What Happens to a Joint Bank Account When One Person Dies
When a person with a joint bank account passes away, what happens to the money in the account depends on how the account was set up. Many people open joint accounts for convenience, whether to manage household expenses, provide financial oversight for an aging parent, or simplify estate planning. However, understanding the legal and financial implications of a joint bank account after one owner dies is important.
How Joint Bank Accounts Work
A joint bank account is an account that two or more people share, meaning they have equal access to the funds. Both account holders can deposit, withdraw, and manage the money in the account. The way the account is structured determines what happens after one owner dies.
Rights of Survivorship
Most joint bank accounts are set up with “rights of survivorship.” This means that when one owner dies, the remaining account holder automatically becomes the sole owner of the account. The money does not go through probate, which is the legal process of distributing a deceased person’s assets. Instead, it transfers directly to the surviving owner.
However, just because the money bypasses probate does not mean it is free from taxes or potential disputes. Inheritance and estate taxes may apply depending on the amount of money involved and state laws. Additionally, if the deceased owner had debts, creditors might try to claim funds from the account.
Tenants in Common Accounts
Some joint bank accounts are structured as “tenants in common.” Unlike accounts with rights of survivorship, a tenant-in-common account does not automatically transfer to the surviving account holder. Instead, the deceased owner’s share of the account becomes part of their estate and is distributed according to their will or state inheritance laws. If the deceased did not have a will, state intestacy laws determine who inherits their share.
Potential Complications While a joint bank account may seem like an easy way to pass money to a surviving co-owner, there can be complications.
- Disputes Among Heirs – If a parent and child share a joint account, other children may feel entitled to a portion of the funds. If the account was not intended as a gift but merely for convenience, disputes can arise.
- Creditor Claims – If the deceased had outstanding debts, creditors might attempt to recover funds from the joint account. In some cases, the surviving account holder may have to prove they contributed to the funds in the account to protect their share.
- Tax Implications – While joint accounts with survivorship rights bypass probate, they may still be subject to estate or inheritance taxes. If the account balance is substantial, consulting a financial professional or estate attorney is a good idea.
- Frozen Accounts – In some cases, banks may temporarily freeze a joint account when one owner dies, especially if there is uncertainty about ownership or potential legal disputes. This can create difficulties for the surviving owner who relies on the account for daily expenses.
Ways to Avoid Issues If you have or are considering a joint bank account, there are ways to minimize potential issues:
- Clarify Intentions – If you add someone to your account for convenience rather than as an inheritance plan, consider putting that in writing or discussing it with an estate attorney.
- Consider a Payable-on-Death (POD) Designation – A POD account allows you to name a beneficiary who will receive the funds upon your death without making them a joint owner during your lifetime.
- Review Estate Planning Options – Other estate planning tools, such as trusts, may be more effective in managing assets and avoiding disputes.
Seek Further Help With Salines-Mondello
Joint bank accounts can provide financial convenience, but they can also lead to complications after one account holder dies. The outcome depends on how the account was structured, state laws, and whether creditors or heirs make claims. To ensure your assets are handled according to your wishes, it is best to seek legal guidance.
If you have questions about estate planning, joint accounts, or inheritance laws, contact Salines-Mondello Law Firm, PC at (910) 777-5734. Our Wilmington, NC attorneys can help you make informed decisions and protect your financial future.
