Take-Away: Just because an account is owned jointly does not always mean that one of the joint owners can withdraw all of the funds from that joint account without legal consequences. A recently published Michigan Court of Appeals decision describes when the withdrawal of funds from a joint bank account by one joint owner has limits and can lead to a claim of tortious conversion of the property interest of the other joint tenant.

Background: Michigan has two separate statutes that deal with joint accounts. One carries straightforward consequences that arise from the use of the joint account. The other statute permits various modifications to the normal presumptions that arise from an account’s joint ownership.

MCL 487.703-Conventional: This is probably what would best be called the conventional joint account ownership statute. This statute provides, in part: “When a deposit shall be made, in any bank by any person in the name of such depositor or any other person, and in form to be paid to either or the survivor of them, such deposits thereupon and any additions thereto, made by either of such persons, upon the making thereof, shall be held for the exclusive use of the persons so named and may be paid to either during the lifetime of both, or to the survivor after the death of 1 of them, and such payment and the receipt or acquittance of the same to whom such payment made shall be a valid and sufficient release and discharge to said banking institution for all payments made on account of such deposits prior to the receipt by said bank of notice in writing not to pay such deposit in accordance with the terms thereof…. [And] shall become the property of such persons as joint tenants, and the same shall be held for the exclusive use of the persons so named and may be paid to any 1 of said person during the lifetime of said persons or to the survivor after the death of one of them.” [The balance of the statute is omitted.]

MCL 487.715-Statutory: This provision authorizes the creation of a statutory joint account. The difference is that a statutory joint account permits modification to adapt to the parties’ particular needs, including identification of who can revoke the contractual arrangement and who owns the funds held in the account during the parties’ lifetimes. As the Court recently noted with regard to a statutory account in the following case summary: “An account subject to this act has the beneficial feature of making explicit what is often left implicit, unstated, or simply unknown.” In other words, if a  joint account is opened for the convenience of one of the joint owners, with intended limits imposed on the other joint owner’s access to, or use of, the joint account funds, it should be a statutory joint account with contractual limitations or restrictions, unlike a conventional joint account opened under MCL 487.703.

Tip: In dealing with joint accounts, make sure you know what type of joint account is actually involved. If it is the statutory joint account variety, survivorship implications may be overridden by that account’s express restrictions. Even if the joint account is the conventional variety, the recent Michigan Court of Appeals decision indicates that full rights of survivorship may not entitle the surviving joint owner to the balance of the joint account.

Reported Decision: Estate of Robert G. Lewis, by Kathy J. Lewis Personal Representative v. Rosebrook, Michigan Court of Appeals, No. 343765 (Published July 16, 2019)

Facts: Lewis and Ms. Rosebrook maintained a cohabitation relationship for over 24 years, but they never married. In 2001, 2003 and 2009 separate joint bank accounts were opened at Fifth Third Bank. Almost all of the deposits to these joint accounts came from Mr. Lewis. The couple used the three accounts to pay their ordinary day-to-day living expenses, sometimes consulting with each other, and sometimes not, depending upon the amount and purpose of the account withdrawal. These joint accounts were held and used equally by both Mr. Lewis and Ms. Rosebrook. In 2013, Mr. Lewis had a serious illness. By late 2016, he was moved to a care facility. The court only notes in its decision that four months after Mr. Lewis moved to the assisted living environment, the couple ended their relationship- but no reason was given. The couple initially agreed to a 30-day ‘cooling off’ period, but that apparently did not work. Immediately after this break-up, Mr. Lewis and his daughter approached Fifth Third Bank and asked the Bank to freeze the three joint bank accounts. The Bank apparently said that the Bank policy could not freeze joint accounts. [In a footnote, the Court said that the Bank’s refusal to freeze the joint accounts under the conventional joint account statute was in error, but that it was possible, the B refusal to freeze the accounts was due to an internal policy to not freeze joint accounts without the consent of all co-owners.] Ms. Rosebrook then proceeded to withdraw $255,000 from the three joint accounts, effectively depleting the joint accounts; she placed the withdrawn funds in her name alone. While the Court did not stress these facts it its decision, it mentioned in passing that at the time the funds were withdrawn by Ms. Rosebrook, she was then acting as a co-trustee of Mr. Lewis’ revocable trust, and she also was able to handle his financial affairs acting under his durable power of attorney. The Court found that Mr. Lewis did not authorize or otherwise agree to Ms. Rosebrook’s withdrawal of the funds from the joint accounts, and he only learned of her withdrawals when he tried to withdraw funds from the accounts and learned, while at the bank, that Ms. Rosebrook had ‘cleaned them out.’ Mr. Lewis died about 10 months after the accounts had been emptied by Ms. Rosebrook.

Claims: Important to the above facts was that Mr. Lewis, while still living but after the funds had been withdrawn, had his daughter appointed as his conservator (not due to any mental deficits but physical infirmities) and his daughter, acting as his conservator, then filed a lawsuit against Ms. Rosenbrook in which she alleged: conversion, breach of fiduciary duty, constructive trust, and surprisingly an oral trust. The conservator claimed that the three joint accounts were established for Mr. Lewis’s convenience, the accounts were mostly used to pay household expenses, and that Mr. Lewis had not intended to make a gift of all of the funds held in the accounts to Ms. Rosenbrook. Ms. Rosebrook responded that through the joint ownership of the 3 account she had ”complete and unlimited rights to all funds in the accounts, even to the exclusion of Mr. Lewis during his lifetime.”

Trial Court: The trial judge found that Mr. Lewis and Ms. Rosebrook held the joint accounts as full rights of survivorship under MCL 487.703. Consequently, the statutory presumption applied that each of them held title and access to the funds, which were intended to be shared jointly. In reaching this conclusion the trial judge focused on several facts: (i) Mr. Lewis testified that he had given Ms. Rosebrook “Keys to the safe” in setting up these joint accounts; (ii) their relationship was a ‘relatively long one;’ (iii) the joint accounts were created and maintained in different years and initially at different banking institutions; (iv) both parties had equal access to and equal use of the joint account funds; and (v) Mr. Lewis was a successful businessman and the accounts were established long before he became ill and needed help for his finances, i.e. the accounts were not set up merely for his convenience as he had testified, and he fully understood the consequences of the survivorship implications of the joint accounts. Therefore, Ms. Rosebrook and Mr. Lewis were co-owners of the joint accounts, they had equal interests in the joint accounts, and Ms. Rosebrook, having exercised her rights of withdrawal as a co-owner, was entitled to retain all (100%) of the funds that she withdrew from the joint accounts prior to Mr. Lewis’ death.

Appeals Court: The trial judge was upheld in part, and reversed in part.

Joint Owner Rights: The appellate panel initially found that MCL 487.703 provides two primary rights to the joint owners: (i) a right of proportional share of the funds in the account; and (ii) a right of survivorship. However, at common-law, a joint account need not necessarily provide both a right of survivorship and an unlimited right to the joint funds during the lifetime of both account holders., e.g. a party who establishes the joint account may create a right of survivorship that is applicable at death without gifting an interest in the funds during the lifetime of the account holders. Therefore, the realities of ownership, not the form of the joint account, control in a dispute between the parties to the joint tenancy. “Essentially, the right of survivorship is dependent on both joint tenants continuing to agree to hold the property in that fashion.” 

Not ‘Convenience Only’ Accounts: Thus, as a preliminary matter, the Court held that the joint accounts were not established merely for Mr. Lewis’ convenience, but that he had intended to convey a right in the funds to Ms. Rosebrook as provided under MCL 487.703. As such, the probate judge was correct when he found that these accounts were held and used equally by both parties and that Mr. Lewis and Ms. Rosebrook were co-owners of the funds held in the joint accounts with equal access to and use of those funds. While agreeing with the trial judge on this point, the Court did not stop there.

Not a Survivorship Dispute: The Court then concluded, based upon the underlying facts, that “this is not a survivorship dispute.” This conclusion was reached because Ms. Rosebrook withdrew substantially all of the funds out of the 3 joint accounts while Mr. Lewis was still alive, prompting Mr. Lewis to then sue Ms. Rosebrook for the return of the funds before Mr. Lewis died. From these facts there was no proof that Mr. Lewis had intended to convey a 100% interest in the joint account funds to Ms. Rosebrook while he was alive, nor was there any proof that Mr. Lewis had intended to divest himself of all ownership interest in the accounts during his lifetime. Rather, the prompt lawsuit that was filed shortly after Ms. Rosebrook removed the funds to recover the funds made it clear that the withdrawals by Ms. Rosebrook were without Mr. Lewis’ authority or acquiescence.

Co-Ownership Rights: The Court then responded to Ms. Rosebrook’s claims that her right to withdraw funds from the joint account was commensurate with her right to retain the funds that she had withdrawn. While the probate judge had found that Ms. Rosebrook had the right to retain 100% of the funds because she had accessed the funds first, the Court disagreed with this conclusion. The Court noted “the power to withdraw funds from the joint account is one thing, the power to destroy cointerests is another.” In addressing the statute which provides liability protection to the bank which permits a withdrawal from a joint account by one co-owner, the Court observed: ”This statutory shield does not, however, also serve as a sword for the withdrawing co-owner to pierce the non-withdrawing co-owners rights. Instead, the withdrawing co-owner must take the funds from the account as a co-owner and, therefore, must use the funds in a manner consistent with the other co-owner’s rights.” Accordingly, while the statute provides a liability shield to the bank with respect to withdrawals from the joint account, the statute is silent with regard to any release or discharge from liability to the non-withdrawing co-owner related to that withdrawal. The mere act of accessing the funds in the joint account by one co-owner does not destroy all of the rights of the other co-owner. To this end, the probate judge was found to be in error when he conflated Ms. Rosebrook’s right to withdraw funds with the right to retain and use the funds for Ms. Rosebrook’s own benefit, despite Mr. Lewis’ co-ownership rights in the same joint accounts.

Notice in Writing Not to Pay: The conventional joint account statute contemplates that stopping a withdrawal by a co-owner is predicated upon giving a  written notice to the bank. Clearly, Mr. Lewis did not provide any written notice to Fifth Third Bank to stop distributions from the joint account. Nonetheless, the Court found that while providing such a notice would have been advisable in retrospect “the lack of written notice did not somehow dissolve Mr. Lewis’ co-ownership interests in the funds.” This helpful finding may have been reached by the Court because of Mr. Lewis’ futile efforts to freeze the accounts which Fifth Third Bank had refused to implement (contrary to its right to do so under the statute.)

Conversion: Based upon these conclusions the Court found that Ms. Rosebrook was entitled to retain at least 50% of the joint accounts due to her co-ownership and her rights of survivorship. As to the other 50% of the joint account balances that she withdrew, the Court sent the case back to the probate judge to determine Mr. Lewis’ proportional share  in the accounts, finding that Ms. Rosebrook, while an equal owner in the accounts, had misappropriated substantially all of the funds in early 2017. The court found Ms. Rosebrook liable under a conversion theory to return the funds she had taken in excess of her 50% proportional share.

Oral Trust: As an aside, the Court did not spend much time or energy dispensing the claim that Mr. Lewis had created an oral trust with regard to the 3 joint bank accounts. It found that for an oral trust to be created, there must be an explicit declaration of trust accompanied by a transfer of property to one for the benefit of another. Osius v. Dingell, 375 Mich 605, 613 (1965). There was no such declaration in this case. Moreover, the finding that the joint accounts were not for Mr. Lewis’ mere convenience supported the finding that there was no oral trust. [Note: The Michigan Trust Code supports this requirement of a declaration for an oral trust when it provides that a trust may be created by Declaration by the owner of property that the owner holds identifiable property as trustee. [MCL 700.7401(1)(b).]

Conclusion: This is somewhat surprising decision, since it clearly elevates the rights of co-ownership in a joint account above the rights of survivorship in that account.  Had Mr. Lewis’ conservator not filed a lawsuit to recover the funds prior to her father’s death, the outcome may have been different, in that there would have been virtually no proof, prior to his death, of Mr. Lewis asserting his ownership rights in the joint accounts. Something short of a lawsuit, like the futile attempt to freeze the joint accounts may, or may not, be sufficient proof of assertion of ownership rights in the joint account in another situation.

Also surprising was the mere passing mention of Ms. Rosebrook’s fiduciary relationship with Mr. Lewis, acting as both his agent under his durable power of attorney and as co-trustee of his revocable trust. The fact that the probate court appointed the daughter as conservator, and did not defer to the existing durable power of attorney held by Ms. Rosebrook, suggests that the probate judge saw the inherent conflict of interest of the agent suing herself for conversion, and it may also explain how the Court quickly reached the conclusion that Ms. Rosebrook converted Mr. Lewis’ half of the joint accounts, although her fiduciary relationship with Mr. Lewis was never stressed.

The final ‘take-away’ from this published and precedent-setting case is that it is easy to assume that a joint owner who exercises her rights and withdraws all the funds from the joint account is entitled to keep all of those funds. We are now told that the joint owner who takes that action may be liable for the tort of conversion for one-half of the account balance. It’s something to think about when we casually tell a joint account owner that he/she can take all of the funds in the joint account since they are a joint owner.