Exercise Caution When Opening Joint Bank Accounts

By: Ryan T. Emery

Joint bank accounts are frequently used by spouses for a number of reasons but are typically created so each spouse can write checks from the shared account to take care of living expenses.  Joint accounts are tools of convenience, allowing for example one spouse to rely on the other to take care of the bills.  Most joint accounts between spouses are also set up so the surviving spouse “inherits” the bank account when the other spouse dies, which is usually what they intended.

When you wish set up a joint account with a non-spouse such as an adult child, close relative or perhaps a personal assistant, you should exercise caution and make sure you set up the account the way you truly intend.

Every bank and credit union operates differently but virtually all of them will present you with some sort of signature card or account application in order to set up an account at their institution.  It is critical that you fill out this document correctly to avoid unintended results or family arguments that may not come to fruition until after you have passed away.

If you check the box on the signature card that states “as Joint Tenants with Rights of Survivorship” or something similar, you are giving your joint tenant full access to that account during your life and most importantly that joint tenant will “inherit” all of the remaining funds in the account at your death.  This could result in unintended consequences.  For example, you set up a joint account of this nature with one of your three adult children.  You also have a Will in place that leaves everything to your children equally.  Since the funds in the joint account are not subject to the provisions of your Will, your child with the joint account may end up with more of your assets at your death than the other two children.  Your surviving child with your joint account generally has no legal obligation to turn over any of the funds to your estate. This could potentially create family strife after your death.

If you check the box on the signature card that states “For Convenience Only” or similar language, the joint account holder has access to your account to write checks during your life but does not “inherit” any of the funds in the joint account at your death.  This may be the better approach in the example above if you need help with your bills and finances from one child but still want to your estate to go to your children equally.

If however you want a particular child or other individual to “inherit” funds in a bank account at your death for whatever reason but do not want that person having access to that account during your life, you can set up an I/T/F account (“In Trust For”) or a POD/TOD account (“Payable on Death”/“Transfer on Death”), depending on what types of accounts your financial institution offers.  Generally speaking, these types of accounts provide the “beneficiary” you place on the account with no present rights or ability to access the account during your life but will “inherit” whatever funds remain in the account at your death.

The moral of the story here is to make sure you understand what type of joint account you are setting up and what rights you are giving to the other joint account holder before you sign and submit that signature card or account application to your financial institution.

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