Historically, non-probate will substitutes presented a fundamental problem: how could these arrangements be enforceable given that the arrangement violated the formalities required of wills?
When addressing this problem in the context of financial accounts, the Maryland courts focused on whether the creation of the account constituted a present gift. If at creation a present gift was created, then the transfer at death aspect of the account would be honored but where there was no indication of the present gift upon creation, then the transfer at death was not enforceable. This approach paralleled the development of the law regarding non-probate transfers in common law jurisdictions:
“The non-probate revolution has posed a conceptual problem for the law of wills that is still not clearly answered in the case law or in the literature: how is it that will-like transfers escape being treated like wills? In the law of wills, the least departure from the Wills Act formality routinely voids the transfer. Yet the will substitutes almost never comply with the attestation requirements for attested wills, nor do they satisfy the handwriting requirements for holographic wills. What, then, sustains the will substitutes against the Wills Act?”
“Our law has dealt with this problem by indulging in a pretense – by denying that the will substitutes are will-like and by validating them as gifts.”
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“The odor of legal fiction hangs heavily over the present-interest test. We see courts straining to reach right results for wrong reasons and insisting that will-like transfers possess gift-like incidence. Courts have used such doctrinal ruses to validate not only the revocable inter vivos trusts, but other will substitutes as well.”
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“Similarly, the joint bank account created merely as a probate avoidance device has been treated as a trust joint tenancy, despite the depositor’s power to exercise total lifetime dominion over the account. Of the pure will substitutes, only the transparently labeled p.o.d. account has persistently failed the present-interest test and has had to depend for the most part upon statutory validation.”[1]
The present-gift analysis turned on whether the account was intended to create a present interest. The seminal cases were Whalen v. Milholland, 89 Md. 199, 43a.45 (1899)(“Milholland One”) and Milholland v. Whalen, 89 Md. 212, 43a.43 (1899)(“Milholland Two”). These cases involved bank accounts opened by Elizabeth O’Neal with her sister, Mary Whalen, listed in some capacity on each account. In Milholland One, Ms. O’Neal titled the bank account: “Elizabeth O’Neal and Mary Whalen, joint owners, payable to the order of either, or the survivor.”[2] In Milholland Two, Ms. O’Neal titled the account: “In trust for herself and Mrs. Mary Whalen, widow, joint owners, subject to the order of either, the balance at the death to either to belong to the survivor.” Ms. O’Neal funded each of the bank accounts and held the account passbooks which were required to be presented in order to withdraw funds. The Court of Appeals held that the account in Milholland One failed to create a survivorship in the sister because it failed to validly gift her sister the fund before her death. The court further explained that the designation “joint owners” in the title of the account was not sufficient to transfer title to the funds or establish the gift. In Milholland Two, on the other hand, the Court of Appeals determined that upon creating the account, Ms. O’Neal lost her individual ownership of the funds and vested those funds in her trust which passed in accordance with the trust to her sister if she outlived Ms. O’Neal.
Over time, Milholland One and Milholland Two were interpreted not to require specific language in order to create a trust form but rather to establish the intent of the account depositor: “The case turns on whether Filip intended to, and did, transfer present equitable interest to his daughters or whether he intended the money on deposit to belong, only after his death, to them. If there was an intention to transfer an interest during his lifetime, shown clearly by the evidence, this intent will not be frustrated because of the requirements of the statute of wills were not complied with … ‘In every case the general purpose and intention of the donor, and not the use of a particular term or another, will decide the question of whether a party does or does not take in a fiduciary character.'”[3] Indeed, the type of account and the language creating the account that informed the decisions of Milholland One and Milholland Two gave way to a broader search for the intent of the depositor regardless of the form of the account:
“First, it is not at all clear that Milholland One governs joint bank accounts of the type involved here. Court of Appeals decisions decided subsequent to Milholland One and Milholland Two have substantially “blended” the distinction between the types of accounts discussed in those cases, and suggest that the surviving owner of a joint account may have survivorship rights upon the death of the depositor, even in the absence of “trust” language on the titling document. See Arbaugh v. Hook, 254 Md. 146, 148, 150-51, 254 A.2d 18 (1969)(Checking account titled as A and B, “joint owners, subject to the order of either, the balance at the death of either, to belong to the survivor” held to be a trust account and to establish a rebuttal presumption of survivorship); Kuhl v. Reese, 220 Md. 459, 460, 154 A.2d 712 (1959)(Account titled as A and B, “joint owners, subject to the order of either, the balance at death of either to belong to the survivor” viewed as sufficient “declaration of trust”) … Other cases, however, have, in some measure, maintained a distinction between the types of accounts.”[4]
Obviously, by focusing the determination on the intent of the depositor and drifting away from the language creating the account, disputes often arose whether the named beneficiary received the funds or whether the funds in the account became probate assets.
[1] John H. Langbein, “The Non-Probate Revolution and the Future of the Law of Succession,” 97 Harv.L.Rev. 1108, 1125-9, (1984). [2] The language “joint owners” was not originally on the form but stamped by the bank onto it later. [3]Bierauv Bohemian Bldg., Loan & Sav. Ass’n, “Slavie” of Baltimore City, 205 Md. 456, 460, 109 A.2d 120, 122-3 (1954). [4]Hartlove v. Maryland School for the Blind, 111 Md.App. 310, 344, 681 A.2d 584 (1996). This case and the Bierauv case were cited by the Court of Appeals in Wagner v. State, 445 Md. 404, 128 A.3d 1 (2015) in its legislative history of the Maryland transfer of account on death and multiple-party accounts statute enacted by the Maryland General Assembly in 1992 and set forth in Md. Code Annotated, Financial Institutions, § 1-204.
