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How Joint Bank Accounts Work, And How Sometimes, They Don’t

Joint bank accounts make great estate planning tools, except when they don’t. Whether a joint bank account is right for you depends on on a lot of factors. Joint bank accounts make perfect sense for some people. They can cause family infighting and litigation for others.

What is a “joint bank account”?

To put it simply, a joint bank account is a bank account with two owners. But it isn’t that strait forward, and it pays to understand joint bank accounts so that your money is protected.

The person who deposits money in a joint account is called the “depositor”. Both account owners are known as “joint tenants”. The very second money, stocks, or bonds, are deposited into the joint bank account, it becomes property of both joint tenants, 50% each, no matter matter who deposited the money. Both joint tenants own one-half of the money (or securities) in the joint account once the deposit is made.

When one joint tenant dies, the surviving joint tenant owns everything in the account.

However, there is a very important exception to this rule. The money in the account will still be owned entirely by the depositor if the account is designated a “convenience account” with the bank. A convenience account is a way for the depositor to allow the other joint tenant to make withdrawals from the account on the depositor’s behalf, but without the other joint tenant becoming an owner of the money or securities inside the account.

The non-depositing joint tenant, for example, can pay the depositor’s bills on his or her behalf, but does not own 50% of the funds in the account. If the depositor dies first, the joint tenant does not automatically become the owner of the funds unless the depositor named the other joint tenant the beneficiary in a will or trust.

In a regular joint account, where the funds are owned 50/50, the person who outlives their joint tenant will automatically inherit all the funds in the account. It usually does not matter what the depositor’s last will & testament says (but there are exceptions to this rule). If a joint tenant dies, the other joint tenant automatically becomes the owner of everything in the account, even if the depositor’s will says otherwise. But with a convenience account, this is not the case.

Advantages of Joint Accounts

Joint accounts are great tools to avoid probate, which means the surviving tenant automatically inherits the funds – there is no delay (although some banks may have surviving tenants jump through a few hoops before releasing the funds). By saying “surviving joint tenant”, we are talking about the joint tenant who outlives the other.

Many spouses routinely commingle and share their money, and a joint account is often very appropriate for them.

Joint accounts can also avoid adult guardianship in certain circumstances. If one of the owners of the joint account can no longer make financial decisions for themselves – perhaps due to dementia or an accident – the account can sometimes be used to avoid the need for the appointment of a guardian.

Disadvantages of Joint Accounts

Depending on who is named a joint owner, joint bank accounts can become a source of litigation. A common scenario leading to litigation over a joint account is a single elderly parent with multiple adult children who only names one as a joint tenant.

For example: Child 1 lives close to Parent and is Parent’s primary caretaker. Child 2 does not live close by or is less active in caring for their aging Parent. A joint account is opened by Parent naming Child 1 as the joint tenant and a substantial sum of money is deposited.

Parent’s last will & testament leaves everything to the two children, 50/50. When Parent dies, Child 1 receives a disproportionate inheritance because of the joint account. Was it Parent’s intent to give Child 1 a larger gift for the care provided? Did Parent want the account to be a convenience account, even though it was never designated as one with the bank? Could Child 1 have been up to no good, and managed to open the account against Parent’s wishes?

Litigation Over Convenience Accounts

Even if a joint bank account is not officially designated as one with the bank, a lawsuit can be brought to establish that the depositor intended the account to be a convenience account.

There is a legal presumption that the account was not intended to be a convenience account if it was not designated as such with the bank. In the case Matter of Camarda, the Court wrote:

The burden of rebutting that presumption is on the challenger thereto, and he may prevail only by ‘direct proof or substantial circumstantial proof, clear and convincing and sufficient to support an inference that the joint account had been opened in that form as a matter of convenience’ (citation omitted), or by proving undue influence, fraud or lack of capacity (citation omitted).

The person challenging this presumption will prevail only if they can demonstrate, by clear and convincing evidence, direct proof or substantial circumstantial proof of the depositors intent that the account be for convenience only or by proving undue influence, fraud, or lack of capacity.

What Happens if A Joint Tenant Withdraws More than One-Half?

From the moment of the creation of a joint bank account, both joint tenants own a 50% interest in the money deposited into the joint account. It doesn’t matter who made the deposit. They both own one-half. Either tenant, during the lifetime of the other, may withdraw up to full amount of his or her one-half. The one-half is called their “moiety”.

Where a joint tenant withdraws more than his or her moiety – the one-half they own – the other joint tenant has the right, during the lifetime of both tenants, to recover the excess withdrawn.

But each tenant can consent to the withdrawal, either express or implied. In such an event, the withdrawing tenant is considered to be acting in the other tenant’s right, and the law regards the withdrawal to have been made by the other tenant his/herself.

Can you see why joint bank accounts are an area ripe for litigation?

If Joint Tenant 1 learns that Joint Tenant 2 withdrew more than one-half – essentially dipping into Joint Tenant 1’s share – Joint Tenant 1 can bring a lawsuit to recover the money withdrawn that exceeded one-half.

Alternatives to Joint Accounts

In many cases, joint bank accounts are a perfectly appropriate estate planning tool. If a married couple manages their money together and have a relationship based on “what’s mine is yours”, then a joint account is usually harmless. In fact, in some cases, it’s perfectly appropriate and even advisable to have joint accounts. These are not usually the circumstances that give rise to litigation and disputes.

On the other hand, when a parent has multiple children who he or she wishes to inherit equal shares of their estate, setting up a joint account with one of the children, who is acting as a caregiver, could cause unintended consequences.

In situations where an adult child is acting as a caregiver, an alternative is to execute a power of attorney in order to allow that child to access accounts. If the parent wants to avoid probate, the parent can name both children as beneficiaries on the account. The parent can also set up a lifetime revocable trust.

The Law Firm of Daniel J. Reiter, Esq. handles joint account litigation, adult guardianship law, mental health law, and estate planning and Medicaid. If you have issues or questions regarding joint accounts, we encourage you to contact us at (646) 820-4011 or djr@djrattorney.com.

Daniel J. Reiter, Esq.

Daniel J. Reiter is an attorney admitted to practice in New York. Mr. Reiter focuses in the areas of estate and trust litigation, non-routine Surrogate’s Court work, adult guardianship and mental health law, power of attorney litigation, and civil litigation and dispute resolution. He also routinely practices in the areas of estate planning, elder law, and Medicaid.

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