Joint Tenancy Bank Accounts as Part of Estate Planning
This post originally appeared in the year-end 2014 edition of Insight on Estate Planning.
What happens to the assets in a joint bank account when one of the account holders dies? The answer depends on how the joint account is set up. The two primary types of joint tenancy accounts are those with rights of survivorship (JTWROS) and those without rights of survivorship (JTWOROS).
Funds that belonged to a deceased account holder which remain on deposit in a joint account with rights of survivorship belong to the surviving account holder at the moment of death regardless of the terms of the deceased account holder’s Will. On the other hand, funds belonging to a deceased account holder which remain on deposit in a joint account without rights of survivorship typically belong to the deceased account holder’s estate.
If the funds belong to the account holder’s estate, they will be subject to probate and as liquid assets, they may be used to pay administrative expenses and taxes. If there is money left after administrative expenses and taxes, the funds will pass to the residuary beneficiaries designated in the Will or, in the absence of a Will, by way of Washington’s intestacy statutes. If a parent wants to establish an account that will pass money to his or her child at death outside of the probate process, he or she should fill out the “contract of deposit” (also often referred to as the “signature card”) to specify his or her wish for a joint tenancy with rights of survivorship. Please keep in mind that setting up this type of joint account during your lifetime allows all account holders and at times, their creditors, to access one hundred percent of the funds. In other words, this probate avoidance strategy has its risks.
Whether you already have a joint account or you will open one soon, be sure to check with the financial institution to confirm how the joint tenancy is set up. Many local and national banks elect joint tenancy with rights of survivorship as the default option for new accounts whether or not the account holders affirmatively request the survivorship rights. In fact, many financial institutions may not even offer a joint tenancy without rights of survivorship. In Washington, an account that is simply designated as “joint tenancy” should pass as a joint tenancy with rights of survivorship to the individual(s) listed on the account who survive the deceased account holder. However, there is no guarantee, and disagreements over these accounts are frequently ending up in litigation.
If you would like to discuss how to properly title your accounts or assets, please contact a member of the Stokes Lawrence Estate Planning Group.