BILL ANALYSIS Ó
AB 1624
Page 1
ASSEMBLY THIRD READING
AB 1624 (Gatto)
As Amended March 15, 2012
Majority vote
JUDICIARY 8-0
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|Ayes:|Feuer, Wagner, Atkins, | | |
| |Dickinson, Huber, Jones, | | |
| |Monning, Wieckowski | | |
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| | | | |
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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rights of survivorship with respect to withdrawn funds.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to the funds withdrawn to the extent of the withdrawing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a withdrawal from the account and uses the funds withdrawn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recover a proportion of the amount withdrawn from the party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ownership interest in the amount withdrawn.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funds withdrawn from an account; to determine the net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.
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FISCAL EFFECT : None
COMMENTS : This bill seeks to overturn Lee v. Yang (2003) 111
Cal. App. 4th 481, a decision that the author, supporters, 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 funds withdrawn by another party. However, in
Lee v. Yang, 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.
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
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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 Civil Code 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 Probate Code 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 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 dissenting opinion in Lee v. Yang agreed with the majority
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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 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.)
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
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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).)
The first bill attempting to enact the CLRC recommendations was
introduced as AB 69 (Harman) in 2005. That bill passed
unanimously both out of the Assembly Judiciary Committee and off
the Assembly Floor, but it was never heard by the Senate
Judiciary Committee. Last year's SB 273 (Harman) tracked the
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
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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.
As introduced, this bill 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 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 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 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.
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334
FN: 0003164