Know Risks Before Using Joint and Survivor Bank Accounts

Q:   I’ve heard that having your bank accounts held in joint and survivorship is a good idea. Is that correct?
A:   Yes and no.  The better question is, “What are the pros and cons of having your bank accounts held in joint and survivorship?” Having your bank accounts held in joint and survivorship entitles the named survivor on the account to those funds without having to go through probate. However, as the answer to the next question demonstrates, there are certainly cons associated with having bank accounts held in joint and survivorship.  

Q: Why might naming a survivor on an account be a bad idea?
A: When you register the account as “joint and survivor,’ you are making a contract with the bank. Remember that signature card that you signed? That’s a contract between you and the bank. The bank holds the funds within that account as “joint tenants,” meaning that the balance in the account can be turned over to the survivor when one of the account holders dies, regardless of the terms and conditions in the person’s last will and testament. The survivor can simply go to the bank holding the account with a copy of the death certificate and have the bank transfer the balance of funds remaining in the account to an account held only in the name of the survivor.

If you do not intend for the survivor to be entitled to the balance of the remaining funds in the account upon your death, you must make sure that you properly documented your intentions with the bank. In addition, the contract includes the acknowledgment that the other individual has an equal right to access the account while you both are living. In other words, you agree to share the account with the other person, even if it means allowing that person to draw down the account to nearly nothing. Between spouses that may be okay, but with someone else, it can easily lead to trouble and disagreements down the road.

Q:  I’m older and I live alone. My neighbor and I have a joint and survivor account so she can help me with my bills. It’s very convenient for me.
A:  It might be convenient, but it’s also potentially risky. If your neighbor has credit problems, you risk losing your money to your neighbor’s creditors. What if your neighbor is sued for divorce? Your joint account could be tied up in those proceedings. What if you and your neighbor have a disagreement or falling out? The neighbor would be allowed to go directly to the bank holding the account, access the account, and draw down the account to nearly nothing or to nothing.   

Also, do you intend for your neighbor to have that money when you die? Again, if you do not intend for the survivor to be entitled to the balance of the remaining funds in the account upon your death, you must make sure you properly document those intentions with the bank. 

Perhaps the most common problem associated with joint and survivorship bank accounts is the situation where a parent makes an account joint and survivor with one of his or her children for convenience. The child may promise to split the account with the other siblings when the parent dies, but if the child decides not to share, there is nothing anyone can do about it. 

Q:   If it’s risky to set up a joint and survivorship account for convenience purposes, what can I do? 
A:   If you wish someone to receive the account upon your death, and you wish to avoid probate, simply make the account P.O.D—payable on death. The account will still be paid at death, but during your lifetime, only you have any rights to the account. With a P.O.D. account, you keep control, you still avoid probate, and you minimize risk. 

If you wish someone to help with your bills, give that person a limited power of attorney for the account. Every banking institution or a good attorney should be able to assist you in preparing a limited power of attorney.
 
5/25/2016    

This “Law You Can Use” consumer legal information column was provided by the Ohio State Bar Association. It was originally prepared by attorney John R. Wanick, and was updated by attorney Garrick O. White, both with the Toledo law firm of Anspach Meeks Ellenberger LLP.

Articles appearing in this column are intended to provide broad, general information about the law. This article is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from a licensed attorney.

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