On December 6, the Tennessee Supreme Court decided a case of first impression in Tennessee: what happens to the money that a married person withdraws from a joint bank account when that person dies? Does it go to the surviving spouse–as it would have done if the other spouse had not made the withdrawal? Or does it go as an estate asset of the deceased spouse according to his will?
In re Estate of Calvert Hugh Fletcher, a case that originated in the Putnam County Probate Court made its way from that court to the Court of Appeals and finally to the Tennessee Supreme Court.
In a unanimous decision delivered by Justice Lee, the Tennessee Supreme Court reversed the Court of Appeals, which had held that the withdrawn funds were to be treated as if they remained in the joint account and, thus, were impressed with a tenancy by the entireties. Rather, the Supreme Court agreed with the Putnam County Probate Court that the money withdrawn by one spouse from a joint bank account with the right of survivorship ceased to be jointly held property upon such withdrawal.
When the withdrawing spouse died, the certificate of deposit in which he had invested the withdrawn funds and which CD was in his sole name was an estate asset that went to his heirs in accordance with his will.
In this case, the loser was the withdrawing spouse’s surviving spouse. And the winners were the children from a prior marriage of the deceased withdrawing spouse who had named those children as his residuary beneficiaries in his will.
What is the big lesson from the Fletcher case?
If you don’t want your spouse having the right to withdraw jointly held monies from your bank account, then don’t sign an account agreement allowing for withdrawals with only one signature. If you do, then either spouse has the right to take money out of the account and so convert jointly held property to non-jointly held property.
The Court notes that there was no indication of any fraud by the withdrawing spouse in making the withdrawal or putting the withdrawn funds in a solely owned certificate of deposit. Accordingly, the Court said “we need not address the status of funds withdrawn from a joint account by one spouse under circumstances suggesting an intent to defraud, to avoid creditors, or to defeat the interests of a spouse in anticipation of divorce.”
So, the general rule now seems to be that if one spouse withdraws funds from a jointly held bank account pursuant to the account rules allowing for such withdrawal with only one signature, such funds cease to be jointly owned property. However, future cases may limit this general rule in the event of fraud, an attempt to avoid creditors, or where one spouse is attempting to defeat the interest of the other spouse in anticipation of divorce.