What Happens to a Joint Account After Death?

Do you have a joint account with a spouse or other family member? If so, it is important to understand what will happen to your account after you pass away.

Easy Inheritance

A joint account is able to avoid probate if the account is “ with rights of survivorship.” The account will pass to the remaining owner upon the death of the first. In order to gain full ownership of the account, the remaining owner must provide a copy of the death certificate to the institution holding the account.

Easy access to these funds could supply your joint account holder, who may be your spouse or child, with money to replace your lost income or to pay for your final arrangements.

Effects

If you do share a joint account with someone either for daily expenses or for the simple purpose of passing on funds after your death, you should be aware of some downsides of this account.

Funds in your joint account will only pass to the other account holders. You cannot use your Last Will and Testament or Revocable Living Trust to add other inheritors. If you do want to include others in the inheritance of that money you must place them on the account as joint owners. If you don’t, they will be disinherited.

If you do add family members to your account who have not contributed funds into that account, the funds they receive will be considered a gift. If those funds are more than $13,000 per person, which is the 2010 annual exemption, they must be reported to the IRS.

A joint account is not the best way to leave an inheritance to your children, especially if they are minors. Once you pass away, your child cannot access those funds until adulthood. Either the guardian you named in your Will or one chosen by the court will manage the account funds. This guardian will be court-supervised and must report the status of account funds annually. The guardian may also have to petition the court for certain uses of the account funds. These continued court actions could eat away at your child’s inheritance. Consider using a Trust with a trustee instead.

Is any person on your joint account in debt or facing a lawsuit? If so, your account funds could be in jeopardy. A court of law could seek your funds on behalf of a creditor or lawsuit plaintiff.