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Joint Accounts with Rights of Survivorship and Payable on Death Designations

In Tennessee, a bank account, certificate of deposit, money market account, or other type of financial account may be maintained as a joint account with a right of survivorship.  Such accounts may also be maintained as single owner accounts, but be made payable on death to a named beneficiary.  Payable on death designations are abbreviated as “POD.”

The difference between a single owner account, with no payable on death designation, and a joint account, with a right of survivorship, can have a major effect on relatives and beneficiaries under Wills.  The difference between a single owner account and a single owner account with a payable on death designation can also have a major effect on relatives and beneficiaries under Wills.

Let’s assume that I die with $200,000 in undisputed debt, and with $200,000 in a bank account which I own, but which has no payable on death beneficiary.  In that case, even if I bequeathed all of my assets to my wife in my Will,  and even if I specifically stated in my Will that I wanted her to have all of the money in my bank account, nevertheless, the $200,000 in my bank account at the time of my death would never become my surviving wife’s.  Why? The answer is because, at my death, it would become part of my probate estate. Once it became part of my probate estate, it would be subject to the claims of creditors.

Let’s change the scenario. Let’s assume that I have an account which I alone own, but which I have made payable on death to my wife. Under Tennessee law, at my death, the $200,000 becomes my wife’s, is not part of my probate estate, and is not subject to the claims of my creditors.

Let’s change the scenario again and assume that the account is a joint account with my wife with a right of survivorship. Under Tennessee law, when I die, the $200,000 becomes my wife’s, is not part of my probate estate, and is not subject to the claims of my creditors.

It is possible, and happens, that persons other than relatives are made joint owners of accounts with rights of survivorship or made payable on death beneficiaries.

In Tennessee, it is quite possible for someone to be named the sole beneficiary in a Will made by someone who has hundreds of thousands of dollars in accounts and CDs, but yet receive nothing when the person who made the Will dies. That is because the person may have maintained his or her accounts and CDs in a manner that caused them to pass directly to someone else when he or she died.  That very scenario played out in the case of George v. Warmath (Tenn. Ct. App. 1999).

In the Warmath case, Ms. Spalding made a Will in 1989 that left half of her assets to her daughter, and the other half to her grandchildren.  After the Will was made, Ms. Spalding changed her money market account, checking accounts and CDs to either joint accounts with her daughter with a right of survivorship or made the accounts payable on death to her daughter. When Ms. Spalding died, the grandchildren argued that, because she had left half of her assets to them in her Will, they should receive half of the value of the accounts and CDs.

The Court of Appeals of Tennessee made short work of the grandchildren’s argument, and held that the monies in the bank accounts and CDs became the property of the daughter on the death of Ms. Spalding, and did not become part of Ms. Spalding’s probate estate.  Since the assets did not become part of her probate estate, they could not be distributed under her Will.

Keep in mind that it is not just Tennessee will contests in which undue influence comes into play.  Undue influence can be used to change bank accounts, and CDs, not to mention life insurance policies, stock accounts, titles to real estate, titles to vehicles, etc. (I have also had cases where undue influence was used to cause both a change in a Will and a change to bank accounts and CDs.) It is quite possible that disinherited relatives and heirs may be able to undo the consequences of payable on death designations and joint accounts with rights of survivorship by filing undue influence cases.

For Tennessee probate litigation lawyers, it is crucial to know and to understand how POD designations and joint accounts with survivorship rights work.