The Risks of Joint Bank Accounts

The Risks of Joint Bank Accounts

Oftentimes, joint bank accounts are used as a tool for avoiding probate and transferring money between partners, family members, loved ones, and trusted business partners. Many married couples elect to set up joint bank accounts in order to combine finances. But while setting up joint bank accounts may be convenient in some situations, this kind of arrangement does come with its share of risks.

Before deciding to open up a shared bank account, there are some important considerations you should take into account.

Total ownership and withdrawal rights. Whether you open up a bank account with your spouse, children, or business partner, both of you will have equal ownership to the account. It doesn’t matter who creates the account or transfers in the most money—everyone listed on the account will have total rights and access to the account. That means your fellow account holder can spend, transfer, or give away money in the account without your consent. If the other owner chooses to withdraw all the funds from the account, banks cannot legally stop them from doing so.

Overdraft concerns. With a personal account, you are able to keep track of the funds available by staying aware of the money you are taking out and putting in. But with joint accounts, you will not always be able to monitor the other holder’s purchases, withdrawals, and other spending activities. If both of you unknowingly use the account to pay off a major debt or make a big purchase, you could unintentionally cause the account to overdraft. In such a situation, both of you are responsible for overdraft penalties.

Beneficiary concerns. The majority of joint accounts carry survivorship rights, meaning the surviving joint owner will automatically receive the money if the other owner dies. This can be convenient if the deceased account holder intended those funds to pass to the co-owner, and the co-owner alone. However, if you intended to pass your half of the account to another heir, your wishes will not hold up in the laws of joint tenancy.

Even if your co-owner chooses to honor your wishes to pass on your share of the account to another beneficiary, these assets may be subject to the claims of the account owner’s creditors.

Tax risks. If the co-holder of your account is not your spouse, this can create issues with gift taxing. If you put money in the account, and a person withdraws in excess the federal limit, they may be required to pay a federal gift tax.

Debt and credit risks. Joint bank accounts are vulnerable to all the account holders’ creditors, debts, and divorces. For instance, if you open an account with a grown child who becomes divorced, the money in the account may be considered his or her assets, and divided in divorce proceedings.

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Medicaid eligibility. If you apply for Medicaid long-term care coverage, the state will look at your assets to determine your eligibility for assistance—and that includes your joint bank account. Even if your joint account has more than one holder listed on it, the state may assume you own all the assets in the entire account.

While joint bank accounts may offer convenience, they can have unwanted consequences when used for the wrong purposes. There are many more effective estate planning strategies for transferring assets, avoiding probate, and ensuring your loved ones have access to finances when they need them. With the help of an experienced Florida estate planning attorney, you can learn about these and other strategies, and develop a plan that safeguards you and your family’s finances and interests.

About the Author:

Christopher Q. Wintter is the founder of Wintter & Associates, P.A. and a board-certified expert in Trust and Estate matters by the Florida Bar. With more than 24 years’ experience as a practicing attorney, he also serves as an instructor and faculty member for the National Institute of Trial Advocacy (NITA)—the nation’s leading provider of legal advocacy skills training to practicing attorneys—and has earned the AV® Preeminent™ rating with LexisNexis Martindale Hubbell. He was also selected for inclusion in Florida Super Lawyers for 2011 and 2012 in Estate and Trust Litigation.