An elderly doctor and his daughter opened a joint bank account, the money in which would go to the surviving account holder if the other one died. This is a case of the right of survivorship and should have been part of a revocable living trust and then would proceed by trust administration. Nine years later, when the doctor was in declining health, his wife asked to be added to the account so that she could pay bills. Based on the signatures of the doctor and his wife, but not the daughter, the bank added the wife to the account. Over a one-month period, the wife then wrote many checks on the account, totaling over $100,000. The biggest check, for $75,000, was written, cashed, and deposited to the wife’s own account on the very day her husband died.
The daughter sued the bank, claiming it was liable to her for recognizing a new party to the joint account without the consent of all parties to the account. A state supreme court sided with the bank. First, the documents that comprised the contract between the bank and the account holders included a statement that each owner was the agent of any other owners for purposes of endorsements, deposits, withdrawals, and conducting business for the account. This language was broad enough to give the doctor power to add his wife as a new party to the account without his daughter’s knowledge or consent. Second, a statute on joint accounts similarly made each party to an account the agent for other account holders, although the statute was silent on the method for adding a new party to an account. The bank had not breached its contract when it recognized the doctor’s wife as a new party to the account based solely on the doctor’s signature.
This decision highlights the pitfalls that can accompany joint bank accounts. Allowing each party to a joint account to exercise full authority over the account is flexible and convenient, but the cost of these advantages is loss of control. The exposure to this risk is widespread, as joint account contracts typically have language like that used in this case.
Alternative methods for managing money make it more difficult for any individual to raid accounts to the detriment of co-owners. These include advanced health care powers of attorney, revocable living trusts, and “agency” or “convenience” accounts that resemble general powers of attorney but are confined to specific bank accounts. Seek the advice of legal counsel before deciding which of these options is most appropriate in a specific situation.