Death & Joint Savings Accounts

The legal status of a joint savings account depends on the terms of the account agreement.

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Opening a joint savings account creates risks. When a joint savings account holder dies, the disposition of his share of the account's funds depends on the terms of the account agreement, and in some cases, the deceased account holder's last will and testament. In a few cases, the surviving account holder may face temporary restrictions on the use of his share of the account funds.

Joint Tenancy With Right of Survivorship

The terms of most joint savings account agreements specify that the contents of the account are held by all account holders in "joint tenancy with the right of survivorship." This means that each holder owns 100 percent of the account, but when any account holder dies, his estate is entitled to no share of the account funds. Instead, the entire account belongs to the surviving account holder. To ensure enforceablility of these rights, it is important to present the deceased's death certificate to the bank. Even accounts that don't specify the right of survivorship may be treated as such under state law.

Tenancy in Common

Some joint savings account agreements specify that the account holders are "tenants in common." Under a tenancy in common arrangement, when one account holder dies, a share of the account funds belongs to his probate estate. The account holders do not necessarily each own an equal share of account funds -- that depends on circumstances, such as contributions to and withdrawals from the account. Account holders may bequeath their share of account funds to heirs in their last will and testament. Even if a deceased account holder dies without a will, state law will govern the distribution of his share.

Probate Problems

The contents of a joint account with the right of survivorship are not subject to probate. The contents of a tenancy-in-common account are, however, except that in some states probate can be avoided with a "payable on death" order telling the bank to whom the deceased's share of the account belongs. Because tenants in common do not necessarily own equal shares of account funds, and because of the possibility that the deceased account owner's estate may be subject to creditors, the bank may freeze the account until the probate court has worked out the disposition of funds.

Tax Consequences

Joint bank account owners are responsible for paying taxes on income earned by the account -- interest, for example. If your account terms include the right of survivorship and the other account holder dies, you will be solely responsible for paying these taxes. If your account is structured as a tenancy in common, estate taxes might be taken out of the deceased's share of a tenancy-in-common bank account, but cannot be taken out of yours.