Joint Bank Accounts. 3 Things You Need to Know
Joint bank accounts are very common. Frequently, a parent puts a child on an account to help with bill paying. Joint accounts do come with significant risks and consequences. These are often overlooked due to the routine nature of joint accounts. Here are three things to know about joint bank accounts:
You Are Giving Someone Else Your Money. There is a common misconception that by putting someone’s name on your account, that the joint account holder has limited access to your money. That is usually not the case. The joint account holder can access the account without your permission and could even remove all of the money from the account. By putting someone on your account, you are legally giving them the money in the account. Don’t expect the bank employees to explain this to you. They often do not understand the legal consequences of account titling or they may not be able to give you legal advice. If all you are seeking is to give someone the ability to pay your bills from an account, ask the bank for options to place restrictions on the person’s access to your account. We recommend giving them power of attorney rights over the account only.
Your Money Is Exposed to the Joint Holder’s Creditors. Certain creditors, such as judgment creditors and the IRS, can take money from bank accounts to collect money due to them. Because you are making your joint account holder an owner of your account (and the money in the account), it is also possible for the creditors of your joint account holder to take money from the joint account to pay debts that are not yours. Your joint holder may not have judgments now but they could in the future and you probably will never get notice that your account is at risk.
Joint Account May Change Your Estate Plan. The joint account contract with the bank controls where the money goes after you pass away. Some joint accounts have “rights of survivorship”, meaning that if you die, your joint account holder becomes sole owner of the money in the account. It does not matter if your Will has a different plan for the money. The provisions of the joint account take precedence of the contents of your Will. This can lead to some uncomfortable situations in families where relationships are less than harmonious. If only one of your children is on the account, they could retain the money to the exclusion of your other children.
Mary’s Story: Consider the story of Mary, a widow, who needed to have surgery and was expecting to be disabled for a few weeks. She had an adult disabled daughter who was financially dependent on her. Mary put her sister’s name on her bank account prior to the surgery so that someone could pay bills for Mary and her daughter. Sadly Mary passed away shortly after her surgery. Mary’s sister became the sole owner of the money in the account as a result of Mary’s death and the fact that she was the joint owner of the account. Two big problems arose as a result. First was that the transfer of one-half of the account to Mary’s sister was taxed at 12% inheritance tax rather than 4.5% if the money had been left to Mary’s daughter outright. Secondly, Mary’s sister refused to give the money to Mary’s daughter. Mary’s will left her entire estate to her daughter. There was no evidence that Mary intended that anyone other than her dependent daughter receive any of her assets. We believe that Mary did not fully understand that by putting her sister’s name on the account, her money might not get to her daughter at the time of her death. A lawsuit had to be filed against Mary’s sister to compel her to release the money to Mary’s daughter. That sad consequence could have been avoided had Mary fully understood what it meant to put her sister on her bank account.
Don’t let the routine nature of joint bank accounts lead you to make an uninformed decision. If you think that you need to have a joint account with someone other than your spouse, call one of our attorneys to discuss the situation.