Joint Bank Account May Not Avoid Probate

In 2010, the Minnesota Court of Appeals ruled that Certificates of Deposit owned in the name of the depositor and one of his daughters would have to be added to the deceased depositor's probate estate and distributed according to his will.

This may surprise many people who believe that adding another person as joint owner of a bank account will keep the account out of probate.

Generally, when one owner of a joint bank account dies, the account is payable to the other joint owner(s) without the necessity of a probate proceeding. Because of this, joint accounts have been called a "poor man's will." Many folks have established joint accounts for this very reason -- so that the money will go directly to the other owner(s) after death.

I have written in the past about the dangers of joint accounts during the life of the depositor here and here. This case illustrates how unintended consequences may occur after the depositor's death.

The paramount issue in this case concerned the depositor's intent when he opened the joint accounts. Did he intend his daughter to become the sole owner of the certificates of deposit after his death, or did he name her only for convenience, intending that she distribute the funds in the accounts among all of the beneficiaries that he named in his will?

Apparently, he hadn't told anyone in the family what his intentions were when he opened the accounts, and the daughter named as joint owner didn't learn about the accounts until after his death. It's possible that he named the daughter as joint owner on the advice of bank personnel who told him he could avoid probate that way.

Minnesota law provides that after the death of one depositor, the money in a joint account belongs to the surviving owner(s) unless there is clear and convincing evidence of a contrary intention. In this recent case, two out of three appeals judges agreed that the testimony and evidence in the case established sufficient proof that the depositor did not intend the accounts to go to the joint owner. One judge disagreed, reasoning that since there was no evidence of the depositor's intent at the time he opened the joint accounts, the accounts should belong to the surviving owner.

This case was then appealed to the Minnesota Supreme Court, which reversed the Court of Appeals holding, ruling that "the surviving owner of certificates of deposit, designated as joint accounts, is entitled to the funds upon the death of the other joint owner, as against the decedent's estate, unless there is clear and convincing evidence of a different intention or there is a different disposition made by a valid will, either of which must specifically refer to the certificates of deposit." While this result may be more in line with what you would expect, it is interesting to note that in order to arrive at this result, the parties had to go to court, and then have the issue appealed all the way to the state supreme court.

This case illustrates the confusion and potential costly problems that can result from adding children as joint owners on bank accounts. Usually this is done in order to avoid the costs of probate, but obviously in this case it backfired, in all likelihood costing the parties much more than it would have cost to probate the estate.

The final result in this case may be what the depositor had intended. But we don't know for sure.

This case does illustrate the importance of making sure that your account designations and estate planning documents are consistent, or that any inconsistency is documented to clarify what your intentions are. And, in light of the legislature's recent changes that allow personal property in estates of up to $75,000 to pass to survivors without probate, as well as the new Transfer on Death Deeds, the utility of joint accounts as probate avoidance mechanisms has been reduced for many people.

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