BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 1624| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ CONSENT Bill No: AB 1624 Author: Gatto (D) Amended: 7/6/12 in Senate Vote: 21 SENATE JUDICIARY COMMITTEE : 4-0, 7/3/12 AYES: Evans, Blakeslee, Corbett, Leno NO VOTE RECORDED: Harman ASSEMBLY FLOOR : 69-0, 3/22/12 - See last page for vote SUBJECT : Multiple-party accounts SOURCE : Author DIGEST : This bill provides 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the net contributions of each party, and any right of survivorship to the funds is eliminated with respect to the funds withdrawn to the extent of the withdrawing party's net contribution to the account.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 also clarifies the ownership interest of parties in withdrawals made in excess of a withdrawing party's net contribution. This bill provides that, when a withdrawing party uses the funds for the benefit of another party, and that party, or his/her conservator, guardian, or agent, seeks to recover the amount withdrawn in excess of the withdrawing party's contribution, a court can, at its discretion and in the interest of justice, reduce the other party's ownership interest in the amount withdrawn. CONTINUED AB 1624 Page 2 ANALYSIS : 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. (Probate Code (PROB) Section 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 Section 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 Section 5130) Existing law defines "P.O.D. account" to mean (1) 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 (2) 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 Section 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 Section 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 AB 1624 Page 3 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 Section 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 Section 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 different intent. If there is an irrevocable trust, the account belongs beneficially to the beneficiary. (PROB Section 5301) This bill provides 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 provides 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 defines "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. AB 1624 Page 4 This bill provides 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 authorizes 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. 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 Section 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 Section 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 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 Section 5303(c)) This bill provides 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. 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 AB 1624 Page 5 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 Section 5401(c)) This bill provides clarifying cross-references to this provision. 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 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, Chapter 397, Statutes of 1989), which was subsequently recast under AB 759 (Friedman, Chapter 79, Statutes of 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 AB 1624 Page 6 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 the Senate Judiciary 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. This bill returns 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 provides 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 or the amount she could withdraw from the account, and "Ýt]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 ÝYang'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 AB 1624 Page 7 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 CLRC issued a recommendation that 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 "Ýa]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 adopts the CLRC's recommendation and clarify that a multiple-party account belongs, during the lifetime of all parties, to the parties in proportion to the net contributions by each, instead of by each to the sums on deposit. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No AB 1624 Page 8 SUPPORT : (Verified 7/6/12) 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 ARGUMENTS IN SUPPORT : 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 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 AB 1624 Page 9 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. ASSEMBLY FLOOR : 69-0, 3/22/12 AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, Brownley, Buchanan, Butler, Campos, Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson, Donnelly, Eng, Feuer, Fong, Fuentes, Beth Gaines, Galgiani, Garrick, Gatto, Gordon, Grove, Hagman, Halderman, Hayashi, Roger Hernández, Hill, Huber, Hueso, Huffman, Jeffries, Jones, Knight, Lara, Ma, Mansoor, Mendoza, Miller, Mitchell, Monning, Morrell, Nielsen, Norby, Olsen, Pan, Perea, V. Manuel Pérez, Portantino, Silva, Smyth, Solorio, Swanson, Torres, Wagner, Wieckowski, Williams, Yamada, John A. Pérez NO VOTE RECORDED: Charles Calderon, Fletcher, Furutani, Gorell, Hall, Harkey, Logue, Bonnie Lowenthal, Nestande, Skinner, Valadao RJG:m 7/6/12 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****