Joint Account Jeopardy: What is “A Financial Strategy That May End in Tragedy”?

Terry Jessop & Bitner Newsletter

Issue 28, December 2015

One of the most common types of accounts is the joint account. Most married couples own at least one joint account in which one or both of them deposit funds. Many elders also add an adult child as a joint owner on their account to assist with paying bills. While joint accounts are convenient, many people do not understand the possible perils and unintended consequences that may arise from joint ownership.

All For One and One For All

A joint account is set up by a deposit agreement, which governs the relationship between the account holders and the bank or credit union. Under the agreement, once funds are deposited in a joint account, any joint owner may withdraw them, even if only one person made all the deposits. For example, if a parent deposits all the money but adds her son as a joint holder of the account, the parent has subjected the funds to the whims of her son. The bank is under no obligation to determine where the funds came from or to determine if the son has his mother’s permission to make a withdrawal. The son may take all of the money and skip town. The mother may sue her son to recover the funds, but she has no recourse against the bank.

Disinherited by Default

Funds deposited in a joint account are part of a decedent’s estate for estate tax purposes, but they are not part of the estate that is distributed according to a will or intestacy laws. Generally, even if a decedent’s will states that her property, including the funds in the joint account, should be divided equally among her children, the funds will be given only to the other joint holders of the account. For example, a parent adds one of her three sons as joint holder of her account to help manage her funds and pay her bills. She also signs a will that instructs her personal representative to distribute her estate equally to each of her three sons. When she dies, the son named on the joint account decides he wants to keep all the money and withdraws the funds. The other two sons have no recourse against the credit union for distributing the funds. To enforce mom’s wishes, they must either convince their brother to voluntarily comply with mom’s will or file a lawsuit and prove, by clear and convincing evidence, that their brother was only on the account as a matter of convenience and that mom really intended to disburse the funds equally to all three.

Spouses with children from a prior marriage should take special note. If you hold all your funds in a joint account with your current spouse and die before him or her, you may disinherit your own children with respect to those funds. The funds are not included in your probate estate, which is distributed through your will. The funds would transfer to your surviving spouse upon your death even if your will says otherwise. Without a court order, your surviving spouse has no obligation to distribute the funds to your children even if you made all the deposits into the account. What’s more, once your surviving spouse dies, the funds may end up in the hands of your stepchildren without anything going to your own children.

Tend to Your Intentions

Joint accounts are convenient and appropriate under the right circumstances. But before opening a joint account, be aware of what it will and will not do, especially with regard to your estate plan. A trust or power of attorney in which you appoint your spouse or child to help handle your finances may provide a better way to do the same thing, but without the unintended consequences. If you would like help reviewing your estate plan, or you need a power of attorney or trust, please contact us.

© Terry Jessop & Bitner December 2015