BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 1624 (Gatto)
As Amended June 21, 2012
Hearing Date: July 3, 2012
Fiscal: No
Urgency: No
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SUBJECT
Multiple-Party Accounts
DESCRIPTION
This bill would provide that funds in a multiple-party account
belong to each party to the account in proportion to the net
contributions of each party, and any right of survivorship to
the funds is eliminated with respect to the funds withdrawn to
the extent of the withdrawing party's net contribution to the
account.
This bill would also clarify the ownership interest of parties
in withdrawals made in excess of a withdrawing party's net
contribution. This bill would provide that, when a withdrawing
party uses the funds for the benefit of another party, and that
party, or his or her conservator, guardian, or agent, seeks to
recover the amount withdrawn in excess of the withdrawing
party's contribution, a court can, at its discretion and in the
interest of justice, reduce the other party's ownership interest
in the amount withdrawn.
BACKGROUND
In 1983, the California Law Revision Commission (CLRC)
recommended the adoption of certain provisions of the Uniform
Probate Code regarding interests of multiple parties to funds
held in one bank account. (Recommendation Relating to
Nonprobate Transfers, 16 Cal. Law Revision Com. Rep. (1982) p.
126.) CLRC's recommendation was enacted, which created the
California Multiple-Party Accounts Law (CAM-PAL) and applied to
interests of multiple parties in funds held in credit union and
(more)
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industrial loan company accounts. In 1989, CLRC recommended
amendments to CAM-PAL, among other things, to extend its
application to banks and savings and loan associations and to
clarify survivorship rights of the parties to a multiple-party
account. (Recommendation Relating to Multiple-Party Accounts in
Financial Institutions (Feb. 1989) 20 Cal. Law Revision Com.
Rep. (1990) p. 95.) The Legislature enacted the CLRC's proposal
under SB 985 (Beverly, Ch. 397, Stats. 1989), which was
subsequently recast under AB 759 (Friedman, Ch. 79, Stats. 1990)
when the Probate Code was revised.
Later, the First District Court of Appeal ruled, in Lee v. Yang
(2003) 111 Cal.App.4th 481, that funds in a multiple-party
account can be withdrawn by any party to the account, regardless
of which party deposited the funds. The CLRC recommended
clarification of CAM-PAL "to make clear that ownership of funds
withdrawn from a joint account is determined by the net
contributions of the parties to the account, thereby reversing
the rule of Lee v. Yang." (Recommendation: Ownership of
Amounts Withdrawn from Joint Account (June 2004) 34 Cal. Law
Revision Com. Rep. (2004) p. 203.)
This bill is similar to AB 69 (Harman, 2005) and SB 273 (Harman,
2011), both of which would have adopted the CLRC's 2004
recommendations to overturn Lee v. Yang, but both bills died in
this Committee without hearing. Unlike the prior bills, this
bill would clarify the ownership interest of parties in another
party's excess withdrawals and provide protection for a party
who withdraws money on behalf of another party to the account.
CHANGES TO EXISTING LAW
1. Existing law , the California Multiple-Party Accounts Law
(CAM-PAL), establishes provisions governing the ownership of a
multiple-party account in a financial institution, rights of
creditors to the funds on account, and provides simplified
procedures for transferring funds following the death of a
depositor. (Prob. Code Sec. 5100 et seq.)
Existing law provides that a "multiple-party account" means a
joint account, a pay on death (P.O.D.) account, or a Totten
trust account. (Prob. Code Sec. 5132.)
Existing law defines "joint account" to mean an account
payable on request to one or more of two or more parties
whether or not mention is made of any right of survivorship.
(Prob. Code Sec. 5130.)
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Existing law defines "P.O.D. account" to mean: (a) an account
payable on request to one person during the person's lifetime
and on the person's death to one or more P.O.D. payees; or (b)
an account payable on request to one or more persons during
their lifetimes and on the death of all of them to one or more
P.O.D. payees. (Prob. Code Sec. 5140.)
Existing law defines "Totten trust account" to mean an account
in the name of one or more parties as trustee for one or more
beneficiaries where the relationship is established by the
form of the account and the deposit agreement with the
financial institution and there is no subject of the trust
other than the sums on deposit in the account. (Prob. Code
Sec. 80.)
Existing law provides that the "net contribution" of a party
to an account at any given time is the sum of all of the
following:
(1) all deposits thereto made by or for the party,
less all withdrawals made by or for the party that have not
been paid to or applied to the use of any other party;
(2) a pro rata share of any interest or dividends
earned, whether or not included in the current balance; and
(3) any proceeds of deposit life insurance added to
the account by reason of the death of the party whose net
contribution is in question. (Prob. Code Sec. 5134(a).)
Existing law provides that, in the absence of proof otherwise,
only parties who have a present right of withdrawal shall be
considered as having a net contribution, and the net
contribution of each of the parties having a present right of
withdrawal is deemed to be an equal amount. (Prob. Code Sec.
5134(b).)
Existing law provides that a multiple party 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. Existing law provides that, for a P.O.D.
account, the P.O.D. payee has no rights to the sums on deposit
during the lifetime of any party, unless there is clear and
convincing evidence of a different intent. Existing law also
provides that, for a Totten trust account, the beneficiary has
no rights to the sums on deposit during the lifetime of any
party, unless there is clear and convincing evidence of a
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different intent. If there is an irrevocable trust, the
account belongs beneficially to the beneficiary. (Prob. Code
Sec. 5301.)
This bill would provide that a multiple party account belongs,
during the lifetime of all parties, to the parties in
proportion to the net contributions by each, unless there is
clear and convincing evidence of a different intent.
This bill would provide that, if a party makes an excess
withdrawal from an account, the other parties to the account
shall have an ownership interest in the excess withdrawal in
proportion to the net contributions of each to the amount on
deposit in the account immediately following the excess
withdrawal, unless there is clear and convincing evidence of a
contrary agreement between the parties. This bill would
define "excess withdrawal" as the amount of a party's
withdrawal that exceeds that party's net contribution on
deposit in the account immediately preceding the withdrawal.
This bill would provide that only a living party, or a
conservator, guardian, or agent acting on behalf of a living
party, shall be permitted to make a claim to recover the
living party's ownership interest in an excess withdrawal.
This bill would authorize a court, at its discretion, and in
the interest of justice, to reduce any recovery from an excess
withdrawal to reflect funds withdrawn and applied solely for
the benefit of the claiming party.
2. Existing law provides that sums remaining on deposit at the
death of a party to a joint account belong to the surviving
party or parties as against the estate of the decedent unless
there is clear and convincing evidence of a different intent.
If there are two or more surviving parties, their respective
ownerships during lifetime are in proportion to their previous
ownership interests augmented by an equal share for each
survivor of any interest the decedent may have owned in the
account immediately before the decedent's death; and the right
of survivorship continues between the surviving parties.
(Prob. Code Sec. 5302(a).) Existing law provides additional
provisions on right rights to sums remaining on deposit for
P.O.D. accounts and Totten trust accounts. (Prob. Code Sec.
5302(b), (c).)
Existing law provides that, during the lifetime of a party,
the terms of the account may be changed to eliminate or to add
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rights of survivorship. Withdrawal of funds from the account
by a party with a present right of withdrawal during the
lifetime of a party also eliminates rights of survivorship
upon the death of that party with respect to the funds
withdrawn. (Prob. Code Sec. 5303(c).)
This bill would provide that withdrawal of funds from the
account by a party would eliminate rights of survivorship with
respect to the funds withdrawn to the extent of the
withdrawing party's net contribution to the account.
3. Existing law provides that, with respect to multiple-party
accounts, a financial institution is not required to do any of
the following:
inquire as to the source of funds received for deposit
to a multiple-party account, or inquire as to the proposed
application of any sum withdrawn from an account, for
purposes of establishing net contributions;
determine any party's net contribution; or
limit withdrawals or any other use of an account based
on the net contribution of any party, whether or not the
financial institution has actual knowledge of each party's
contribution. (Prob. Code Sec. 5401(c).)
This bill would provide clarifying cross-references to this
provision.
COMMENT
1. Stated need for the bill
The author writes:
Lee v. Yang created a presumption that whoever withdraws the
money gets to keep it unless the account holder who
contributed the funds can prove that there was an actual
agreement to the contrary. Ordinary people have no way to
know of the need for such an agreement.
Lee vs. Yang particularly places the elderly at risk, because
elders commonly use these accounts to enable a relative (often
one of the depositor's children) to assist with paying bills
or to avoid conservatorship or probate administration of their
assets. When making these arrangements, the elderly generally
do not expect or intend that they are making a present gift of
those funds; however, that is exactly what Lee v. Yang holds
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should a person added to a Multiple-Party Account to assist an
elderly friend or relative decide to take the monies. While we
all hope that family members will provide honest assistance to
their elderly relatives, it is a reality that most elder abuse
is committed by family members that the elderly persons
trusts. Further, due to the mental problems commonly
associated with aging, the elderly are at a particular
disadvantage when trying to recover their funds once they
discover that those funds have been taken by a person they
trusted.
It is also inconsistent with common sense and fairness for
unmarried couples using joint tenancy bank accounts to allow
whoever decides to terminate the relationship to take and keep
all of the couple's money.
AB 1624 is needed both to restore the fair and reasonable
intention of the Legislature when the California
Multiple-Party Accounts Law was enacted and to generally
comply with the intent of the parties on an account that their
ownership is based on their individual contributions to the
account rather than whoever gets to the bank first.
2. Presumption regarding ownership of withdrawn funds
The author argues that this bill is necessary to return
California law to its original intent prior to the holding in
Lee v. Yang (2003) 111 Cal.App.4th 481 that money in a
multiple-party account belonged to each party in proportion to
the net contributions by each party to the sums on deposit.
Essentially, this bill would provide that, when non-married
individuals have a joint account, each party owns the amount he
or she has deposited into the account, unless otherwise agreed
by the parties. The author argues that the Lee v. Yang decision
created a "race to the bank," where if one party falls out of
favor with another party, the first party could withdraw all
funds in the account, even though they did not deposit anything.
In Lee v. Yang, plaintiff Holden Lee sued his ex-fiancé,
defendant Janet Yang, for recovery of his money that she
withdrew from their multiple-party account. During Yang's
engagement to Lee, Yang discovered Lee had been involved in
same-sex relationships. The engagement was broken off, and Yang
withdrew over $340,000 of comingled funds from the
multiple-party account and closed out the account. The court
held there was no agreement between the parties restricting Yang
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or the amount she could withdraw from the account, and "İt]he
inescapable inference is that likewise there was no restriction
on the use of the withdrawn funds and hence no legal obligation
to account for or return them. By virtue of İYang's]
unrestricted right to withdraw and apply funds to her own
benefit, the ownership of the funds passed to her by way of
gift. . . ." (Lee v. Yang (2003) 111 Cal.App.4th at p. 493;
emphasis in original.) The dissent argued that the legislative
history of multiple-party account ownership showed that the
intent of CAM-PAL was for parties to retain their ownership
interests in their deposited funds, according to their net
contribution, and the majority's opinion, by creating a
presumption that a party was not entitled to recoup any of his
or her own funds, thwarted the basic purpose of CAM-PAL. (Id.
at p. 496.)
Following the Lee v. Yang decision, the California Law Revision
Commission (CLRC) issued a recommendation that the
multiple-party accounts law (CAM-PAL) be clarified to provide
that ownership of funds withdrawn from a multiple-party account
is based upon the proportionate contributions of the parties to
the account. (Recommendation: Ownership of Amounts Withdrawn
from Joint Account (June 2004) 34 Cal. Law Revision Com. Rep.
(2004) p. 203.) The CLRC argued that "Lee v. Yang was
incorrectly decided. The effect of the decision is the opposite
of that intended by the law. Under prior law the depositor was
presumed to own an equal share of funds withdrawn from a joint
account. The Multiple-Party Accounts law presumes the depositor
owns funds withdrawn based on the depositor's net contributions.
Lee v. Yang, however, presumes the depositor owns none of the
funds withdrawn." (Recommendation: Ownership of Amounts
Withdrawn from Joint Account (June 2004) 34 Cal. Law Revision
Com. Rep. (2004) p. 208.)
The CLRC notes that the majority opinion in Lee v. Yang based
the decision on a misconstruction of the federal gift tax rule,
but "İa]s the dissent in Lee v. Yang rightly points out, the
court's reliance on federal estate tax law for its answer to the
state property law issue begs the question. . . . When
confronted with the issue of overwithdrawal by a party to a
joint account, the courts of other states that have enacted the
uniform act have invariably concluded that the withdrawing
party's ownership right must be limited to the party's net
contribution." (Id. at pp. 208-209.) This bill would adopt the
CLRC's recommendation and clarify that a multiple-party account
belongs, during the lifetime of all parties, to the parties in
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proportion to the net contributions by each, instead of by each
to the sums on deposit.
3. Ownership interests in excess withdrawals
In addition to clarifying the presumption regarding ownership of
withdrawn funds recommended by the CLRC, this bill would further
provide that parties to the account have an ownership interest
in excess withdrawals by another party in proportion to the net
contributions of each to the amount on deposit. This additional
protection would provide instruction to courts on how each party
to the account may recover a portion of an excess withdrawal
that exceeds the withdrawing party's deposits to the account.
4. Protection for good faith parties withdrawing multiple-party
account funds for the benefit of the other account party
Although this bill would clarify an ownership interest of a
party to funds withdrawn by another party in excess of the
withdrawing party's contribution to the account, concern was
raised as to providing for protection for an individual who is a
party to the account but primarily withdraws funds for the
benefit of another party on the account. An example of this
situation is where a senior citizen opens a multiple-party
account with a friend or relative, with the understanding that
the friend or relative will use the money in the account to pay
the senior's obligations.
The author argues that, because the Lee v. Yang decision created
a gift presumption in favor of the party withdrawing funds in
excess of his or her net contribution, existing law would allow
a person committing elder financial abuse to withdraw the
senior's life savings. However, there could be situations where
a friend or relative is added to a multiple-party account and
pays the senior's obligations with the senior's account funds in
good faith. In order to protect the friend or relative in the
latter situation, this bill would provide that when one party
makes a withdrawal from the account and uses the funds solely
for the benefit of the other party, and the other party, or his
or her heirs or agents, seeks to recover the amount withdrawn, a
court can, at its discretion and in the interest of justice,
reduce the other party's ownership interest in the amount
withdrawn.
It is important to note that an individual can create an account
consisting of only funds deposited by the individual and the
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individual can designate an agent on the account who could make
payments from the account on the individual's behalf. This
situation would provide the agent only with access to the funds
on deposit to be used for the individual's behalf. However, in
some situations, an individual may want to provide the agent
with more withdrawal capability in case the individual wants to
authorize the agent to withdrawal from the account for the
agent's benefit.
In such a circumstance, a multiple-party account could be
created, with the "agent" designated as a co-owner of the
account. In this situation, the party depositing the funds into
the account may orally authorize the co-party to withdraw money
for the co-party's behalf, but since there may not be a writing
evidencing the individual's intent to make a gift of the
withdrawal to the agent, the co-party would have a difficult
time proving that the withdrawn funds were an oral gift of the
individual. For this reason, this bill would only provide a
living multiple-party account owner with the ability to
challenge an excess withdrawal.
5. Rights of survivorship
Under existing law, a party, during his or her lifetime, may
change the terms of a multiple-party account to eliminate or to
add rights of survivorship. Furthermore, a withdrawal of funds
from the account by a party with a present right of withdrawal
during the lifetime of a party also eliminates rights of
survivorship upon the death of that party with respect to the
funds withdrawn. (Prob. Code Sec. 5303(c).) This bill would
clarify that a party's withdrawal of funds from the account
would eliminate rights of survivorship with respect to the funds
withdrawn to the extent of the withdrawing party's net
contribution to the account.
In the CLRC's 2004 recommendation regarding multiple-party
accounts, the CLRC stated that the intent of the right of
survivorship provision was to allow the withdrawing party to
sever his or her right of survivorship as to that party's
ownership interest in the account. (Recommendation: Ownership
of Amounts Withdrawn from Joint Account (June 2004) 34 Cal. Law
Revision Com. Rep. (2004) p. 215.) The CLRC noted that existing
law is "susceptible to the interpretation that a withdrawing
party may affect survivorship rights of others in the amounts
withdrawn even though the party has no ownership interest in the
amounts withdrawn." (Recommendation: Ownership of Amounts
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Withdrawn from Joint Account (June 2004) 34 Cal. Law Revision
Com. Rep. (2004) p. 215.) This bill would adopt the CLRC's
recommendation to clarify that a withdrawal of all of the
withdrawing party's contribution to the account would eliminate
that withdrawing party's right of survivorship interest in the
account.
6. Author's amendment
Concern was raised regarding the use of the term "solely" as
applied to the court's ability to reduce a claimant's interest
in an excess withdrawal. There may be foreseeable situations in
which funds could be withdrawn by the withdrawing party but then
used for expenses of both the claimant and the withdrawing
party. As such, the use of the term "solely" may have the
unintended effect of unnecessarily narrowing the application of
the claimant's remedy for excess withdrawals. In order to
correct any potential misapplication of this provision, the
author has requested to amend this bill as follows:
Author's amendment :
On page 3, at line 8, strike "solely"
Support : AARP California; Conference of California Bar
Associations; Executive Committee of the Trusts & Estates
Section of the State Bar of California; Professional Fiduciary
Association of California
Opposition : None Known
HISTORY
Source : Author
Related Pending Legislation : None Known
Prior Legislation :
SB 273 (Harman, 2011) See Background.
AB 69 (Harman, 2005) See Background.
AB 759 (Friedman, Ch. 79, Stats. 1990) See Background.
Prior Vote :
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Assembly Floor (Ayes 69, Noes 0)
Assembly Committee on Judiciary (Ayes 8, Noes 0)
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