INTRO: In the course of handling a trust administration for two brothers whose parents had died, an issue arose about the parents’ safe deposit box.
California law governing safe deposit boxes is somewhat complicated and has important, but not well known, implications. So, I thought it might be helpful to write about the core legal and practical aspects of safe deposit boxes, including ownership/titling alternatives, access and content protection.
When a consumer rents a safe deposit box (“box”) from a financial institution (e.g. bank or credit union), the rental agreement between the parties controls the relationship. The consumer should take time to read this contract to become familiar with its terms.
Most often, the consumer party to the contract is an unmarried person or, in the case of a married couple, both spouses. While this makes sense, such titling is actually not ideal, particularly in the case of incapacity or death.
You may, for convenience, designate a co-owner (e.g. a trusted relative or friend) on the rental agreement. Such person(s) will possess a key and have unfettered access to the box, before and after your death. Consequently, you should be very cautious about whom, if anyone, you make a co-owner.
A separate potential co-ownership problem involves unintended consequences. Suppose you have two children, John and Mary, and for convenience purposes, you list John as a co-owner of the box. Suppose further that your Will states that John and Mary are to receive all of your assets, in equal shares. Contrary to your intentions, upon your death, John, as the co-owner, asserts that as the then sole owner of the box, he is legally entitled to all of its contents.
California law provides that on the death of the box owner, the institution at which the box is located may deliver the contents to certain defined people (including, but not limited to, a “relative”) if: a) the institution has no reason to believe there is a dispute over the contents; b) the person to whom the contents are delivered provides reasonable proof of identity; and c) reasonable records are kept in accordance with related rules.
These statutory rules seem logical, but can cause serious problems. Suppose that the financial institution has no reason to believe there is a dispute at a time when an untrustworthy relative comes in. Thus, the contents are lawfully delivered to this relative. The problem: you (the then-deceased owner) would never have granted access to this relative. If this relative happens to sell, hide or give away valuable or sentimental items, no satisfactory recourse may be available for the loved ones who are rightfully entitled to these items.
PART TWO: What happens if your trust owns the box? Find the answer in How To Be Safe With Safe Deposit Boxes – Part Two.
This article is intended to provide information of a general nature, and should not be relied upon as legal, tax, financial and/or business advice. Readers should obtain and rely upon specific advice only from their own qualified professional advisors. This communication is not intended or written to be used, for the purpose of: i) avoiding penalties under the Internal Revenue Code; or ii) promoting, marketing, or recommending to another party any matters addressed herein.
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