Joint Accounts and Estates: Untangling Ownership

The Right of Survivorship

Joint bank accounts are generally established with a right of survivorship. This means that when one account holder dies, the surviving account holder automatically becomes the owner of the account balance.  The account balance does not form part of the deceased account holder’s estate.  For example, a parent may add an adult child to a bank account to assist them to manage their banking affairs—to help pay bills or manage finances.  Upon the parent’s death, the account is legally transferred entirely to the child named on the account. The funds in the joint bank account do not fall into the parent’s estate for distribution in accordance with their Will.

From an estate perspective this can mean the provisions of a will may have no effect.  A will that directs assets to be divided equally among several beneficiaries may be frustrated if substantial funds were held in a joint account that passes directly to the surviving account holder and not to the deceased’s estate.

This can increase the risk of disputes among siblings/family members at a time when emotions are high due to the loss of a loved one.

Exposure to the Joint Owner’s Creditors

Adding another person to a bank account may also expose the funds to risks unrelated to the original account holder.  If the joint account holder added to assist an aging family member experiences financial difficulties, creditors may attempt to claim against the account, the funds could become entangled in bankruptcy proceedings, debt collection actions, or other creditor claims.

Similarly, if the added joint owner becomes involved in matrimonial or relationship property disputes, questions may arise regarding ownership of the account balance.

Tax and Record-Keeping Complications

Joint ownership can create uncertainty regarding the true beneficial ownership of funds.

Questions may arise about:

• Who contributed the money.
• Whether a gift was intended.
• How interest income should be reported.
• Whether the account forms part of the deceased’s estate for tax purposes.

Poor documentation often makes these questions difficult to answer during estate administration.

Conclusion

Joint bank accounts are often created to assist family members , but they can produce unintended consequences after death.

Before adding another person to a bank account, professional legal and estate planning advice should be sought.  A well-structured estate plan can achieve the desired objectives while minimizing the risks that joint ownership may create for beneficiaries and executors alike.

This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.