Opening a joint bank account with a spouse, partner, parent, or child is a routine procedure for many people, and one for which they are unlikely to seek the advice of an attorney.

Unfortunately, if one of the people on the account passes away, depending on how the account is set up, the remaining account holder may not be able to access those funds until the deceased person’s estate goes through the probate process, which is sometimes the very procedure the account holder wanted to avoid.

The wills, trusts, estates and probate attorneys at Brousseau Naftis & Massingill, P.C. have decades of experience representing clients in powers of attorney, trust litigation, conservatorship and other estate planning matters. For more information, contact us today for a no-obligation consultation.

What Kind of Bank Account Are You Opening?

couple with joint credit accountsWhen setting up a joint bank account, customers may be offered any of the following options:

  1. Joint Account;
  2. Payable on Death;
  3. Joint Tenants with Right of Survivorship; or
  4. Tenants in Common.

Which type of bank account is right for you and your family is really an issue that should be addressed with all parties, as well as your legal counsel, as the answer will depend on your intent and your current estate plan.

A Joint Account—with no other designation—means that both parties own and have the right to access funds in the account, but without a Right of Survivorship designation (as addressed below), the account would become part of a deceased owner’s estate at his or her death and would need to go through the probate process.

A Payable on Death account is a bank account with which the owner can name a beneficiary—much like a life insurance policy—so that, when the owner passes away, the beneficiary receives the funds in the bank account without having to go through the probate process. This is not actually a “joint account” as the beneficiary has no right to access the funds during the account owner’s life, but the funds would pass automatically to the beneficiary upon the owner’s death.

Similarly, a bank account designated as “Joint Tenants with Right of Survivorship,” or “JTWROS,” awards the account to the surviving owner of the account when one owner passes away. Because of this, a Right of Survivorship Account also avoids the probate process to transfer ownership.

A Tenants in Common bank account is often confused with the Payable on Death and Right of Survivorship accounts, but it operates completely differently, which may lead to unintended results.

Tenants in Common Bank Accounts

With a Tenants in Common Bank Account, each owner of the account holds an undivided one-half interest in the account and there is no right of survivorship. Instead, if one of the owners of the account passes away, the deceased owner’s portion of the account must be distributed according to his or her Last Will & Testament, thus requiring that the Will be admitted to probate and the funds distributed as part of the probate process. Accordingly, even if the Last Will & Testament directs that the surviving co-owner of the Tenants in Common Account inherits these funds, the surviving co-owner will not have access to those funds until the probate process is completed.

Additionally, the bank may freeze these funds upon the death of one of the owners of the account until the probate process occurs so that the funds in the account are not accessed by the surviving co-owner unless and until the Probate Court so directs.

Because the funds in the Tenants in Common Bank Account do not pass automatically, these types of accounts are really meant for customers who have engaged in extensive tax-planned estate planning and whose desire is that their estate is distributed only through their Last Wills & Testaments and Trusts.

Bankers are not Lawyers

While bankers are very knowledgeable about their products and the different banking options available for their customers, without consulting an attorney as part of the process, many customers can end up signing up for types of bank accounts that complicate, rather than simplify, their estate planning.

Many of the people who open a joint bank account do so because they want to avoid probate for all or some of their assets, and the Tenants in Common Bank Account will not do that; it only creates more assets that need to be probated, and may even get their co-owner locked out of the account until that process is complete.

Accordingly, before opening a joint account with any type of designation, it is best to first seek legal advice to ensure that the type of account you are opening will not interfere with your intent and your estate plan.