Opening a joint account requires the identifying documentation and signatures for all parties on the account.
Once the account is open, the account balance belongs equally to the co-owners of the account, without regard to who actually deposited the funds. No owner requires the consent nor knowledge of another to spend, withdraw or transfer funds.
When one of the joint account holders passes away, the surviving account owner retains ownership of and access to the account, under a legal term known as “joint survivorship.” That owner is able to do whatever he pleases with all the funds on deposit.
Benefits of Joint Accounts
First and foremost, a joint bank account offers convenience. Should one party be unable to conduct business, such as paying bills, for a short or indefinite period of time, the other person has complete access to the funds.
A second benefit is cost. Most checking accounts require a minimum balance. Should the account balance fall below that threshold, the account will incur fees. If the balance requirements are high, it may be easier for two people to pool their money to maintain the minimum balance and forgo bank fees. If fees are incurred, they will be applied to a single account.
There are some risks to being a joint account holder. One is incurring joint responsibility for debts. The law varies by state as to what creditors may do regarding joint bank accounts. In many states, should creditors go after a jointly owned bank account to satisfy debt, they may be entitled to have a garnishment placed against the entire amount.
In some states, like Missouri, however, there is a type of account ownership known as “tenant by the entirety,” according to Weiss & Associates, a St. Louis law firm representing businesses and individuals in estate planning, probate law, and civil litigation. In this type of account, the debt must be a debt in both names in order for a creditor to seek a garnishment against the joint account.
If the co-owners of a joint account cannot show that they contributed equally to the account, the owner with the lesser contributions may be viewed as having received a gift and may have tax implications.
Also, the interest accrued on an interest-bearing account will be subject to income tax for the joint owners. Joint owners of an account, especially if they are not spouses filing joint taxes, should consult a tax professional.
Smart Use of a Joint Account
There are ways to utilize a joint checking account and minimize the risk. First, know the spending habits of your potential co-owner. If you are financial mismatches in this area, consider another option.
A good use of a joint checking account is to pay bills. Deposit just enough to pay the bills on a monthly basis plus any expected bank fees. Don’t store large amounts in a joint account without an express, immediate purpose.
Have the account set up by the bank, if possible, so that certain types of transactions, like closing the account or writing checks for or withdrawing sums over a certain amount will require at least two signatures. This way, no one person can empty the account without the other owner’s knowledge.
Use online banking so that all account owners may monitor the account’s activity regularly. Promptly question and/or investigate any unusual activity.
Things to Consider
If the co-owner is not your spouse, keep in mind that the account could be an asset subject to lawsuits not only by the co-owner but also by the co-owner’s spouse, including divorce proceedings.
If you desire at some point to remove your co-owner from the account, you more than likely will need that person’s signature to do so.