In every state, two or more people can open a joint checking account by putting their names on the same account. Joint checking accounts are particularly common between spouses. Since these accounts are subject to special rules, it is important to understand in advance the implications of opening a joint checking account.
Withdrawals and Transfers
All of the funds in a joint checking account are treated as the property of each of the account holders, absent evidence of a contrary intent. Consequently, all parties to a joint checking account generally enjoy the same freedom to withdraw or transfer its contents. In addition, withdrawals and transfers by one account holder do not require the consent or even the advance knowledge of the other account holders.
Creditors of other account holders can seize the contents of a joint checking account with a court order. This might result in injustice if creditors seize money that you deposited into the account for your own use. In this case, however, state courts allow you to present evidence to prove that you are the true beneficial owner -- in other words, that the seized funds actually belong to you.
If one joint checking account holder dies, the ownership of the contents of the account depend on what type of joint account it is, as set forth in the account agreement. If the account agreement identifies the arrangement as "joint tenants with rights of survivorship," the contents of the account belong to the surviving tenants. In this case, one of the surviving account holders can present the bank with the death certificate to have the name of the deceased account holder removed and continue writing checks as before. If the agreement identifies the arrangement as "tenants in common," the estate of the deceased account holder owns a proportionate share of the contents of the account and can pass it to heirs through his will. The bank might even freeze the account during probate.
Two tax issues may arise when your name is on a joint checking account. First, you may be held liable for income generated by the account -- interest, for example. Second, if you hold money in a foreign checking account, you must file a Foreign Bank and Financial Accounts report if the aggregate value of all such accounts exceeds $10,000 at any time during the tax year. This could result in unfair liability if, for example, you open a joint checking account and another account holder is the true beneficial owner of most or all of the funds. Nevertheless, the Internal Revenue Service will allow you to prove the identify of the true beneficial owner.
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