"CONVENIENT ONE-STOP shopping ... A convenience card ... An
inconvenient love affair ... Conveniently located to your home ... " No doubt
about it, we are a society built on convenience. From production to
consumption and every point in between, consumers prefer convenience. Creative
marketing forces enabling products, companies, yes, even professionals, to
hook the public are all geared to easing the workings of our daily lives.
Small wonder. Throughout the country, millions of people are relentlessly in
search of the "perfect" convenience. So why not a "convenience bank account?"
The all-new, gender neutral, environmentally sound, all-American "convenience
account" has been established by the Banking Law recently enacted and
effective Jan. 10, 1991. [FN1] It is, among other things, an attempt to put to
an end the tireless struggle of separating the "haves" from the "have nots."
By providing for convenience accounts to be established after
Feb. 10, 1991, our legislators have heightened the obstacle to rebutting the
presumption provided for in s675 of the Banking Law (for new joint accounts),
which says "what's yours is mine" if you put it in a joint
tenancy/survivorship account. In contrast, new "convenience" accounts, if
funded by "separate property," will remain the separate property of the
depositor. A gift may not be inferred from the opening of such an account. By
providing that the opening of these accounts are strictly for the convenience
of the depositor, and that the depositor shall not be considered to have made
a gift to another of half the deposits, accruals or additions, Albany hopes to
put a cease-fire to those wearisome wars (and endless billable hours) over who
stole the cookie from the cookie jar.
Common Law
Naturally, this statute is the outgrowth of the earliest
murmurings of significant law that preceded it, all of which had its
beginnings deeply rooted in history, which took a dramatic turn around 1965.
Our frontier justice began long ago with the common law. The
common law rule in New York held that a gift was not established when A made a
deposit in a savings account payable to A and B or the survivor. [FN2]
Moreover, this rule was applied even where A delivered the passbook to B.
[FN3] It was not presumed from the type of account that a gift was intended.
Although the elements of delivery and acceptance were demonstrated, the
element of donative intent was regarded as ambiguous. The possibility that the
joint account may have been used for convenience was sufficient to defeat the
inference to be drawn from the form of the account. A few examples show what
they mean.
In Beaver v. Beaver [FN4] a deposit was made by a father to
the credit of his son. The court held title did not pass to the son because
"We cannot close our eyes to the well-known practice of persons depositing in
savings banks money to the credit of real or fictitious persons, with no
intention of divesting themselves of ownership. "Therefore, upon the father's
death, his estate was held to include the deposit."
In Re Bolin, [FN5] delivery of the passbook to a joint savings
account in the name of a mother and daughter was similarly ineffectual. The
court concluded the only presumption from the form of deposit was that of
convenience and that delivery of the passbook was an equivocal act in that it
might have been made either to consummate a gift or merely to satisfy purposes
of convenience. A fortiori, a mere deposit in a joint account of the mother
and daughter, "or the survivor of them," was insufficient to constitute a
gift.
Law of Contracts
These illustrations are drawn from the law of gifts. One might
question whether a different result would occur were the law of contracts or
that pertaining to testamentary substitutes used. We can all agree on the
subjective character of the all important element of donative intent. The New
York Courts are free to disregard probable intent and to raise possible intent
from the "equivocal" delivery. Of course, in the process, more often than not
the real intention of the depositor is defeated because of the mere
possibility of a contrary intention.
The common law situation in New York was changed in 1909 in a
curious way. [FN6] In effect, contract principles were infused into the law
relating to the situation under discussion by a change in the banking laws.
Although the 1909 Banking Law was intended to afford banks protection when
they paid a co- depositor or survivor, its secondary effect was to "reverse
the common law rule and to make a deposit in the statutory form presumptive
evidence of an intent to make a gift." [FN7]
Thus, in Clary v. Fitzgerald, [FN8] a deposit in a savings
bank was made to the credit of "Mrs. Kate Connelly or Mrs. Kate A. Fitzgerald,
either or survivor may draw." After the death of Mrs. Connelly, the depositor,
her estate, sued to recover withdrawals made by Mrs. Fitzgerald. The complaint
was dismissed, the court saying that "if any effect is to be given the statute
(Banking Law of 1909), this deposit presumptively at least, became the
property of the designated depositors as 'joint tenants."' [FN9]
A dramatic change in the law had taken place, and the contract
between the depositor and the bank, designed for the latter's benefit, had
become the basis for a presumption inuring to the benefit of the co-owner of
the joint account, in effect reversing prior common law. Moreover, the court
went out of its way to stress that a deposit in a joint account with rights of
survivorship created a joint tenancy even without delivery of the passbook,
and that once the estate of joint tenancy was created, the depositor was
accountable to the donee as any other joint tenant of personal property would
be. [FN10] A further mutation of common law and statutory law occurred due to
the enactment of the Banking Law of 1914. [FN11]
Although s144 of the 1909 law was carried over into the 1914
statute, the latter was made applicable only to savings banks, whereas the
1909 measure applied to all banks. Most important, the 1914 law (applicable
only to savings banks) provided that "the making of the deposit in such form
(joint account with rights of survivor), shall, in the absence of fraud or
undue influence, be conclusive evidence, in any action or proceeding in which
either such savings bank or the surviving depositor is a party, of the
intention of both depositors to vest title to such deposit and the additions
thereto in such survivor."
The consequence of the 1914 statute for savings banks was to
create a joint tenancy as to all deposits in joint accounts, the donee
depositor being deemed to be the owner of at least half of the joint property
from the date of the tenancy. [FN12]
On June 1, 1965, however, a further modification occurred,
when Banking Law s 675 [FN13] came into effect. Section 675 of the Banking Law
established that the opening of a joint account with right of survivorship
creates a rebuttable presumption of a joint tenancy in the account. The
statute applies retroactively to joint accounts created before 1965, [FN14]
and it applies to deposits in any banking organization in New York, [FN15]
extending to joint savings and other bank accounts.
In effect, s675 creates two rebuttable presumptions. First,
that an account in such form as "pay to A or B or survivor" was intended to
create a joint tenancy, and, second, that the right of survivorship was
contemplated, so that on A's death, the whole deposit remaining passes to B.
[FN16]
Where it is claimed that neither a joint tenancy nor right of
survivorship in fact was intended, as where it is alleged that the deposits
were made in such form merely as a matter of convenience because of problems
of proof, the result may hinge upon whether the contributing depositor is
alive or dead at the time that issue arises.
During the lifetime of the co-depositors, the testimony of the
contributing depositor A may be sufficient to rebut the presumptions and to
prove he intended a "convenience" account and, in any event, as a practical
matter retention of a passbook may prevent B from withdrawing from a joint
savings account without A's consent. Apparently, there has been very little
litigation of joint tenancy problems where both A and B are alive. [FN17]
Where A, the contributing depositor dies, and an issue as to
his or her intention in creating the joint account arises, it is difficult to
rebut the above presumptions because of the dead man's statute [FN18] and
because of the hearsay rule, which precludes introduction of A's out-of-court
declarations. [FN19]
If a joint tenancy of the account is established, there are
two important legal consequences under existing New York law. The first is
that there is a transfer by the contributing depositor to the co-depositor of
a half interest in the fund on deposit. Each joint tenant, A and B, become
owners of a moiety in the fund, and each may withdraw, unilaterally, without
the consent of the other, up to half the fund. In short, B becomes the legal
owner of half the fund. [FN20]
The second legal consequence under New York law is that upon
the death of the first joint tenant, the survivor becomes entitled to the
whole fund. Such is deemed to be a present but inchoate right until the
contributing depositor dies, which neither joint tenant can unilaterally
destroy. For example, A may not, without the consent or ratification of B,
withdraw more than half the fund, nor may A substitute C for B as the joint
tenant. [FN21]
If the contributing depositor does not intend or wishes to
avoid the above legal consequences, he or she had best choose some other form
of account. In New York, until 1991 there was only the option of a Totten
trust. [FN22] Standing alone, it does not establish an irrevocable trust
during A's lifetime. It is a tentative trust merely, revocable at will until
the depositor dies or completes the gift in his lifetime by some unequivocable
act or declaration, such as delivery of a passbook or notice to the
beneficiary.
Separate Property
We did make progress.
In Wiercinski v. Wiercinski, [FN23] the Appellate Division
held that Social Security disability payments that had already been paid to
the husband and were accumulated in a joint family bank account were marital
property. Assuming the payments were "compensation for personal injuries," and
thus originally the husband's "separate property," they became "marital
property" subject to equitable distribution when placed in the joint account,
as the husband failed at trial to rebut the presumption that a gift was made.
The statutory definition of "separate property" for equitable
distribution purposes in Domestic Relations Law s236(B)(1)(d) is narrow. The
public policy expressed in the law affects judicial construction of it in the
application of the "separate property" exceptions that remove such assets from
the "marital pot." The theoretical goal of New York's Equitable Distribution
Law (EDL) is to achieve equity in the distribution of assets produced by the
marital partnership during the marriage.
DRL s236 Part B(1)(d) contains the statutory definition of
"separate property." It provides:
d. The term separate property shall mean:
(1) Property acquired before marriage or property acquired by
bequest, devise or descent, or gift from a party other than the spouse;
(2) Compensation for personal injuries;
(3) Property acquired in exchange for or the increase in value
of separate property, except to the extent that such appreciation is due in
part to the contributions or efforts of the other spouse;
(4) Property described as separate property by written
agreement of the parties pursuant to Subdivision Three of this part" (emphasis
supplied).
The first exemption from distribution is contained in DRL s236
[B](1)(d)(1), which exempts, among other things, property acquired by gift
from a party other than the spouse.
The common thread boldly running through Subdivision (1) is
that the items described were not produced by a functioning marital
partnership. Property that was separate property before marriage was not
produced during the marital partnership. [FN24] Likewise, as to inheritances
and gifts from a party other than a spouse. [FN25] Notably, interspousal gifts
are not included in Subdivision (1) and, therefore, are deemed to be "marital
property." [FN26]
An interesting problem is rebutting the presumption that
placing "separate" money in a joint bank account "payable to either or the
survivor" constitutes an interspousal gift so as to deem that spouse's
"separate property" as "marital property" subject to equitable distribution.
When a depositor creates or makes a deposit in a joint account
with right of survivorship, the transaction may be viewed from the standpoint
of the laws of gifts, contracts or wills. "The difficulty the Courts have had
with joint accounts can be traced primarily to the insistence on forcing an
essentially novel ownership arrangement into the mold of an existing set of
legal principles. The joint account is fundamentally neither a common law
joint tenancy, an ordinary inter vivos gift, a trust nor a will, yet it
partakes of the features of all of these." [FN27] In other words, we have a
hybrid.
Now there is a definitive solution to the problem. Effective
last Jan. 10, the Banking Law [FN28] was amended to allow depositors to
establish accounts "for the convenience" of the depositor. The making of a
deposit into such an account does not affect the title to the deposit, the
depositor is not considered to have made a gift of half the deposit or any
additions or accruals on it to the other person, and on the death of the
depositor the other person does not have a right of survivorship in the
account. [FN29] If an addition is made to the account by anyone other than the
depositor, the addition is considered to have been made by the depositor.
However, the deposit and any additions or accruals to it may be paid to the
other person at any time before the receipt by the bank of written notice from
the depositor not to pay to the other person.
The new law is clear, precise and to the point. No doubt this
will soon be all the rage.
FN1 Banking Law 678, Laws of 1990, Ch 436, s1.
FN2 See Kelly v. Beers (1909), 194 NY 49, 86 NE 980; Re Bolin
(1892), 136 NY 177, 32 NE 626.
FN3 Re Bolin (1892), 136 NY 177, 32 NE 626.
FN4 (1889), 117 NY 421, 22 NE 940.
FN5 (1892) 136 NY 177, 32 NE 626.
FN6 In 1909, the New York Legislature passed Ch 2,
Consolidated Laws, entitled "Banking Law" (Laws 1909, Ch 10). s144 in effect
provided that the bank was not liable when it paid out of a joint account with
right of survivor to either co- depositor or the survivor.
FN7 See Moskowitz v. Marrow (1929), 251 NY 380, 167 NE 506, 66
ALR 870.
FN8 (1913) 155 AD 659, 140 NYS 536, affd 213 NY 696, 107 NE
1075.
FN9 Clary v. Fitzgerald (1913), 155 AD 659, 663, 140 NYS 536,
affd 213 NY 696, 107 NE 1075.
FN10 Clary v. Fitzgerald (1913), 155 AD 659, at 662, 140 NYS
536, affd 213 NY 696, 107 NE 1075, quoting from Brady on Bank Deposits, 46
(1911).
FN11 Banking Law of 1914, 249 (Laws 1914, Ch 369).
FN12 See Re Tilley's Estate (1915), 166 AD 240, 151 NYS 79,
affd 215 NY 702, 109 NE 1094, and Re McKelway's Estate (1917), 221 NY 15, 116
NE 348.
FN13 Laws 1964, Ch 157, s9 eff June 1, 1965.
FN14 See 4 McKinney's Consol Laws of New York, Annotated,
historical note to Banking Law, 675.
FN15 See Re Estate of Reardon (1966), 52 Misc2d 371, 275 NYS2d
727, affd 29 AD2d 630, 285 NYS2d 568, affd 22 NY2d 928, 295 NYS2d 54, 242 NE2d
88.
FN16 See Sobel, Joint and Totten Savings Accounts, 171 NYLJ,
May 8, 1974, P 1, Cols 5, 6; P 4, Cols 1, 2.
FN17 Sobel, Joint and Totten Savings Accounts, 171 NYLJ, May
8, 1974, P 1, Cols 5, 6; P 4, Cols 1, 2.
FN18 CPLR 4519.
FN19 Sobel, Joint and Totten Savings Accounts, 171 NYLJ, May
8, 1974, P 4, Col 1.
FN20 Sobel, Joint and Totten Savings Accounts, 171 NYLJ, May
8, 1974, P 4, Col 1.
FN21 Sobel, Joint and Totten Savings Accounts, 171 NYLJ, May
8, 1974, P 4, Col 1.
FN22 Re Totten (1904), 179 NY 112, 71 NE 748. A Totten trust
involves a deposit by A of his own money in his own name as trustee for B.
FN23 116 AD2d 789, 497 NYS2d 179 (3d Dept., 1986).
FN24 In Lipson v. Lipson, 134 Misc2d 1076, 514 NYS2d 158, the
Court held that an engagement ring, given prior to marriage is separate
property.
In Novak v. Novak, 135 Misc2d 909, 516 NYS2d 878, the Court
held that where the husband conveyed title to the marital residence to himself
and wife to be, "as husband and wife," ten days before they were married, the
conveyance created a joint tenancy under EPTL 6-2.2(c) which remained such
upon marriage. The husband had purchased his interest in the property two and
a half months before the marriage.
FN25 In Romano v. Romano (1987 2nd Dept.), 133 AD2d 680, 519
NYS2d 850, the Appellate Division held that the trial Court correctly found
that the marital home was the wife's separate property because it was a gift
to her before the marriage and its appreciation was due to market forces. In
Spector v. Spector (1988, 4th Dept.), 136 AD2d 939, 524 NYS2d 896, app dismd
without op, 72 NYS2d 952, the Appellate Division modified the divorce judgment
on the law and held that certain personalty, including a manure spreader,
tractor chains, plow frame, pony cart and various animals were not marital
property. These items were purchased with Plaintiff's separate property
acquired by her as a result of gifts or inheritance. In Adams v. Adams, --
AD2d --, 514 NYS2d 420 (2d Dept., 1987), Defendant received a Corvette
automobile as a gift. When it was stolen, he bought a Trans Am with the
insurance proceeds. It was held to be his separate property.
FN26 See Coffey v. Coffey, 119 AD2d 620, 501 NYS2d 74, where
the husband's property which was inherited from his mother was initially his
separate property but his conveyance to his wife and himself made it marital.
See also, Wiercinski v. Wiercinski, 116 AD2d 789, 497 NYS2d
179 (3rd Dept., 1986).
FN27 Hines, Personal Property Joint Tenancies: More Law, Fact
and Fancy, 54 Minn L Rev 509 (1970).
FN28 Banking Law 678, Laws of 1990, Ch 436, s1.
FN29 The statute provides in part:
"1. When a deposit of cash, securities or other property has
been made, or shares shall be issued in or with any banking organization or
foreign banking corporation transacting business in this state, in an account
established after the effective date of this section, in the name of a
depositor and another person and in form to be paid or delivered to either
"for the convenience" of the depositor, the making of such deposit or the
issuance of such shares shall not affect the title to such deposit or shares
and the depositor shall not be considered to have made a gift of one-half the
deposit or of any additions or accruals thereon to the other person, and, on
the death of the depositor, the other person shall have no right of
survivorship in the account. If an addition is made to such an account by
anyone other than the depositor, such an addition and accruals thereon shall
be considered to have been made by the depositor. Such deposit or shares,
together with all additions and accruals thereon, may be paid or delivered to
the depositor or the other person, and such payment or delivery and the
receipt or acquittance of the one to whom such payment or delivery is made,
shall be a valid and sufficient release and discharge to the banking
organization or foreign banking corporation prior to the receipt by the
banking organization or foreign banking corporation of notice in writing
signed by the depositor not to pay or deliver such deposit or shares and the
additions and accruals thereon in accordance with the terms thereof, and after
receipt of any such notice, the banking organization or foreign banking
corporation may require the receipt or acquittance of the depositor for any
further payments or delivery. If the depositor is dead, such payment or
delivery to the other person shall be a valid and sufficient release to the
banking organization or foreign banking corporation prior to the receipt by
the banking organization or foreign banking corporation written notice of the
depositor's death. A banking organization or foreign banking corporation
which, upon the death of the depositor and prior to service upon it of a
restraining order, injunction or other appropriate process from a court of
competent jurisdiction prohibiting payment, makes payment to the executor,
administrator or other qualified representative of the deceased depositor's
estate, shall, to the extent of such payment, be released from liability to
any person claiming a right to the funds and the receipt or acquittance of the
executor, administrator or qualified representative to whom payment is made
shall be a valid and sufficient release and discharge of the financial
institution.
FNa Dr. Doris Jonas Freed is of counsel to the law firm of
Brandes, Weidman & Spatz P.C. in Manhattan. Joel R. Brandes and Carole L.
Weidman are partners in the firm, which maintains law offices in New York City
and Garden City, N.Y. Dr. Freed and Mr. Brandes are fellows of the American
Academy of Matrimonial Lawyers and are co-authors with the late Henry H.
Foster of Law and the Family, New York (Lawyers Co-operative Publishing Co.,
Rochester, N.Y.) Ms. Weidman is a co-author with Dr. Freed and Mr. Brandes, of
the annual supplements to Law and the Family, New York.
5/29/91 NYLJ 2, (col. 6)
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