The Danger of a Joint Bank Account

by Christopher L. Kelly, Esq.

Joint account ownership is a convenient way to own a bank account or other financial account with someone. Key benefits include the fact that all owners of a joint account can conduct business on the account. It is also useful that there is a right of survivorship among joint owners, meaning if one of them dies, the surviving owner is now the owner of the account and does not have to go through the probate process in order to have access to the money. For these reasons, married couples generally hold most of their bank accounts as joint owners. 

While joint accounts generally work well for married couples, when a spouse dies, the survivor has to be mindful as he or she considers adding someone else as a joint owner on bank accounts. The very advantages of jointly owned accounts for married persons may actually become detriments when owning an account jointly with a non-spouse. There are several potential issues with this setup:

1. Unintended inheritance. Under standard joint account terms, the non-spouse joint owner will usually become the new owner on the assets in the account if the original survivor dies, irrespective of what his or her estate plan directs. For example, Sally has three children. Her son Johnny lives in the same town. For convenience, Sally adds him to the account, so he can “write checks and talk to the bank” if a need arises. She also has a will that directs her Executor to divide her estate equally among her children. However, by the terms of the joint bank account, the money in the account will bypass the provisions in the will, so whatever money was in the account at Sally’s death now becomes Johnny’s, and he still takes a third of his mother’s estate. This was not Sally’s intention, but based on his joint ownership, Johnny is now the new legal owner of the money and does not have to divide it with his siblings. 

2. Unexpected creditors. A creditor has the right to access bank accounts owned by a debtor to pay for a debt on which the debtor has defaulted, regardless of how the debtor became an owner. Thus, if Johnny has a creditor looking for assets to seize, the joint account with Sally can be taken for Johnny’s debt, even though Sally had nothing to do with the debt. Additionally, if Johnny divorces, there is a possibility the joint account could be brought into the divorce proceedings. Even if Sally can successfully prove the account is not part of Johnny’s marital estate and keeps the money, the favorable result may only come after the stress and expense of intervening in Johnny’s divorce. 

3. Unforeseen access. When you add someone to an account, the person gets full clearance and rights to the account. Thus, it is extremely important that the new owner can be completely trusted. Sometimes access to the funds can be too great of a temptation for someone. If a situation arises in his or her life in which he or she needs money, the new joint account can become a source of those funds. Even if he or she expects to repay the money, the fact is the money may never come back into the account. And the new joint owner has done nothing wrong legally. After all, he or she is a joint owner. 

Are there any good solutions to allow someone to help the survivor out with his or her banking? There actually are two good remedies that carry less risk than full-on joint ownership:

• Utilize a Power of Attorney (POA). Through a POA, the survivor grants a person (known as an Agent or Attorney-In-Fact) either general or limited authority to transact any business that the survivor can or could do on his or her own. The Agent has access to bank accounts (usually along with other financial assets) but is never the owner. Thus, since the Agent is not an owner, the survivor’s Last Will and Testament will still control the ultimate disposition of the bank accounts, and none of the Agent’s creditors will have access to the survivor’s funds.
• Name the person as an authorized signer on the account. This gives the person access to the account without being an owner. An authorized signer requires a special designation on the account’s signature card. Financial institutions will have specific procedures to make this type of appointment. 

Is joint ownership with a non-spouse always a bad idea? No. In fact, when used properly, it is not. Joint ownership can be an effective way to ensure someone gets an inheritance and an efficient technique in avoiding probate court. The key is to ensure the survivor is fully informed of the advantages and disadvantages before making this important decision. 

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Please note that the advice offered in this article is not intended to be construed as tax, legal or accounting advice. This material has been prepared for general informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice for the reader. You should consult your own tax, legal and accounting advisors before engaging in any transaction.