What are the Risks Associated with Joint Bank Accounts?

Owning a bank account jointly with another individual or individuals can be a useful, convenient way to manage your finances in certain situations. However, with the many changes that life can bring, there may be circumstances were you want to get out of a joint bank account or an account with a brokerage firm.  Sometimes you find that joint ownership may not be what you want. Other times, you may have specific intentions for your joint account but may not be sure of how the law would handle it if something would happen to you. If you want to be sure that your joint assets are handled according to your wishes, you should have a basic understanding of the types of joint ownership and the law.

Whenever we acquire assets, or re-register their ownership, we have to decide how we will own them.  For example, if you are married, you will have to decide whether you want to own an asset, such as an account, with your spouse in a tenancy by the entireties. In a tenancy by the entireties, when one spouse dies, the surviving spouse will automatically “by operation of law” become the sole owner of the asset.

On occasion, we may want to own something jointly with a child or another person (who is not our spouse).  If so, and we want to make sure that when one owner dies, the surviving owner gets the asset, we register it as “joint tenants with right of survivorship.”

If we do not want automatic survivorship rights, then we would register the asset as a “tenancy in common.”  That means when one owner dies, the interest of the deceased owner passes to his or her estate rather than to the other owner or owners.  You might want tenancy in common if you own a valuable asset, such as real estate, with a number of other people and do not want the more permanent relationship of a partnership.

Sometimes people register assets jointly, particularly with their children, without considering all of the consequences.  For example, assume that one of your children is local and the others live at a distance.  Your will provides that your estate will be divided equally among all of your children.  Because you are concerned that you may need some help with your banking affairs at some point, for “convenience” you re-register your bank accounts jointly with survivorship rights with the local child.  What you may not realize is that now, if you die, that child will receive all of those accounts in contrast to the way the other assets under your will pass in equal shares to all your children.  That can create an awkward situation for your children in trying to determine your real intent.  Did you intend to leave a special gift to that one child?  Or, were these joint accounts only an attempt to create a “convenient” way to handle the money in those accounts if you could not transact business for yourself?

A case involving similar facts moved through the Pennsylvania appellate courts only a few years ago.  The case involved a search for the intention of the person who created the accounts and the interpretation of the Pennsylvania statute dealing with multiple-party accounts.  Even the courts did not all arrive at the same conclusions.

A better practice for you, in order to avoid such uncertainty, is to be intentional when you create a joint account.  Do you want survivorship rights?  How does this joint account to relate to the dispositions under your will?  Might there be a better way to accomplish what you want, such as having someone authorized to use that account in the event of disability?  Perhaps you would be better off having a power of attorney or the account in a revocable living trust.

If you do have a power of attorney, and you want to have that person able to write checks from your accounts, you should have them provide the necessary identification and sign the necessary documentation with the bank to be authorized to sign as your power of attorney.  At that time, you should be careful that the person is being added as a power of attorney and not as a joint owner of the account with survivorship rights.

The ownership of all assets, in addition to having an effect on the way in which the asset passes upon death, can also affect the way in which the asset will be taxed or the rights of creditors.  The account may also be registered in other ways, such as P.O.D. (or pay on death) to a designated beneficiary.  Some assets, such as 401(k)s, life insurance policies and IRAs require you to choose a beneficiary or the asset will pass to your estate, which may be contrary to your intentions.

In short, if you take title to an asset, or re-register one which you are already holding, think carefully about the form of ownership you want and how that form of ownership relates to your overall plan for the disposition of your assets. Take special care with your joint accounts, and if you are in doubt or have specific questions about your situation, consider consulting an attorney to help you better understand and manage your assets securely.    Jon M. Gruber, Esq.

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