Joint Accounts: A Simple Probate Bypass

Joint Accounts: A Simple Probate Bypass – Probating a will and distributing an estate’s assets is a process that can drag on for months or even years, especially in complicated situations.

Delays may result from any of the following circumstances: 

• Multiple beneficiaries.
• Disputes.
• Will contests.
• Creditors.
• Taxes.
• Court oversight.

However, beneficiaries can sidestep such a lengthy process with the help of vehicles such as trusts. A simpler and cheaper solution may be creating one or several joint accounts. You can open a joint account with anyone, including a parent, a child, a sibling, a spouse, an elderly person with caregivers, a business associate and even a friend.

What are trust accounts and joint rights of survivorship? 

Trust accounts, which are sometimes known as a poor man’s will, are often set up to give families and beneficiaries ready access to a decedent’s funds or for the purpose of paying urgent bills. Trusts are created with joint rights of survivorship, meaning the surviving account holders immediately own all residual funds as soon as the owner of said account passes. 

Those rights are typically granted at the bank on a signature card at the time the account is established. However, in some cases, beneficiaries may claim an automatic right of survivorship when it becomes problematic to obtain the signature card itself. For example, a series of bank mergers could make it difficult to trace the original card. 

Whom does the money in the joint account belong to?

The money in the joint account belongs to both account holders, regardless of who deposited it in the first place. Additionally, either of the holders can withdraw some or all of the funds. Both account holders hold the power to close the account as well. 

In order to open the account or be added to it, applicants must provide information such as their name, address, phone number, date of birth and Social Security number. Prior to closing the account, holders must show proof of their identity and withdraw all the money in the account.

What are the risks and benefits of joint accounts? 

One major danger of a joint account is that joint account holders can withdraw large amounts and even wipe out the balance with impunity. There are many cautionary tales of estranged spouses who rush to clean out the couple’s marital assets as soon as the relationship breaks down. 

This means the cardinal rule for joint accounts is that you must trust the person with whom you are sharing the account 100%. Remember that good relationships do go south, so you could be left in the hole if your joint account holder decides — rightly or wrongly — that they are entitled to usurp the funds.

Here are various other risks that may be involved: 

• The account is transparent to both owners, resulting in a lack of privacy.
• Creditors of any defaulting account holder may be able to access the money.
• Ownership of the funds may need to be divided if a relationship goes sour or business needs change.
• Specific government benefits or financial aid eligibility may be affected.
• Gift taxes may be applied to the funds in the account. 

On the other hand, advantages extend well beyond survivorship rights and probate avoidance. Two other examples of useful features include the following: 

• Simplicity for shared joint living expenses.
• Higher total account balance to meet minimum balance requirements.

Disputes

The best laid plans of mice and men may still result in will contests and litigation. Whether or not the main intention of the deceased was to facilitate the transfer of assets by avoiding probate, other disappointed beneficiaries may claim that the joint designation was only designed for the sake of convenience.  

Frustrated relatives and wannabe heirs may argue that the account was, in reality, structured as a mechanism to pay the deceased owner’s living expenses, particularly if the departed was old and frail or reliant on others for day-to-day living. Contesters may also argue that the deceased did not even understand the implications of the joint structure.

In trying to distinguish between a convenience arrangement and a genuine survivorship mechanism, courts will take a close look at a handful of key details, including: 

• Who contributed the majority of the funds to the joint account?
• Who made withdrawals or paid expenses from it? 
• Were the funds primarily used to pay for the expenses of the deceased?
• When was the account created? Was it years prior to the decedent’s death?

It cuts both ways. A more up-to-date instrument may suggest that the account was an estate planning tool. Conversely, the deceased might also have been less mentally acute. 

No matter what, if you are considering setting up a joint account for the purpose of estate planning or for another reason, be sure to check with your attorneys and financial advisers to clarify any legal and tax-related considerations.

Copyright, 2022

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William Hayes

As an attorney in private practice in Los Angeles County, California William Hayes provides extensive estate and tax planning services to individuals and businesses in Los Angeles, Pasadena, Glendale, Burbank and surrounding communities. Attorney Hayes’ primary focus is to help clients avoid probate, protect their assets, and provide for the security of their loved ones with a well-crafted estate plan. He believes in giving each client the time needed to explain his or her needs and wishes and then dedicates his efforts toward making the client’s desires clear in their final estate plan.

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