When you and one or more other account holders own a financial account with a “right of survivorship” designation, and one of you passes away, the account automatically passes to the surviving owners, outside of the probate process. Why is this? Because probate is the process for transferring ownership of property that you hold solely in your name at the time of your death. When someone else owns property with you, and has a survivorship right in that property (and under certain other circumstances), the probate process just isn’t necessary for transferring ownership.
As a practical matter, if you’re a co-owner of a joint account and you are the first to pass away, your surviving owners will simply need to provide a certified copy of your death certificate to the financial institution, and your name will be removed from the account.
Convenience in avoiding probate can make joint financial accounts an effective part of your estate plan, but you should be aware of a number of disadvantages that come with this option, for example:
- It can be easy to unintentionally disinherit beneficiaries. More than once, a client has intended to add a child or grandchild to a joint account, but just never got around to it. The result is that the intended beneficiary was disinherited from the account. When you pass away, your surviving account holders are the only ones entitled to inherit your account. This is true no matter what the terms of your Will, because a joint account is a non-probate asset and is not controlled by your Will.
- You have to choose your joint owners wisely. When you have a joint account, the assets in that account are subject to the control of each and every account holder. They’re also subject to the each account holder’s creditors. So, if one of your co-owners is sued, then the account could become vulnerable to collection in payment of a judgment lien.
- Minor account holders need special arrangements. If the purpose of the account is to pass on assets to children, it may be a better idea to transfer the account into the name of your Living Trust so that the money can be managed for the children in the event of your death. If you simply leave a bank account in the name of minor children, a court-appointed guardian or conservator will be needed to manage those funds until the children reach adulthood.
How might joint accounts fit into your overall estate plan? Your estate planning attorney can help you answer that question.