Tennessee Supreme Court Adopts New Approach to Bank Accounts Held in Tenancy by the Entirety

In some estate cases, disagreements may arise as to whether an asset is part of the estate to be distributed to the beneficiaries, or whether it is marital property belonging to the surviving spouse.  A previous blog post from 2016 highlighted this issue in a Tennessee estate litigation case before the Tennessee Court of Appeals.  The dispute centered around the ownership of a certificate of deposit that the decedent had purchased with funds from a joint checking account with his wife.  Since that post, the decision has been appealed and reviewed by the Supreme Court of Tennessee.  In a December 6, 2017 opinion, the court ultimately reversed the appeals court and overruled prior case law on the issue.

During the administration of the decedent’s estate, his surviving wife filed a petition to designate a certificate of deposit, titled in the sole name of the decedent, as her separate marital property rather than part of the decedent’s estate, which had been left to his children of a prior marriage.  The decedent purchased the certificate of deposit with funds he withdrew from his and his wife’s joint bank account, designated with a right of survivorship.  The Court of Appeals ruled that the certificate of deposit belonged to the surviving spouse because the funds could be traced back to the joint account.

In Tennessee, a tenancy by the entirety is a form of property ownership unique to married persons.  Each spouse holds an interest in the entire property, rather than in undivided parts. Upon the death of one spouse, the survivor continues to own the whole property.  In most cases, one spouse cannot alone terminate the tenancy by transferring part of it to another party without the consent of the other spouse because it would destroy the other spouse’s ownership interest in the whole.  However, bank accounts are treated differently, and portions of a joint bank account may be unilaterally withdrawn without destroying the tenancy.

In the case, the spouses’ joint account agreement specified that only one signature was needed to withdraw funds.  The Supreme Court, after analyzing the two competing views of other states, determined that clarity and finality were important in adopting Tennessee’s approach.  The court explained that when either spouse is authorized to withdraw funds from a joint account, the spouses expect that the other will make regular withdrawals without the need for approval.  The court concluded that, once funds are withdrawn from a bank account held by a married couple as tenants by the entirety, the funds cease to be entireties property.

In adopting its approach, the court held that by withdrawing funds from the joint account and issuing them to himself in a certificate of deposit, the funds ceased to be entireties and became the decedent’s sole property.  As a result, the asset solely in the decedent’s name belonged to his estate to be distributed to his beneficiaries, instead of his surviving spouse.

Laws can evolve with legislative changes and judicial interpretations.  For current and relevant legal guidance, it’s best to consult a knowledgeable Tennessee estate lawyer.  The estate planning attorneys at MHPS can provide accurate and effective advice to residents of the Nashville area and beyond.  Schedule your appointment today by calling our office at (615) 800-7096 or submitting the contact form online.

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