Estate Planning with Joint Accounts: What You Should Know

July 6, 2010

Are you thinking about creating joint accounts to avoid the process of probate? These co-owned accounts are a common way to assure that your funds pass quickly to your loved ones without the need for probate. You should be aware, however, there are some pitfalls involved in joint accounts that you will need to consider.

Advantages and Disadvantages of Joint Tenancy

A joint account can transfer to the surviving account holder(s) upon the death of another joint owner. For this to happen, the survivor(s) will need to provide a death certificate to the institution where the account is held.

Perhaps you wish for more than one person to inherit the money in a joint account. Unless their name is on the account, they will not, even if you have so stated in your will or trust. The only way for another person to have a share of this money, if they are not on the account, is for the surviving account holder(s) to gift it to them. Because the funds in the account are now owned by the survivor, making such a gift may cause your loved ones to pay a gift tax if the gift is over the annual exclusion amount.

Another issue arises when one of the account holders has not contributed money into the account. When this is the case, if the account owner dies and the money passes to non-contributors, these funds may be considered a gift and the gift tax may be applicable.
Joint accounts are especially troublesome when there are creditors of one of the account holders. If one of the account holders loses a lawsuit, the account may be frozen or garnished to cover the liability. For this reason many people should avoid holding joint accounts.
What if you wish to leave your account holdings to a child who is still a minor? If you put the child on your account, upon your death your account will be controlled by a court appointed guardian until the child reaches eighteen. Then at age eighteen the entire account is available to that young person.

It is usually a better option to have the accounts held in a revocable living trust. In the event of disability, the trustee will still have access to your account, but their creditors will not. If the beneficiary is still too young, it can remain in trust and made available for their education and other needs, but not turned over to them until an age when they are more likely to have matured.

Joint Tenancy Experts at Anderson, Dorn and Rader, Ltd.

Joint accounts can be one among many useful estate planning tools. They are simple to set up and administer, but they may have serious disadvantages. Be sure to visit a qualified estate planning attorney to become fully informed.


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