You have questions about what to do with joint bank accounts after a death or removing a deceased spouse from the account. While these matters aren’t exactly pleasant to deal with, ignoring them won’t do you any favors.
So, what happens when there are two names on a bank account and one dies? When a family member passes on unexpectedly, it might leave your family confused about how to handle finances. There may be some bills that need to be paid or funeral costs to cover.
How do Joint Bank Accounts Work?
A joint bank account is an account where more than one person has access to the money held in it. While joint accounts are typically owned by spouses or relatives, neighbors or friends may also open them together.
Parents often choose to set a joint account up with their child during their estate planning process. In addition to other benefits, this ensures that if the parent becomes incapacitated, the child can cover the related expenses.
Benefits of Joint Bank Accounts
Before discussing what happens to a joint bank account when one person dies, let’s look into the benefits of opening this type of account:
- Possibly avoiding probate: If the account was just in the deceased family member’s name, it will have to go through probate for other relatives to gain access to it. But if you signed up for the account together, such as making a joint bank account with a parent who recently died, probate may not be necessary.
- Tracking spending habits: In some partnerships, one spouse may be more responsible with money than the other. Having access to joint account records can help couples stay on top of monitoring and discussing spending habits and financial goals.
- Increased trust: Opening a joint account with your child can promote trust, as you’ll be able to keep an eye on the way they’re spending their money. It also shows a willingness to be transparent and honest about financial habits.
- A simpler bill-paying process: If you and your partner split bills, having a joint account can make paying them much easier. You won’t have to wait to transfer money from one account to another before submitting payments. And the partner who is better with remembering to pay on time can simply access the account to make payments when they wish to.
But a joint account isn’t always the best idea for everyone. In the event of a breakup or divorce, a joint account can complicate matters. The lack of privacy might also be a problem for some couples or relatives, and some individuals might resent the transparency that comes with this type of account.
Another factor to consider is trust. For a joint account to work, you must have faith that both parties will be responsible with the funds in the account.
Are Joint Accounts Subject to Probate?
Joint accounts are not always subject to probate. When someone dies, any joint brokerage or bank accounts with rights of survivorship can go straight to the joint owner and bypass probate.
Most financial institutions just ask you to present the death certificate and fill out the required forms to begin the transfer process. This is one major benefit of opening a joint account with right of survivorship. If you’re considering opening (or already have) a joint account, ask your financial institution if they carry out rights of survivorship automatically.
In some cases, you’ll have to sign an extra document to indicate right of survivorship. Doing so should ensure that the surviving owner of the joint account can continue to access the funds even if the co-owner passes away.
Inheriting a Joint Account- Tax Concerns
You may encounter some tax-related consequences after inheriting a joint bank account. After the co-owner dies, you will become responsible for any income taxes earned by the account, as the sole account owner. While this may not be a huge concern with a savings account, it’s important to keep in mind with investment accounts.
If you and the previous co-owner were sharing the tax bill previously, you should report the prior-earned income on your tax return accordingly. You’d also include this information on the deceased owner’s final tax return.
Are Joint Bank Accounts Frozen When Someone Dies?
The bank might freeze someone’s bank account after they die if none of their relatives notify the bank about the death. In some cases, the funeral home will tell the Social Security Administration about the death, terminating Social Security payments.
Social Security is a monthly payment and isn’t prorated according to the time of month the recipient dies. This means that surviving relatives must return any checks that arrive in the mail to the U.S. government. The U.S. Treasury may reverse payments that have been directly deposited into the deceased person’s account.
Social Security might communicate with the bank later to let them know that the person passed on and that the surviving family members must give the money back.
Holding a Bank Account in Trust
What if you’d rather not have a joint account with your family member but still want them to receive the funds in your account after you pass? You have a few different options for this task, such as using a trust.
You may hold your bank account in the name of a living trust in order to help your relatives avoid probate after you die. Once you pass on, your successor trustee can take over and pass the funds in your account to your named beneficiary without the need for probate.
Let your bank know that you want to transfer your account to the trust in question. They will most likely give you some forms to fill out and sign, then adjust their records along with your account statements. If you have any questions about this process, don’t hesitate to talk with an estate planning attorney.
Receive Help With Estate Planning in Arizona
JacksonWhite offers a wide array of estate planning services to Arizona families, including establishing trusts and managing distribution of financial assets. An estate plan in Arizona will save your family time and money after the passing of a loved one. If you have questions or would like to setup a consultation with an estate planning attorney, give us a call or fill out a form online.
Call Arizona Estate Attorney Dave Weed at (480)467-4325 to discuss your case today.
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