Avoiding Probate with a Joint Bank Account

“Probate” refers to the legal process when a person dies and their estate is distributed under court supervision. A probate court may be used to properly distribute the deceased’s assets to any beneficiaries named in their will. The probate court may also evaluate claims and lawsuits involving disputes over certain bequests within the will, as well as will contests (challenges to the overall validity of the will). Finally, the probate court can help distribute the deceased’s property if they died without a will.

It is important to note that the probate process differs from state to state. Not all states maintain probate courts. Of those that do, most states have adopted the Uniform Probate Code (“UPC”), which was established to streamline the probate process by making probate administration easier and less expensive.

Ideally, when a person passes away, instructions for the distribution of their property to loved ones will be indicated in their will. Leaving a well-written will help reduce or even avoid the need to go through the probate process. Having a will in place is best because, without a will, the probate court might divide the property in a way that the deceased person might not have actually intended.

However, when somebody dies without a will (i.e., dies “intestate“), their assets must be processed through the local probate court. The court will almost certainly apply the state’s rules for line of succession upon intestate death (that is, the order in which people are paid portions or all of the estate), and this may not reflect the choices the deceased would have made.

Probate is overseen and managed by a public court; therefore, there will be court fees, attorneys’ fees, appraisers’ fees, executor’s fees, and other costs. Due to these various expenses, and potential property distribution issues, it is recommended that you avoid probate court whenever possible. Besides a will document, there are other ways to avoid estate probate.

What is a Joint Bank Account?

A joint bank account is a financial tool that can sometimes be used to avoid the probate process. In simple terms, a joint bank account is a bank account that belongs fully and equally to two or more individuals or entities. Each account owner can legally deposit or withdraw any money from the joint bank account without the other’s consent. As such, each name listed as the joint bank account owner essentially owns the entire account.

Most joint bank accounts also have a right of survivorship. This means that when one party dies, the account’s contents automatically are fully owned by the remaining parties. If the joint bank account is only owned by two parties, then the surviving party will automatically become the sole owner of the account. It is important to note that this transfer of ownership will occur automatically and does not require the account to go through probate.

Additionally, upon one owner’s death, the remaining owner of the account can close the account after the other owner’s death. Further, because the deceased person’s interest in the bank account never forms part of their estate at their death, the assets in the account are exempt from certain estate taxes.

Joint bank accounts are typically shared between spouses, close relatives, or business partners.

How Can I Avoid Probate Court with a Joint Bank Account?

Property that can easily be transferred to another person at the death of the “decedent” avoids all of the fees and delays associated with the probate process. For instance, a joint bank account in the name of two or more people can be designated “joint tenancy with right of survivorship.”

The right of survivorship means that when one of the co-owners of the bank account dies, the other(s) will automatically be deemed the owner(s) of the bank account. Thus, the funds in the bank account will immediately belong to the surviving bank account partners without needing the funds to pass through the probate system.

Setting up a joint account is easy and usually only involves a few steps:

• Banks provide standard forms that allow adding a name to an existing bank account, turning it into a joint account. These forms include a check box indicating a right of survivorship; and
• Upon the death of one account owner, the other owner or owners continue to own the account. They usually need to show the bank manager the decedent’s death certificate to do something permanent to the account, such as closing it. However, they do not need the death certificate to remove funds from the account since they are just as much owner(s) as the decedent was.

Be aware that joint owners can sometimes be subject to legal conflicts or lawsuit judgments against or by any other owners. Therefore, joint owners must keep in contact and be able to trust and cooperate with one another.

Are There Any Tax Issues Associated with Joint Bank Accounts?

For tax purposes, an owner of a bank account should generally not add other owners to the account right before they die. If they do, those other owners might be deemed to have received a gift during the decedent’s lifetime. Large gifts of money or property are taxed at a very high rate. The decedent’s estate would then have to pay gift tax on any amount greater than $15,000 ($30,000 for married couples).

All account owners should make regular deposits into the account to qualify as true owners and not recipients of gifts to avoid any gift taxes.

What Are Some Other Ways Probate Can Be Avoided?

Besides joint bank accounts, probate can be avoided through various financial tools and mechanisms. These include:

• Revocable Living Trust: Property can be transferred to a beneficiary before a person’s death through a revocable living trust. A trust directs a person or people, called the trustee(s), to hold the trustor’s property for the benefit of others, called the beneficiaries. This type of trust created during a person’s lifetime will be used to hold property transferred to a beneficiary upon the donor’s death.
  • The property might be transferred at a specified time (when the beneficiary turns 21, for example) or when certain conditions are met (when the beneficiary completes college, for instance). Revocable trusts are advantageous because they can be modified or changed at any time by the person who created it; and
• Payable on Death Accounts (POD accounts): These bank accounts have a “beneficiary designation form.” This allows the account owner to name or indicate any persons who will receive the money when they die. The money will pass automatically to the beneficiary or beneficiaries upon the owner’s death; this bypasses the need for probate courts to get involved with the funds.

Do I Need a Lawyer for Help with Probate Issues?

The probate process can often be complex, time-consuming, and expensive. To avoid potential legal issues or conflicts, consult an experienced probate lawyer in your area.

An attorney near you can help advise you on how the probate and non-probate options upon death are treated in your particular state and can help you understand how joint bank accounts and other legal instruments can be used to avoid the probate process.

An attorney can also set up a valid will if you decide you want one.