A husband and wife go to their bank to change account ownership. The husband wants his wife to have access to the accounts and to inherit them when he dies. They sign new signature cards for two accounts. Under “Type of Customer,” each card specifies “Joint with Survivorship.” When the husband dies, his widow claims the accounts as the survivor. However, the husband’s daughter from a previous marriage argues the accounts belong to the estate because the signature cards do not meet Texas statutory requirements.
This scenario illustrates a common misunderstanding about joint bank accounts in Texas. Many people assume that adding another person’s name to an account with language referencing survivorship automatically ensures that person will inherit the account. However, Texas law imposes strict requirements for creating valid survivorship rights in joint accounts. Language that seems clear to bank customers and even bankers may fail to satisfy the statutory test.
The question becomes what language is sufficient to create a valid right of survivorship in a joint account under Texas law. The Tenth District Court of Appeals’ decision in Shaw v. Shaw, 835 S.W.2d 232 (Tex. App.—Waco 1992, no writ), addresses this question and demonstrates how Texas courts apply rigid statutory requirements that can defeat the parties’ obvious intentions when creating joint accounts.
Facts & Procedural History
J Arnold Shaw and Yeulalo Shaw married in 1984. After their marriage, J decided to change two of his bank accounts so that Yeulalo would be a joint account holder. They went to MBank in October 1988 and April 1989 and signed new signature cards for two different accounts. Under “Type of Customer,” each card specified “Joint with Survivorship.”
J died on June 14, 1989. After his death, Yeulalo went to the bank and claimed the accounts as the survivor. She changed the accounts to her name alone. Sandra Shaw, J’s daughter from a previous marriage and the independent executrix of his estate, discovered that Yeulalo had changed the accounts and was claiming sole ownership of the funds.
Sandra filed suit seeking a declaratory judgment that all funds in both accounts belonged to the estate. She argued that the signature cards did not qualify as survivorship agreements under the Texas Probate Code. Yeulalo filed a counterclaim asserting that the accounts belonged to her by virtue of her survivorship status.
Each party moved for partial summary judgment on the survivorship issue. The trial court held that the language on the signature cards was sufficient as a matter of law to create joint accounts with rights of survivorship under Section 439(a) of the Texas Probate Code. The court granted Yeulalo’s motion for partial summary judgment and denied Sandra’s motion. After the parties stipulated to attorney’s fees and an interest rate, the court entered a final judgment for Yeulalo. Sandra appealed.
The Evolution of Texas Law on Survivorship Accounts
Different rules regarding survivorship accounts have prevailed at different times since they were first the subject of legislation in 1848. The legal landscape changed dramatically with the Texas Supreme Court’s decision in Stauffer v. Henderson, 801 S.W.2d 858 (Tex. 1990). In that case, the court held that “the Legislature has replaced the various legal theories which have been used to determine the existence of a right of survivorship in a joint account with section 439 [of the Probate Code].”
This holding represented a significant shift. Before Stauffer, courts might consider various legal theories and extrinsic evidence to determine whether parties intended to create survivorship rights. After Stauffer, only the statutory requirements matter. The question is not what the parties intended or what evidence exists outside the written agreement. The only question is whether the written agreement satisfies the statute.
Section 439(a) of the Texas Probate Code (now codified as Section 113.151 of the Texas Estates Code) provides in pertinent part: “Sums remaining on deposit at the death of a party to a joint account belong to the surviving party or parties against the estate of the decedent if, by a written agreement signed by the party who dies, the interest of such deceased party is made to survive to the surviving party or parties.”
The statute continues: “Notwithstanding any other law, an agreement is sufficient to confer an absolute right of survivorship on parties to a joint account under this subsection if the agreement states in substantially the following form: ‘On the death of one party to a joint account, all sums in the account on the date of death vest in and belong to the surviving party as his or her separate property and estate.'”
The statute concludes with an important prohibition: “A survivorship agreement will not be inferred from the mere fact that the account is a joint account.”
The Three Statutory Requirements
The Legislature determined that three requirements must exist to attach a right of survivorship to a multiple-party account. First, there must be a written agreement. Second, the agreement must be signed by the party who dies. Third, the agreement must specify that the interest of the deceased party survives to the surviving party or parties.
The signature card is frequently the only written agreement of the parties signed by the party who has died that might reflect such an agreement. An agreement that meets the statutory requirements prevails “[n]otwithstanding any other law,” and the agreement creates “an absolute right of survivorship.”
The language of an agreement relating to a multi-party account either does or does not create a right of survivorship as a matter of law. A determination of ambiguity is not permitted. The Supreme Court, giving the words in the statute their plain meaning, determined that if the terms of the joint-account agreement are clear as to rights of survivorship, extrinsic evidence is inadmissible to show the intent of the parties or to vary, add to, or contradict the agreement.
Although principles of contract interpretation would normally allow extrinsic evidence to shed light on an ambiguity in the contract, the court interpreted the Probate Code to have abrogated all basic contract principles such that only the statute controls the interpretation of a survivorship agreement relating to a multi-party account.
The Stauffer Case and Its Application
The facts of Stauffer were similar to those in Shaw. The signature card in Stauffer, the only written agreement signed by the decedent, stated that the account was a “JOINT ACCOUNT–PAYABLE TO EITHER OR SURVIVOR.” The Supreme Court held that the card “authorizes payment of funds to the survivor at the other party’s death but does not create a right of survivorship.”
This distinction may seem technical or even incomprehensible to non-lawyers. Language stating the account is payable to the survivor would seem to create survivorship rights. However, the court drew a line between language authorizing the bank to pay funds to the survivor and language creating an ownership interest that survives to the other party.
The Stauffer court emphasized that extrinsic evidence would not be admissible to create a right of survivorship. The account was a simple joint account without a right of survivorship regardless of what the parties may have intended or what other evidence might show about their intentions.
Why “Joint with Survivorship” Failed the Test
In Shaw, the signature cards signed by J and Yeulalo stated that the accounts were “Joint with Survivorship.” The statute provides an example of language sufficient to create a valid survivorship agreement. The example need not be followed exactly, but it must be “substantially” followed. The statutory example is: “On the death of one party to a joint account, all sums in the account on the date of death vest in and belong to the surviving party as his or her separate property and estate.”
The court noted that if extrinsic evidence were admissible, its view might be different. Sufficient extrinsic evidence existed in the record to raise a fact issue on intent. However, Stauffer and Section 439(a) prohibited the court from considering anything other than the signature cards.
The court found that “Joint with Survivorship” does not substantially fulfill the requirements of Section 439(a) and Stauffer. The court held that it had no choice but to find that the signature cards were insufficient to create a right of survivorship. Because the signature cards were insufficient to confer a right of survivorship on Yeulalo, the judgment in her favor had to be reversed.
This holding seems harsh given the obvious intent of the parties. J and Yeulalo went to the bank specifically to change the accounts. They signed cards designating the accounts as “Joint with Survivorship.” The phrase directly references survivorship. However, the language did not track the statutory example closely enough to satisfy the strict requirements Texas law imposes.
What Language Would Have Been Sufficient
The statutory example provides clear guidance. Language stating “On the death of one party to a joint account, all sums in the account on the date of death vest in and belong to the surviving party as his or her separate property and estate” unquestionably satisfies the statute. Banks that use this exact language or something substantially similar protect their customers from the outcome in Shaw.
The statute requires that the agreement “substantially” follow the example. This suggests some variation is permitted. However, courts have interpreted this requirement strictly. The language must do more than reference survivorship or indicate the account is payable to the survivor. It must specify that the deceased party’s interest survives to the surviving party or parties.
Language stating that upon death “all sums in the account belong to the surviving party” would likely satisfy the statute. Language stating “with right of survivorship” might be sufficient if accompanied by additional language clarifying that the deceased party’s interest passes to the survivor. However, abbreviated references to survivorship without explanation of what happens to the deceased party’s interest risk falling short of statutory requirements.
The Impact on Estate Planning
The strict requirements for survivorship accounts have significant implications for estate planning in Texas. Many people use joint accounts with survivorship as a probate avoidance technique. They add a spouse, child, or other family member to accounts expecting that person will automatically inherit the accounts at death. However, if the signature card does not satisfy Section 113.151 of the Texas Estates Code, the accounts pass through probate as part of the estate.
This can defeat the account owner’s estate plan in multiple ways. If the owner intended the joint account holder to receive the funds but the account lacks valid survivorship language, the funds pass under the will or by intestacy. The intended beneficiary may receive nothing or a reduced share. If the owner executed a will leaving their estate to different beneficiaries, the funds go to those other beneficiaries rather than the joint account holder.
The failure to create valid survivorship rights can also create family disputes. In Shaw, the daughter from J’s first marriage fought with his widow over the accounts. J apparently intended Yeulalo to have the funds, but the inadequate signature card language created an avenue for Sandra to claim them for the estate. These disputes consume estate assets through litigation costs and attorney’s fees, reducing what any beneficiary ultimately receives.
The Role of Financial Institutions
Financial institutions bear responsibility for ensuring their signature cards comply with Texas law. Banks that use language like “Joint with Survivorship” without including the additional language required by statute expose their customers to the risk that survivorship rights will not be recognized. Many bank customers do not consult attorneys when opening or changing accounts. They rely on the bank’s forms and personnel to properly structure accounts according to their wishes.
After Stauffer and Shaw, Texas banks should have revised their signature cards to include language tracking the statutory example. Some banks use the exact statutory language. Others use variations that substantially comply with the statute’s requirements. However, banks that continue using abbreviated language or language focusing on the bank’s authority to pay funds to the survivor rather than the ownership interest passing to the survivor create problems for their customers.
Account holders should not assume that bank forms satisfy legal requirements. When opening joint accounts intended to pass to the survivor, the account holder should verify that the signature card includes language substantially tracking the statutory example. If the card uses different language, the account holder should ask the bank to use language from the statute or consult an attorney about whether the card’s language is sufficient.
The Limited Availability of Remedies
Once the account holder dies, options for fixing inadequate survivorship language are limited. The surviving party cannot amend the signature card because the deceased party must sign the survivorship agreement. Creating a survivorship agreement after death is impossible because there is no one to sign on behalf of the deceased.
The estate might argue the surviving party holds the funds in constructive trust based on unjust enrichment. However, this remedy is uncertain and requires proving the deceased intended a gift that was not completed due to a technical failure. Courts may be reluctant to impose constructive trusts when the parties failed to comply with clear statutory requirements.
The surviving party might claim the funds as a gift based on the deceased adding them to the account. However, adding someone to a joint account does not necessarily constitute a completed gift. During the original owner’s lifetime, the account is owned in proportion to contributions unless clear evidence shows a different intent. Adding someone to an account for convenience or to provide access in emergencies does not establish donative intent.
The Takeaway
The Shaw v. Shaw decision establishes that language stating “Joint with Survivorship” on a bank signature card is insufficient to create a valid right of survivorship under Texas law. The Texas Estates Code requires that the written agreement specify that the deceased party’s interest survives to the surviving party or parties, using language that substantially tracks the statutory example stating that upon death all sums vest in and belong to the surviving party. Courts will not consider extrinsic evidence of the parties’ intent or apply traditional contract interpretation principles to determine whether survivorship rights exist, as the statute abrogates these common law doctrines and imposes strict requirements that either are or are not satisfied by the signature card language.
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