NY Banking Law Reform Regarding “Convenience Accounts”

Pending in the New York State Senate Rules Committee is a proposal to amend NY Banking Law §675 to require that banking institutions offer customers the option of opening a “convenience account” when they are establishing a joint account, i.e., an account titled in the name of more than one person. NY law currently provides that the opening a joint account is prima facie evidence that the depositor intended to create a joint tenancy, and carries with it the following three presumptions:

  1. When a joint account is created, each account holder has an unconditional interest in half of the money deposited into the account, regardless of the source of the funds. This rule is known as the “moiety rule.”
  2. A deposit of funds into a joint account by one account holder is an irrevocable gift to the other account holder of half of the funds deposited.
  3. Upon the death of the first account holder to pass, the surviving account holder has a right of survivorship to the entire balance in the joint account.

Generally, persons opening joint accounts are not aware of the legal presumptions and serious implications that arise from designating an account as joint.  The above presumptions may be rebutted, but the burden of proof is on the person challenging the presumptions to rebut those presumptions by clear and convincing evidence.

Issues arising from joint accounts arise frequently in guardianship matters. In some circumstances, an incapacitated person may have used their funds to open or contribute to a joint account with a family member, agent under a power of attorney or other party.   In those cases, it may be difficult to ascertain whether the intent was to make a gift of the assets in the joint account to the other party, or whether the account was merely intended to be a convenience account, i.e., the funds in the account belong to the person contributing the funds, and the second account holder’s name is added to the account merely for convenience purposes.

At the outset, the guardianship court must determine whether and to what extent a guardian must marshal the assets in a joint account.   Where issues of undue influence, misappropriation or misuse of a power of attorney arise with respect to joint accounts, the accounts may be the subject of turnover proceedings.  Additional issues arise where an incapacitated person is the recipient of nursing home Medicaid and has “gifted” assets in the last five years by opening a joint account with his/her funds, thereby triggering a penalty period by Medicaid.

The Banking Law reform would avoid these thorny issues by educating customers about the difference between joint accounts and convenience accounts at the time of opening of the accounts, and would allow account holders who are merely opening convenience accounts to make that choice explicit from the outset.  This reform would ease the burden on guardians and the judicial system in dealing with joint accounts previously established by persons now deemed incapacitated.

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