Office Information
Wednesday
Aug282013

Texas Law on Nontestamentary Transfers Applies to Out-of-State Accounts

In McKeehan v. McKeehan, 355 S.W.3d 282 (Tex. App. – Austin 2011, writ denied), the appellate court applied Michigan law to determine that an account owned by Texans passed by right of survivorship.  The account was in a Michigan financial institution.  The agreement governing the administrative aspects of the account was governed by Michigan law.  The agreement did not have the language required by Texas law to create a right of survivorship, but the court found that it met the Michigan standard.

The Legislature responded with Section 111.054 of the Estates Code.  Under the new law, if more than 50 percent of the money or property in an account at a financial institution or in a retirement account is owned by one or more persons domiciled in Texas, or if more than 50 percent of the interest in an insurance contract, annuity contract, beneficiary designation or similar arrangement, is owned by one or more persons domiciled in Texas, then Texas law will be applied to determine if a nontestamentary transfer occurred notwithstanding a choice of law or similar provision in an agreement prepared or provided by the financial institution  or other contracting third party.

The new provision does not apply to an obligation owed by the account holder to the financial institution, or vice versa.

To bolster the chances that a court will apply the new Texas law in the case of an out-of-state financial institution, the Legislature specifically provided that the changes “represent the fundamental policy of this state for the protection of its residents and are intended to prevail over the laws of another state or jurisdiction, to the extent those laws are in conflict with Texas law.”