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Joint Bank Accounts

There are times when joint bank accounts are opened as a convenient way to allow more than one person access to funds or to avoid probate fees. For these reasons, many older individuals consider opening a joint bank account with an adult child. It is important to understand that there are risks that go along with joint accounts and considerations other than convenience.

Joint property is property such as bank accounts and land that is owned by two or more people. Joint property generally includes the right of survivorship, meaning that when one joint owner dies, the ownership of the property passes to the surviving joint owner or owners.

Sometimes joint accounts are made up of funds provided entirely by one party, frequently an older adult, but the joint account holder may have uncontrolled access to the account. If you do not intend to make a gift of the funds to the other joint account holder, this arrangement can give rise to several issues and create major disputes.

  • During your lifetime there may be unintended tax consequences for the joint account holder from interest earned in the account.
  • The funds could be subject to claims from creditors of the joint account holder.
  • The funds could get mixed up with family property disputes in the case of separation or divorce of the joint account holder.
  • You can’t simply change your mind and remove the other party’s name from the account. Both account holders have equal rights of ownership to the account and banking institutions can require the consent of both account holders.

Upon your death your interest in the property disappears and the surviving joint owner – not your estate - becomes the sole owner of the property. While this may exempt the account from probate fees, it may also be contrary to your true intentions.

These issues can become even more complicated upon your death. As mentioned, one of the key aspects of joint ownership is the right of survivorship. For example, you may never have intended the funds to benefit only the child that was added as a joint account holder. You may have intended for all your children to share it equally or you may have intended it to be distributed according to your Will. In the event of a dispute, the courts may have to get involved.

Although these matters can be complicated, the central issue really boils down to whether the joint account belongs to your estate or to the remaining joint account holder by right of survivorship. When courts are asked to make this determination, they will consider things like whether one person was primarily responsible for funding the account and whether the joint account was intended as a gift to the joint account holder or whether the joint account was intended as part of a larger estate planning situation. When courts become involved, there is no guarantee what they will determine.

Playing it Safe

Before making any decision to open a joint account, older adults should discuss the matter with a financial advisor and a lawyer. You may also want to consider alternatives, such as a power of attorney and additional safeguards, where the use of or access to your property must also be for your benefit.

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