Holmes v. Beatty: JT TEN Accounts and Texas Community Property
by Joan Leslie
A recent Texas Supreme Court case, Holmes vs. Beatty, (52 Tex. Sup. Ct. J 967 (Tex. 2009), rehearing denied) puts a new twist on non-testamentary assets in estate law. In Holmes, a husband and wife amassed over 10 million dollars in brokerage accounts and securities certificates. The wife died first followed by her husband about nine months later. Both had children from previous marriages. Several accounts were at issue in the case, variously titled as “JT TEN.”
If the JT TEN designations were insufficient to create survivorship interests then, as community property, only 50 percent would be retained as husband’s community property at wife’s death, and the remaining 50 percent belonging to wife at her death would pass under her Will to her children. If, on the other hand, the accounts were valid survivorship accounts, then the wife’s 50 percent would vest automatically at her death in the husband, and at the husband’s death, 100 percent of the accounts would pass under his Will to his children.
Before this case, Texas law held that the survivorship feature of joint accounts had to be expressly stated and was not automatic. Accordingly, both the probate and appellate courts here concluded that the acronym JT TEN, without more, could not create a right of survivorship. The lower courts also concluded that extrinsic evidence of the meaning purportedly assigned to the acronym JT TEN by the securities industry could not establish a right of survivorship of a joint Texas account. The Supreme Court concluded otherwise.
Although the Supreme Court opinion did not discuss the facts in depth, the appellate court opinion sets forth the accounts including the language sufficient to create a right of survivorship under the first part of Texas Probate Code Section 452. Another account, referred to as the First Southwest account, did not. The First Southwest account agreement did not include any of the specific phrases listed in Section 452, and did not otherwise express that the account was held with a right of survivorship or state the intended disposition of the account upon one spouse’s death. Rather, the account stated only the acronym JT TEN next to the holder’s names in the account title. Additionally, it was undisputed that the account agreement provided no definition of JT TEN and that none had otherwise been provided.
As none of the enumerated phrases under the first part of Section 452 was present, the Supreme Court was presented the opportunity to discuss policy behind the second part of Section 452. That part states that “…[a]n agreement that otherwise meets the requirements of this part, [ ] shall be effective [to create a right of survivorship in community property].” It concluded that the JT TEN designation was sufficient to establish the rights of survivorship. In reaching its conclusion, the Supreme Court analyzed trade usage, precedent and seminal treatises (albeit from 1768 and the United States Supreme Court).
Although joint tenancy with automatic survivorship has never been favored in Texas, and although most Texas banks have specific language in line with Texas Probate Code requirements, most nationwide banks and brokerage firms do not change their deposit agreements to specifically deal with each state’s probate laws. Contrary to Texas, most other states imply survivorship when just the words “joint tenancy” are used. In an ever-growing era of bank mergers, buyouts and takeovers, the majority of nationwide financial institutions are likely to pay over an account to a surviving joint tenant, short of a freeze notice or litigation, whether in line with Texas law or not.
Whether one sees this as a “change” or simply an “extension” of the law, it is a reminder that estate planning encompasses not only the disposition of property through one’s Will, but also non-testamentary assets outside a person’s Will.
Clients must be properly advised in coordinating these assets with their Will, especially if a client intends to dispose of such assets through their Will or they need to pass such assets through testamentary trusts under their Will. Although most Texas estate attorneys would not have predicted the Holmes conclusion, they should be aware that this holding could largely derail an otherwise finely-tuned estate plan.
Joan Leslie practices estate planning, probate and guardianship at the Law Office of Jo Ann Bui Leslie and is Board Certified in Estate Planning and Probate Law. She can be reached at firstname.lastname@example.org.