Estate Planning- A “Payable On Death” Investment Accounts Payable To Children Is Subject To Wife’s Right Of Election

In the estate litigation and estate administration case of In Re Estate of Rood, PICS Case No. 15-1373 (Pa. Super. Aug. 28, 2015) the Honorable David N. Wecht, writing on behalf of the Pennsylvania Superior Court, ruled that the orphans’ court properly found that decedent’s investment accounts were subject to wife’s right of election under 20 Pa.C.S. §2203 where the accounts satisfied the criteria of subsection 2203(a)(3), which embodied the long-standing policy against the disinheritance of a spouse.

This case involved a pure question of law requiring the Superior Court to interpret provisions of the Probate, Estates and Fiduciaries Code and Pa.C.S. §2203, the section governing spousal elections. Decedent, Harold Rood, died testate on Dec, 8, 2013. At the time, decedent had been married to his wife for almost 27 years.

Decedent had two children from a previous marriage, David Rood and Jane E. Lantz. Decedent’s last will and testament named David as executor and devised one half of his estate to David and the other half to Jane. Decedent’s will acknowledged wife but left her nothing.

Here, David, Jane and the estate appealed from an orphans’ court order which held that two “payable on death” Vanguard investment accounts opened by decedent, which named David and Jane as beneficiaries upon decedent’s death, were subject to wife’s spousal election pursuant to §2203.

The orphans’ court determined that the accounts were subject to wife’s right of election because they were in the nature of a Totten or tentative trust, created when a person makes a deposit in a bank or other savings organization in his own name as trustee for another person intending to reserve a power to withdraw the whole or any part during his lifetime and is enforceable by the beneficiary upon the death of the depositor.

In analogizing the accounts to a Totten trust, the orphans’ court reduced the application of subsection 2203 (a)(3) to a question of whether the assets were unrestrainedly revocable by decedent up to the moment he died. Thus, although investment vehicles such as the accounts at issue were not expressly mentioned by the code as being subject to or excluded from election, the orphans’ court concluded that their practical characteristics rendered them so by implication.

Here, the Superior Court affirmed, albeit for different reasons. The appellate court disagreed with the orphans’ court that recognizing the existence of a Totten trust in this case was either appropriate or necessary. Neither the orphans’ court nor wife cited a case that expanded the Totten trust doctrine beyond savings accounts or their close equivalents, or one that had recognized a Totten trust in the absence of “in trust for” language.

Nevertheless, the appellate court found that the plain language of the statute encompassed the accounts without the imposition of a Totten trust. The court looked to In re Estate of Inter, a 1995 Pennsylvania Superior Court case which provided a thorough account of the history and evolution of Pennsylvania’s statutory spousal election and noted that subsection 2203(a)(3) identified “property conveyed by the decedent during his lifetime” as subject to spousal election.

None of the parties suggested that the assets placed in the accounts were not “property.” Thus, the court was required to interpret the meaning of “conveyed” in determining whether subsection 2203(a)(3) encompassed the accounts. In designating David and Jane as payable on death beneficiaries of the accounts, decedent “conveyed: the accounts insofar as he sought to create an interest in real or personal property that would have “testamentary operation.”

Moreover, decedent retained the power to revoke the conveyance or to consume, invade or dispose of the principle for his benefit up to the moment of his death, as specified in subsection 2203(a)(3), the court observed. Thus, the accounts satisfied the criteria of subsection 2203(a)(3), which embodied Pennsylvania’s long-standing policy against the disinheritance of a spouse by “financial chicanery.”

Reference: Digest of Recent Opinions, Pennsylvania Law Weekly, 38 PLW 866 (September 15, 2015)

Filed Under: Estate Litigation; Spousal Right of Election; Payable on Death Investment Accounts

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