On August 4, 2015, the North Carolina Court of Appeals issued a ruling clarifying that when a grantor seeks to create a statutory payable on death (“POD”) account, but fails to satisfy the statutory provisions, he/she can still rely on the existence of a common law tentative trust or “Totten” trust as an alternative.[1]
The Totten trust, sometimes called a “poor man’s will,” was established after the 1904 New York Court of Appeals decision, In the Matter of Totten. The requirements to create a Totten trust are: (1) sufficient words to show intention to create the trust; (2) a definite subject; and (3) an ascertained object. The owner retains complete control over the Totten trust until his death and it is fully revocable. Since Totten trusts do not require the formalities necessary to execute a valid will or other testamentary documents, they are easy to set up and easy to modify. Usually such arrangements are used to transfer modest amounts of money after death by someone who cannot otherwise afford to establish a legal mechanism to do so.
Before his death, Mr. Nelson called the local State Employees Credit Union (SECU) branch requesting to remove $85,000.00 from his personal account to create a new POD account, listing his daughter, Martha, as the beneficiary. The financial services officer at the branch recognized his voice, collected the necessary information to open a statutory POD account, and mailed Mr. Nelson the appropriate forms to sign and authorize the account. Mr. Nelson signed the form, acknowledging that he received a copy of the rules and regulations governing the account, but he never did received them.
After Mr. Nelson’s death, Martha was informed of the POD account and withdrew the $85,000.00. Martha’s siblings sued her and the SECU, alleging the POD account failed to comply with the statute, and was therefore invalid. While the trial court agreed Mr. Nelson and the SECU failed to comply with the requirements to create a statutory POD account, it ruled he nonetheless created a Totten trust, which had the same effect. The North Carolina Court of Appeals agreed.
The Court of Appeals noted that ordinarily when a statute regulates the subject of any common law rule, the statute automatically supplants the common law, becoming the authoritative law of the State. The POD statute creates the same beneficiary rights in an account as a common law tentative trust. However, the North Carolina General Assembly specifically chose not to displace the existing common law. The POD statute provides, “ [t]his section shall not be deemed exclusive. Deposit accounts not conforming to this section shall be governed by other applicable provisions … or the common law, as appropriate.”[2] Since the legislature expressed a clear intent to create the POD statute as an alternative to the common law, non-conforming accounts such as the one at issue can otherwise become valid Totten trusts.
[1] Nelson v. State Employees Credit Union, N.C. App. No. COA14-1393 (August 4, 2015).
[2] N.C. Gen. Stat. § 54-109.57(a1).