A joint bank account is a common way to share funds with another person, such as a spouse, partner, or child. Upon the death of one account holder, if the joint account has rights of survivorship, the assets in the account pass to the surviving joint account owner.
Besides joint tenants with rights of survivorship (JTWROS), tenants in common (TIC), and tenants by the entirety (TBE) are other ways banks offer joint bank accounts.
Joint Bank Accounts
Many people use a joint bank account to ensure that they have access to funds without needing to go through the probate process. If both account holders can legally deposit and withdraw funds from the account, and if the bank account includes rights of survivorship, the assets held in the account will automatically pass to the surviving account holder upon the death of the co-owner.
When one of the account holders passes away, the surviving account holder will need to show the bank manager the account owner’s death certificate to close the account or remove the deceased account holder’s name from the account.
Rights of Survivorship
If you are not sure whether your joint bank account includes rights of survivorship, the easiest place to check is the signature card. When you set up a joint bank account, you can choose to make it a joint account and check a box that indicates that the account will have rights of survivorship.
State law varies on whether survivorship rights are the default in a joint bank account. Under Section 675 of the New York Banking Law, the establishment of a joint bank account is presumptively considered to create a joint tenancy.
According to section 675, a joint tenancy creates two presumptions:
- When the account was opened, an irrevocable gift of one-half of the account was made to the other account holder.
- Upon the death of one account holder, the balance of the account vests in the survivor.
If an account holder does not want to gift half of the account funds to the other account holder, they can open a “convenience account.” Like a joint bank account with rights of survivorship, both account holders can withdraw funds from a convenience account. However, upon the death of the depositor, the funds in a convenience account remain with the depositor and become part of their estate.
Uniform Probate Code
States that have adopted the Uniform Probate Code will follow the following guidelines:
- Unless otherwise specified, joint bank accounts are presumed to have rights of survivorship.
- To avoid misunderstandings, joint account owners should verify that their accounts clearly state whether rights of survivorship are included or not.
- Unless expressly stated, joint owners are presumed to equally own all assets in the joint account.
- In some cases, joint bank accounts are subject to creditor claims from either account holder.
To avoid misunderstandings, especially when joint account holders are not spouses, it is important to expressly state the purpose of the joint account, how the money should be used, and whether it includes rights of survivorship.
Adding someone to an account out of convenience can have unintended consequences. For example, if an older adult would like another person to access their account to pay bills for them but does not want the remaining funds to pass to the other account holder upon their death, these intentions should be clearly stated in their estate planning documents.
Another point to consider if you add a non-spouse to a bank account is the potential to trigger federal gift tax.
Joint Account Insurance
The Federal Deposit Insurance Corp (FDIC) insures joint bank accounts up to $500,000 and individual accounts to $250,000. Once an account holder in a joint account dies, the FDIC will continue to insure the account for six months after the account holder dies to allow time for the surviving account holder to redistribute the funds.
The original bank signature card or account agreement provides the strongest evidence of whether a joint bank account includes rights of survivorship. To ensure your assets are passed to your beneficiaries as you intended, it is essential to create a comprehensive estate plan.
An estate plan can include instructions for how you want your assets distributed upon your death, how you should be cared for if you become incapacitated, and who should care for your children and pets. Your estate planning attorney can ensure your bank account designations meet your financial goals and provide for your beneficiaries.
If you have questions about transferring wealth across multiple generations or want to learn about how to protect your assets and property with a comprehensive set of estate planning tools, contact us.