5/13/2015

“Balance” Your Estate Plan by “Checking” Your Accounts

By Joyce M. Hillis

The traditional checking account is a common asset that clients must address when implementing their estate plans. The disposition of a bank account after death is generally determined by the type of account. A traditional checking account owned by a single person will require probate administration to be transferred out of the decedent’s name upon his or her death. In contrast, a joint checking account will automatically become the property of the party who outlives the other account holder(s) without the need for probate administration. 

For example, if a husband and wife own a joint bank account, upon the husband’s death, the wife would automatically acquire sole possession of the account when her husband passes away simply by providing the bank with a copy of the husband’s death certificate. If, however, the husband was the sole owner of the account, the checking account would be subject to probate administration and distributed as an asset of his estate. 

Because a joint checking account is actually “owned” by the various account holders, the effect of such accounts on estate plans can be significant. Consider this example: 

Diana is an elderly woman who is becoming somewhat forgetful in her old age. She opens a joint checking account with her oldest son, Tom, so he can help her keep track of her bills. Diana’s will states that her three children shall each receive an equal share of her estate, but when she passes away, Tom also receives full ownership of the balance of the joint checking account. Accordingly, Tom received a larger portion of the estate than his siblings simply because he was a co-owner with his mother.

Similarly, co-owners of joint checking accounts can be subject to creditors of each other. To build on the example above, if Tom had outstanding debt, his creditors could reach the assets of the joint checking account because Tom is an owner of the account, even if Diana was the only person to deposit money into the account. Accordingly, Diana’s assets could be jeopardized or lost to satisfy the other account holder’s debts. These risks should be considered before opening a joint checking account. 

This is a general summary of how checking accounts are distributed. The specific terms of a bank account may lead to different result. Also, it is sometimes best to transfer a checking account into a revocable trust to accomplish the trust's objectives and avoiding potential pitfalls. To learn more about this concept and how your personal bank accounts might impact your estate plan, please contact me or any of the other Cleveland, Waters and Bass estate planning attorneys.

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