Recent Case Lays Down New Law in Tennessee for Joint Bank Accounts of Spouses

In Tennessee, many spouses have joint bank accounts with rights of survivorship. Such accounts are considered accounts held by the spouses as “tenants by the entirety” unless the spouses have specifically agreed otherwise. Such accounts are referred to as “tenancy by the entirety accounts” or “entireties accounts.”

A tenancy by the entirety account is a form of ownership which is only available to spouses. Under Tennessee law, each spouse owns the entire account, and, when one of the spouses dies, the other spouse continues to own the entire account.

In a recent probate case which made it on appeal to the Court of Appeals of Tennessee, the Court of Appeals made some new law on tenancy by the entirety accounts. The case is In re Estate of Fletcher and here are the facts and procedural history:

  • Husband and Wife opened a joint account with a right of survivorship (which was deemed to be a tenants by the entirety account)
  • Husband and Wife deposited $100,000 in the account which they received from re-financing their home
  • According to the account agreement, either Husband or Wife could withdraw funds without the signature of the other
  • After the account was opened, Husband withdrew $100,00 from the account and bought a certificate of deposit (“CD”)
  • The CD was in Husband’s name only
  • Husband died with a will in place (died testate)
  • Husband’s will provided that his children (“Children”) were entitled to his personal property which included the CD
  • Husband’s will was admitted to probate
  • In the probate litigation, Wife contended that the CD was not part of Husband’s estate and Children contended that it was
  • The probate court held that the funds in the CD ceased to be owned by the entireties when Husband withdrew the funds from the entireties account and bought the CD in his name only
  • Under the holding of the probate court, the funds in the CD were, therefore, personal property owned by Husband at the time of his death, and, therefore, were part of his probate estate
  • Under the holding of the probate court, Children, not Wife, were entitled to the funds from the CD

The Court of Appeals reversed the probate court. It held that the fact that the Husband withdrew the funds from a tenancy by the entireties account and deposited them into a CD which he owned alone did not change the fact that the funds were still owned by the entireties.

The Court of Appeals noted that the existing case law in Tennessee provided unclear and contradictory direction about how the case before it should be resolved. It acknowledged that some of its prior decisions could be used to reach the result the probate court had reached. Nevertheless, it reasoned that the time had come to make it clear that, in situations such as the one before it, monies in an entireties account remained “impressed with an entirety provision” even if withdrawn by one spouse and placed in a solely owned account.

There are at least a couple of situations where facts just a little different from the facts in the Fletcher case could lead to different results, and Tennessee probate litigation lawyers should be aware of them.  First, in Fletcher, the court pointed out that the rule it laid down applied where there was no “evidence of some agreement by the non-withdrawing spouse that his or her interest in the funds is to cease.”  So, if the Children could have proven an agreement between Husband and Wife that she had relinquished her ownership interest, the case would have turned out differently.

In the Fletcher case, the funds went from an account held as tenants by the entireties to an account owned by just the Husband.  They went no further. Had Husband, for example, paid the $100,000 to a third party who had no knowledge of the fact that the funds had originated from an entireties account, Wife would have lost any interest in the funds.

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