How joint bank accounts could affect your estate planning

Summary

How Joint Bank Accounts Could Affect Your Estate Planning

Estate planning is an important aspect of financial management that involves making decisions about how your assets will be distributed after your death. It allows you to protect your loved ones and ensure that your wishes are carried out. One factor that can significantly impact your estate planning is the use of joint bank accounts.

Joint bank accounts are accounts that are held by two or more individuals. They can be useful for married couples, elderly parents and their children, or business partners who need to share financial responsibilities. While joint bank accounts offer certain benefits, they can also have implications for estate planning that should be carefully considered.

How Do Joint Bank Accounts Work?

When you open a joint bank account, all account holders have equal access to the funds in the account. This means that each person named on the account can make deposits, withdrawals, and manage the account as if it were their own. Joint bank accounts can be set up as either joint tenancy with rights of survivorship or tenancy in common.

In joint tenancy with rights of survivorship, if one account holder dies, the surviving account holder(s) automatically inherit the deceased person's share of the account. This is a common arrangement for married couples who want to ensure that the surviving spouse has access to funds without going through the probate process.

On the other hand, tenancy in common allows each account holder to specify what percentage of the account they own. If one account holder dies, their share of the account is passed on based on their will or the laws of intestacy. This arrangement is often used by business partners or individuals who want more control over the distribution of their assets.

Implications for Estate Planning

While joint bank accounts can be convenient during your lifetime, they can complicate matters when it comes to estate planning. Here are some important considerations:

Loss of Control

When you add someone as a joint account holder, you are giving them equal access to the account and the funds within it. This means that they can use the money in the account without your consent. While this may not be an issue for trusted individuals, it can become problematic if the relationship deteriorates or if the joint account holder misuses the funds.

Disinheriting Other Beneficiaries

If you have a joint bank account with someone and you pass away, the funds in that account will automatically go to the surviving joint account holder(s). This means that any beneficiaries you have named in your will or other estate planning documents may not receive their intended share of the account. It's important to consider this when determining how to distribute your assets.

Tax Implications

Joint bank accounts can have tax implications for both the account holders and their beneficiaries. For example, if the account earns interest or dividends, the income may need to be reported on the account holders' tax returns. Additionally, when the account passes to a surviving joint account holder, there may be potential estate tax implications.

Probate Avoidance

One of the main advantages of joint bank accounts is that they can help avoid the probate process. When an individual passes away, their assets typically go through probate, which can be time-consuming and expensive. With a joint bank account, the funds automatically pass to the surviving account holder(s) outside of probate, allowing for faster access to the funds.

Conclusion

Joint bank accounts can be a useful tool for managing finances during your lifetime. However, they can have significant implications for estate planning. It's important to carefully consider the potential loss of control, the impact on other beneficiaries, the tax implications, and the role of joint accounts in probate avoidance. Consulting with a qualified estate planning attorney can help you navigate these complexities and create a plan that best reflects your wishes.

FAQ

  • Q: Can I remove someone from a joint bank account?

    A: In most cases, you can remove someone from a joint bank account if all account holders agree. However, some financial institutions may have specific requirements or paperwork that needs to be completed.

  • Q: Can a joint bank account be used for estate planning purposes?

    A: Joint bank accounts can be used for estate planning purposes, but they should be considered as part of a comprehensive plan that includes other estate planning documents such as a will, a trust, or a power of attorney.

  • Q: What happens to a joint bank account if one account holder becomes incapacitated?

    A: If one account holder becomes incapacitated, the other account holder(s) may still have access to the funds in the account. However, it's important to have a power of attorney in place to ensure that financial decisions can be made on behalf of the incapacitated account holder.

  • Q: Can a joint bank account be garnished?

    A: Yes, a joint bank account can be garnished if one or more of the account holders has an outstanding debt or a legal judgment against them. It's important to keep this in mind when deciding whether to open a joint bank account.


24 October 2023
Written by John Roche