Are Joint Accounts Part of an Estate
Joint Accounts in Estate Planning
There are several reasons to choose a joint account. Opting for a joint bank account with a spouse or parent may seem like a foolproof strategy for unforeseen circumstances. However, is this truly the most effective approach? Consider the scenario where the family member passes away while sharing an account. What happens then? How does the process of inheritance work? Are there any tax implications?
Kevin C. Martin, Attorney at Law, PLLC, deep dives into all this and more in this article.
The law usually excludes a joint bank account with rights of survivorship from the probate process. When a joint bank account owner dies, the money in the account goes directly to the surviving account holder. It happens without a probate process, provided they present the death certificate and an affidavit.
What Kind of Assets Are Included in a Probate Estate?
In many states, the executor of the estate has to list all the deceased’s personal property and their values. This list is then given to the probate court. Assets that can go into probate estates include:
-
Real estate and other property that the person owned by themselves or as a tenant in common with someone else. The tenant in common does not automatically get the property when the other party passes away. The part of the property owned by the deceased individual can be passed on to the named beneficiary through the will.
-
Personal belongings like clothes, jewelry, and collections.
How Does a Joint Bank Account Work?
A joint account means that more than one person can use the money in the account. This access remains the same no matter who deposited the money into it.
Features of a joint bank account include:
-
The account gives people access to the money and the power to spend it. It means they can withdraw or spend money without needing permission or authorization from the individual(s) they share the account with.
-
Close family members are the typical users of joint accounts. However, friends, neighbors, and far-off relatives can also share the account.
-
People usually create these accounts for estate planning. Others may use them to pay family bills if someone dies or can’t take care of things.
-
If there’s money owed to others, the creditors may take money from this account to cover the debt. However, creditors need to undertake a legal process to access the money from the account.
Rights of Survivorship
In simple terms, if the account has the rights of survivorship, all the money goes to the surviving owner. If it doesn’t, the part of the account that belonged to the person who passed away gets shared through their estate. Most joint accounts have a provision for rights of survivorship by default.
Do Joint Bank Accounts Go Through Probate?
Joint accounts with the rights of survivorship do not typically go through probate.
What Happens When You Inherit a Joint Account?
Joint accounts with rights of survivorship mean that when one owner passes away, the other owner automatically inherits the account and is excluded from the tedious probate process.
In simple words, the law usually excludes a joint bank account with rights of survivorship from the probate process. When an owner of a joint bank account dies, the money in the account goes directly to the surviving account holder. It happens without a probate process, provided they present the death certificate and an affidavit.
However, there could be taxes to think about. Part of the account’s value might be included in the person’s estate for tax purposes. Taxes for estates usually apply to big estates. To understand the tax details for your situation, consider consulting an estate planning lawyer in Washington, D.C.
What Are the Advantages and Disadvantages of Having a Joint Bank Account?
A joint bank account can be a practical financial arrangement, offering advantages like simplified bill-sharing and easy access to joint expenses. However, it also comes with potential disadvantages, such as shared liability for debts and possible conflicts over account management and spending. This section explores the pros and cons of having a joint bank account.
Advantages
- Some accounts mandate minimum balances, especially for specific benefits. Two individuals can bypass these requirements by pooling resources to enjoy the account’s perks.
- For new couples merging finances, opening a joint account can simplify matters. It provides a single platform for depositing paychecks and managing shared expenses like rent, mortgage, bills, and joint debts.
- Senior citizens might find value in adding authorized users to handle their banking tasks when they cannot do so themselves.
Disadvantages
- They grant unrestricted access to all account holders, leading to complications if one person overspends. The partner, who is a more careful spender, cannot resolve this discrepancy since they share account ownership.
- It is crucial to note that all users share fee responsibilities for the account. Owners share repayment duties if the other accrues debt on your joint credit card—similarly, an overdraft joint account results in shared liability for the negative balance.
- Furthermore, government entities can seize funds in joint accounts to settle obligations such as unpaid taxes, child support, or court-ordered payments.
To avoid potential problems, both parties should discuss responsibilities before opening the account. This foresight can prevent unnecessary conflicts and complications down the road.
Taxation Process if You and a Parent Have a Joint Bank Account and They Die
Once you become the sole account owner, you will be responsible for paying income taxes. It might not be much if it’s a simple checking or savings account, but it could be substantial for a well-funded investment account.
Any income before you take full ownership would be reported similarly as before. If the joint owner reported all the account’s income before they passed, it would be on their final tax return. If you both shared the income, you may divide it based on your previous arrangement.
How Can a Washington, D.C. Estate Planning Attorney Help You?
An estate planning attorney in Washington, D.C., could be an invaluable resource for managing your estate and joint accounts or those of a deceased relative.
Kevin C. Martin, Attorney at Law, PLLC, can provide professional guidance on wills, trusts, estate tax planning, and more. Our advice can give you clarity if you are still determining the implications of joint accounts, intestate succession, or estate distribution. You can ensure your assets are safeguarded and distributed according to your wishes.
Secure your financial future and address estate concerns. Contact Kevin C. Martin, Attorney at Law, PLLC, for personalized and knowledgeable legal assistance. Schedule a free consultation with us today!
