1977, January, Pg. 76. CPC Newsletter.

6 Colo.Law. 76

Colorado Lawyer

1977.

1977, January, Pg. 76.

CPC Newsletter

76Vol. 6, No. 1, Pg. 76CPC NewsletterMultiple-Party Accounts

Article 15-15-101 through 113, C.R.S. 1973, covers the subject of Multiple-Party Accounts under the general heading of Non-Probate Transfers. C.P.C. Newsletters of June and July, 1975, discussed the continued use of Revocable Trusts as an alternative or supplemental tool in the non-probate approach of estate planning. The newsletter of August 1975 discussed the use of Powers of Attorney and in addition, mentioned other business arrangements which provide for transfers of property without being subject to attack as testamentary transfers executed without the formalities required of wills. Also briefly mentioned in that newsletter was "Totten," or bank account, trusts. For a full coverage of the law as originally adopted in Colorado, see Chapter 18 (Powers of Attorney and Non-Probate Transfers) of the report "Colorado Estate Administration Under the New Colorado Probate Code" prepared by James H. Turner, (1974).

What is a Multiple-Party Account?The statutory definition refers to only three types of accounts:(fn1) (A) our familiar joint account with two or more co-owners; (B) the so-called "Totten" trust which generally bears identification such as "John Doe, Trustee for Mary Roe"; and (C) the P.O.D. account illustrated by the account name, "John Doe payable on death to Mary Roe." Whereas the P.O.D. designation has long been a favorite way of holding U.S. Government Bonds, locally it was not generally used in bank accounts until the passage of the U.P.C.

A Multiple-Party Account may be a combination of those definitions, such as joint tenants with P.O.D. designated beneficiaries, or co-trustees with P.O.D. designated beneficiaries, but according to the statutory definition, it does not include any type of business account despite the fact that it may be a joint account or otherwise meet the definition.

Who May Withdraw Funds From The Account?A "party"(fn2) is the only person who may make a withdrawal from the account. All persons named on a joint account are "parties" and may withdraw funds. The trustee is the "party" on the trustee account so long as he is alive. Following the death of the trustee, the beneficiary becomes the "party."

In the same manner, the person named before the P.O.D. designated person is the "party" until his death, at which time the P.O.D. designated person then becomes the "party."

If there are two or more persons named as trustees or named before a P.O.D. designation, they are all "parties" and have the right to withdraw funds.(fn3)

Who Owns The Account?Ownership follows the "party" theory, but the extent of ownership--- where there is more than one "party" --- follows the rule that during the lifetime of original "parties," the account belongs to them in proportion to their net contributions to the sum on deposit, unless there is a preponderance of evidence of a different intent.(fn4)

If there is more than one original "party," then on the death of one, the others become equal owners of the decedent's share and they take against the estate of the "party" who died unless there is clear and convincing evidence of a different intention at the time the account is created. The right of survivorship would then continue between the surviving "parties."(fn5)

On the other hand, if the "parties" are secondary parties (those who become parties only after the death of the original parties, such as P.O.D. designated beneficiaries or multiple beneficiaries of Trustee accounts), they take equally if there is not a specific designation to the contrary. They must survive the original payees to take, and they take as tenants in common rather than as joint tenants with right of survivorship unless the account card or deposit agreement provides to the contrary.(fn6) The term "secondary" party is not used in the Act. I have adopted the terminology only in the narrow confines of the meaning set forth.

Who, Other Than Parties or Beneficiaries, Has The Right to Reach The Account?A. Bank. The bank has the right of set-off against the interest of a "party" in the account for the indebtedness which a "party" may owe to it and if the contributions of the various "parties" can't be proved then against the proportionate interest of the "party" based on the number of "parties"; i.e., if there are two parties the right would exist as against one-half of the account.(fn7) While it is doubtful that a bank would contractually relinquish its right of set-off against a primary "party" to the account, some replies to inquiries directed to various banks indicated that they would consider contractually relinquishing this right against a secondary "party."

B. State Claims for Inheritance Tax. Presently the banking institution is permitted to release up to $5,000 on a joint account after the death of a joint owner. Obviously, an inheritance tax release will have to be obtained for the bank to release a greater sum.(fn8)

If the P.O.D. beneficiary payee dies, no tax is due. If the P.O.D. "party" dies, however, since he is the owner, the inheritance tax, if any, would be due. Likewise, if the trustee of a trustee account dies, inheritance tax, if any, is due. In a "real" trust, as distinguished from a "Totten Trust" or trust account, the result, of course, would be to the contrary.

C. Surviving Spouse. It is suggested that a surviving spouse probably has the right to have the interest of the deceased spouse in a Multiple-Party Account brought into consideration as part of the augmented estate to the extent that the Multiple-Party Account resulted in a gift exceeding $3,000 within two years of the date of...