Exercise Caution with Joint Accounts

Establishing joint bank accounts can be a useful tool in many situations.  It allows husbands and wives to share an account and bank with ease.  It allows an adult child to help an aging parent manage the parent’s finances and pay bills, even if the adult child is not local.  A sibling can assist another sibling oversee his or her finances.  A joint account can avoid probate at the first owner’s death, and may even avoid the need for guardianship over finances, known in Ohio as a guardianship of estate, if the joint account is established before one of the owners is deemed incompetent.

But a joint bank account is not perfect.  While the surviving spouse becomes the sole owner at the death of the first spouse, what happens when the second spouse dies?  Unless a beneficiary is named, usually as a payable-on-death or transfer-on-death beneficiary, the joint account will be a probate asset at the second spouse’s death.

When working with parents and adult children, it is important to remember that naming one child can result in an unintended, unequal inheritance.  This is because the surviving joint owner generally is entitled to everything in the account, thereby excluding the other family members.  The surviving joint owner may receive a bigger share of the pot if the surviving joint owner is also named in the decedent’s will, trust, or as a beneficiary of other assets.

Many of our clients hire us to help plan for their siblings with disabilities.  The non-disabled sibling may have established a joint account so he or she can easily conduct online banking or check writing for a brother or sister who doesn’t require a guardian but does need a little help.   What the non-disabled sibling may not realize is that the joint account may be used if the non-disabled sibling finds him or herself in hot water, such as being named a defendant or having creditor problems or going through a divorce.  The account may be reached by creditors or other third parties, even if all of the money in the joint account came from the sibling with the disability.

While a joint account may be helpful in many situations, it is not a cookie cutter answer to every problem and the use of joint accounts should be carefully evaluated.

– Posted by Amanda Buzo

Posted in Blog, Estate Planning.