit" -
a phrase that is used in the relevant code section. To the
court this meant that once funds were withdrawn - and no longer
"sums on deposit" - they were no longer subject to the
proportional interest rule. Who, then, did own the withdrawn
funds? According to the court, the withdrawn funds are presumed
to be a "gift" to the withdrawing party, and the other party no
longer holds any ownership interest in those withdrawn funds.
The Implications of Lee v. Yang : One need only look at the
facts of Lee v Yang to appreciate the inequities that such a
ruling could create and to understand why the decision has led
to demands that the Legislature overturn the ruling. Lee v.
Yang involved a couple that had created joint bank accounts
after they became engaged to be married, but before they
actually wed. Prior to the planned wedding date, the
relationship unraveled and the coupled decided to call off the
wedding. In addition to backing out of the wedding, however,
Janet Yang took the liberty to withdraw money from the couple's
three joint bank accounts. Holden Lee sued Yang (for
"conversion" among other things), his primary contention being
that he owned a portion of the funds that Yang had unilaterally
withdrawn from the bank accounts. (Lee v. Yang (2003) 111 Cal.
App. 4th 481, 484-486.) The trial court (applying Civil Code
Section 683 on joint tenancies instead of applying CAMPAL)
concluded that because the account was a joint tenancy each
party had a right to withdraw the funds. According to the trial
court, Lee had failed to establish that there was any agreement
restricting Janet Yang from withdrawing the funds.
Although the Court of Appeal held that the trial court had erred
in applying Section 683 instead of CAMPAL, it nonetheless
affirmed the trial court's holding that Lee retained no
ownership interest in the withdrawn funds and therefore had no
grounds to recover. (Id. at 486-489.) The court based its
decision on a very literal reading for Section 5301 of CAMPAL.
That section states that "Ýa]n account belongs, during the
lifetime of all parties, to the parties in proportion to the net
contributions by each to the sums on deposit , unless there is
clear and convincing evidence of a different intent." ÝEmphasis
added.] The court held that the statute's "rule of proportional
ownership" was "not relevant to the power of a party to withdraw
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funds from an account." Any limitation on the power to withdraw
funds, the court reasoned, would be determined "by terms of the
account in question." In the absence of terms to the contrary,
Yang, as a signatory to the account, was free to withdraw funds
without Lee's permission. Having determined Yang's right to
withdraw the funds, the court then turned to the question of
whether Lee could seek reimbursement based on his net
contributions to the account. The Court concluded that he could
not, because the proportionate ownership rule, based on net
contributions, only applies to the "sums on deposit" - that is,
the balance in the account at any given time. Conceding that
the statute "is not clear on this point," the court nonetheless
found that the proportionate ownership rule "does not articulate
a rule of ownership as to funds withdrawn by a party." Citing a
parallel rule in federal gift tax regulations, the Court
concluded that withdrawal from an account effectively makes a
"gift" to the withdrawing party, and the depositing party no
longer has any claim to it. (Id. at 490-491.) For the
majority, therefore, the effect of the withdrawal is to vest
ownership in the withdrawing party, while severing any ownership
interest by the other party to the account.
The Dissent in Lee v. Yang : The dissenting opinion in Lee v.
Yang agreed with the majority insofar as CAMPAL was the
appropriate statute to apply, but disagreed with the majority's
interpretation of that statute. First, the dissent noted that
Yang's contractual right to withdraw funds did not give her a
property right to take and keep Lee's proportion of the funds.
Property rights in the funds were determined not by the
contractual right to withdraw, the dissent argued, but by a
party's net contribution to the account. The dissent rejected
the applicability of the federal gift tax provision, and instead
cited the comments to the Uniform Probate Code - upon which the
California law is based - as to the effect of withdrawal:
"Presumably, overwithdrawal leaves the party making the
excessive withdrawal liable to the beneficial owner as a debtor
or trustee. Of course evidence of intention by one to make a
gift to the other of any sums withdrawn by the other in excess
of his ownership should be effective." (Id. at 498, quoting
Recommendation Relating to Non-Probate Transfers, 15 Cal. Law
Revision Com. Rep. at pp. 1642-1643; italics added by the
dissent.) According to the dissent, this comment not only
anticipates that a party making an excessive withdrawal would be
liable to another party for its proportional interest, but it
also suggests, contrary to the majority, that a withdrawal is
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not a "gift" unless there is evidence of such an intention.
The dissent concluded by noting a likely consequence of the
majority view: "A joint tenancy account holder with an urgent
need for cash, or merely harboring a vengeful motive, can wipe
out an entire account with impunity unless the owner of the
funds can prove that there had been a prior, enforceable
agreement restricting the power of the withdrawal or the use of
the funds." (Id. at 500-501.)
California Law Revision Commission Report : When initially
enacted, the CAMPAL provisions were largely based upon the
recommendations of the California Law Revision Commission
(CLRC). (See Recommendation Relating to Non-probate Transfers,
16 Cal. L. Revision Com. Reports 129 (1982); see also
Recommendations Relating to Multiple-Party Accounts in Financial
Institutions, 20 Cal. L. Revision Com. Reports 95 (1990).)
Persuaded that the dissenting opinion in Lee v. Yang more
accurately captured the intent of CAMPAL than did the majority
opinion, CLRC issued a June 2004 report that recommended
reversing the rule of Lee v. Yang by making "clear that
ownership of funds withdrawn from a joint account is based on
the proportionate contributions of the parties to the account."
This could be done, the report noted, by striking from Section
5301 of Probate Code the clause "sums on deposit," which the
majority in Lee v. Yang had so heavily relied upon for its
conclusion that the proportional ownership rule only applied to
the balance that remained in the account, and not to any funds
that had been withdrawn. The CLRC also recommended
clarification of the existing rule that withdrawal of funds from
a joint account cuts off the right of survivorship in the
amounts withdrawn, but only "to the extent of the Ýwithdrawing]
party's net contribution to the account." In other words, since
a non-withdrawing party retains a proportional ownership
interest in withdrawn funds, the withdrawing party can only cut
off survivorship rights to the extent of the withdrawing party's
proportional interest in the withdrawn funds. (See Ownership of
Amounts Withdrawn from Joint Account, 34 Cal. L. Revision Com.
Reports 199 (2004).)
Fate of Last Year's SB 273: The first bill attempting to enact
the CLRC recommendations was introduced as AB 69 (Harman) in
2005. That bill passed unanimously both out of this Committee
and off the Assembly Floor, but it was never heard by the Senate
Judiciary Committee. Last year's SB 273 (Harman) tracked the
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CLRC recommended language exactly, but that bill also was never
heard by the Senate Judiciary Committee. The concerns about SB
273 reportedly concerned the potential impact of reversing Lee
v. Yang, especially in situations where one party signs on to a
joint account in order to spend money for the benefit of the
other party to the account. In particular, the most troubling
scenario apparently involved a friend or relative who becomes a
signatory to a joint account in order to spend money on behalf
of an elderly person who no longer has the capacity to manage
his or her money. A friend who innocently and in good faith
withdraws and spends money on the other party's behalf, but who
does not keep meticulous records or receipts, could potentially
be liable to the heirs or estate of the elderly person for the
withdrawn funds. The author and supporters of this bill concede
this possibility and admit that under the rule of Lee v. Yang
the innocent friend would be protected, since the elderly person
(and thus the elderly person's heirs or estate) would have no
ownership interest in the withdrawn funds. However, Lee v. Yang
resolved the problem only by creating the equally inequitable
situation that would allow one party to a joint account to
unilaterally deplete the account and leave the other party with
no recourse. Moreover, in the scenario raised in response to
last year's bill, the elderly person who relies upon another to
withdraw and spend money on his or her behalf also needs
protection. Under Lee v. Yang, the elderly person would have no
legal interest, and therefore no legal means of recovering the
withdrawn funds unless he or she could make a case under the
state's elder financial abuse laws. Under the rule proposed by
this bill, the elderly person would retain an ownership interest
in the withdrawn funds equal to the amount of his or her
contribution, unless the withdrawing party could convince a
court that the funds had been spent to benefit the elderly
person.
Recent Amendments Appear to Address Prior Concerns about SB 273 :
As introduced, AB 1624 was identical to last year's SB 273.
However, in order to address the concerns noted above raised
about last year's bill, the author recently amended the bill to
offer some protection to the innocent friend or family member
who signs on to a joint account in order to spend money to
benefit another party to the account. Specifically, the recent
amendment now in the bill provides that "if one party makes a
withdrawal from the account and uses the funds withdrawn solely
for the benefit of another party, and the benefitted party or
its estate, heir, or agent subsequently seeks to recover a
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proportion of the amount withdrawn from the party that made the
withdrawal, a court may, at its discretion and in the interest
of justice, reduce the benefitted party's ownership interest in
the amount withdrawn." This amendment appears to address the
concerns raised earlier while at the same time preserving the
assumption that the non-withdrawing party retains a proportional
interest in the withdrawn funds.
ARGUMENTS IN SUPPORT : The Trusts & Estates Section of the State
Bar of California believes that this bill is necessary in order
to correct the troubling presumption of Lee v. Yang that "a
joint account holder who is first to the bank and withdraws the
funds can keep the withdrawn funds regardless of his or her
contribution to the account." The Trust & Estates Section notes
that under the rule of Lee v. Yang, "a parent may add a child to
his or her account as a convenience in anticipation of the
parent's incapacity or death, and not with the intent that the
child be able to access and withdraw funds from the account for
the child's personal use until the parent's actual incapacity or
death." This bill, the Trusts & Estates Section believes,
appropriately embodies the recommendations of the California Law
Revision Commission, which developed the original Multi-Party
Accounts Law.
The Conference of California Bar Associations (CCRA) supports
this bill for substantially the same reasons. Referring to the
rule of Lee v. Yang, CCRA argues that it is "inconsistent with
common sense and fairness for unmarried couples using joint
tenancy bank accounts to allow the one who decides to terminate
the relationship to take and keep all of the couple's money.
CCRA concludes that "AB 1624 is needed to restore the fair and
reasonable intention of the Legislature when the California
Multiple-Party Accounts Law was enacted, and to protect
California's seniors and citizens from losing their property if
they lose the race to the bank."
The American Association of Retired Persons (AARP) notes that
this bill addresses an issue that "is a particular concern of
AARP." AARP notes that a senior will often give account access
to "a trusted relative to perform the ministerial function of
paying bills and other financial obligations. Unfortunately,
trusted relatives are often the ones who take advantage of
seniors." AARP believes that this measure will "clarify that a
senior who puts a person on his or her account for this purpose
does not presumptively authorize expenditures for other
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purposes."
REGISTERED SUPPORT / OPPOSITION :
Support
American Association of Retired Persons (AARP)
Conference of California Bar Associations
Trusts & Estates Section of the State Bar of California
Opposition
None on file
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334