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CALIFORNIA; WHEN TRUST FUNDS  ARE DEPOSITED INTO A JOINT BANK ACCOUNT.

I practice in Hawai’i & sometimes have Hawai’i clients who are beneficiaries of trusts that were established in California.
This treatise contains a hypothetical that applies to an all-too-common real-life situation that occurs with blended families, and how California laws can protect beneficiaries.

 

Note that some of this may be applicable to Hawai’i courts as “persuasive authority”.

A mother and father establish a trust, naming their children as remainder beneficiaries. They have substantial assets in their trust, including a house worth over $3 million dollars.

 

The mother dies, and the father gets married to someone who already has children. His new wife and step children move into the house owned by the father’s trust.

The father opens a joint checking account with his new wife. Joint accounts have “rights of survivorship”. That means when one joint account-holder dies, the surviving joint-account holder gets everything in the account.

Eventually, they decide to sell the house. Although the house is in the father’s trust, they put the sales proceeds into their joint checking account, intending to use the cash for a new house. Tragically, before they can purchase their new home, the father dies of a heart attack.

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As the surviving joint account holder, the new wife tells the father’s children she’s keeping all $ 3 million of the sales proceeds for herself, which will eventually go to her children when she dies. The father’s children are outraged, but are told there is nothing they can do, because the joint account agreement clearly gives the father’s second wife everything as the surviving joint account holder.

Under California Probate Code  § 5302 (a), the father’s children must show clear and convincing evidence their father did not intend for his second wife to take 100% of the proceeds from the sale of their home. Other than the terms of their father’s trust, there’s no evidence of their father’s intent; The second wife also claims their father changed his mind about leaving the proceeds for his children, which is why he agreed to put the sales proceeds in their joint account. The father’s children know what she’s saying isn’t true, but they don’t have any evidence to prove it. Moreover, California Probate Code § 5302 (e), specifies that survivorship rights in a joint bank account can't be changed by a will, which means their father's pour-over will can’t be used to "pour the proceeds" back into his trust.

The father’s children are lucky these events transpired in California because;

(1) As specified by California Family Code §§ 852 et seq., the transmutation of funds from community property to the surviving second wife’s separate property was invalid, without a "written declaration" from her deceased "disadvantaged" spouse/husband, expressly agreeing to relinquish his testamentary community property rights; see also Estate of Petersen, (1994) 28 Cal. App. 4th 1742, 1750;

(2) Although California Probate Code § 5302 (e) specifies that a will can't negate survivorship rights, wills and trusts can be used as clear and convincing evidence, to show the requisite intent required to defeat survivorship under § 5302 (a); see Araiza v. Younkin (2010) 188 Cal. App. 4th 1120, 1125 ⸺ 26; Estate of Fisher (1988) 198 Cal. App. 3d 418, 428;

(3) By assuming sole ownership of the home's sales proceeds, the second wife committed a conversion (i.e. theft), because the trust did not expressly allow the surviving spouse/settlor to unilaterally change the character of trust property; The trust's funds continued to be characterized as trust property despite being deposited into a joint account, and she had no right to unilaterally change its' character into her sole personal property; See  Heaps v. Heaps (2004) 124 Cal. App. 4th 286, 292, 21 Cal. Rptr. 3d 239, 243;

(4) The deceased husband, as the surviving spouse of his first wife, (inadvertently) breached his implied contract with his first wife by depositing the proceeds in a joint account before he died, because he violated their mutual intent as expressed in the terms of their trust, and their identical, mutual pour-over wills; see Brewer v. Simpson (1960) 53 Cal. 2d 567, 2 Cal. Rptr. 609, 349 P.2d 289; Estate of Bodger (1955) 130 Cal.App. 2d 416, 424, 279 P.2d 61, 67.

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