Two or more people can share a joint bank account, but opening that joint account raises several issues that should be addressed in advance. Fortunately, common problem areas with this type of account are easy to identify and avoid. Awareness of the pitfalls of a joint bank account is crucial to an understanding of how a joint account can work for or against the owner. Resolving these issues prior to opening the account prevents problems in the future.
Opening Account
Opening a joint bank account appears to be easy, but it involves careful thought and planning. The first decision involves right of survivorship. If the account has two owners, right of survivorship means upon the death of one party, the other party inherits the balance in the account. If right of survivorship is not selected, then each joint owner retains the right to name a beneficiary for his share of the account. If a joint owner takes no action, then the proceeds go to his estate. Whatever the choice, make sure the account card at the bank has specific language that reflects the wishes of the joint owner. Do not rely on a verbal understanding as the written provisions govern. Be prepared to provide Social Security numbers, photo identification such as a driver’s license and any documents the bank requires.
Joint Checking
If the joint account is for checking, each owner is liable for the actions of the other. For example, if one party overdraws the account, then the other joint owners can be made to pay sufficient money to bring the account current. Depending upon the banking institution, you can have more than two people on the account. TD Bank, for instance, allows for up to four people to open a Personal joint checking account.
Insured Accounts
The FDIC insures accounts for an individual up to $250,000 at the same bank, providing protection from bank failure. Joint accounts qualify as long as all joint owners are living people. Each joint owner must have equal withdrawal rights and sign the signature card unless unable, as in the case of a guardian for a minor. The FDIC assumes each joint owner has an equal share unless the account card states differently. The joint share is added to any other accounts at the same bank to determine if the insurable limit has been reached.
Revocable Trust Account
A revocable trust account is when a joint owner names a beneficiary to receive the account balance payable upon death. The account is revocable because the joint owner can change the beneficiary at any time or delete the beneficiary, which means the money would go into the owner’s estate. Each joint owner is free to name his own separate beneficiary or more than one beneficiary. For FDIC purposes, each joint owner is insured up to $250,000 for each separate beneficiary up to five beneficiaries. For example, a joint owner whose share of a joint account equals $1,250,000 could designate five different individuals to each receive $250,000 upon the death of the joint owner, and all the money would be insured. Different and more complicated rules apply to more than five beneficiaries.
