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The Ins and Outs of Joint Bank Accounts

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Remember back at the altar when you said “for richer or poorer” to your soulmate? You and your better half should keep that promise in mind before you head to the bank to open a joint bank account — something that so many married couples do. Often spouses open joint accounts without thinking twice about it, operating from a breezy “what’s yours is mine is ours” mentality. But any financial move requires careful thinking and planning, and embarking on a joint bank account is no exception. 

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So what is a joint account exactly and why is it so common? Additionally, what are its pros and cons and what factors should one consider before embarking on one?  When, if ever, should partners in matrimony avoid joint accounts and why? 

Defining a Joint Bank Account 

The term “joint bank account” is pretty straightforward: It’s an account that is owned by two or more people. This means all individuals can access the account be it through withdrawals, deposits, bill payments and so on. Though we most commonly see a joint bank account shared between spouses, any two people can open one together. 

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“Joint accounts are typically created by married couples, but they do have other uses as well,” said Zach A. Bachner, CFP with Summit Financial. “Parents will sometimes open joint accounts with their children so that they can monitor the behavior and ensure proper money management of the child. Or vice versa if the parent is in a late-stage of life and needs assistance with their finances.” 

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What You Need To Open a Joint Account

“A joint account traditionally involves both (or more) parties present to sign a signature card and provide information such as social security numbers and government identification,” said Rahkim Sabree, a financial coach. “A joint account can be a temporary or longer term solution that provides easy access and individual autonomy once the account is open and active.”

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Types of Joint Accounts 

“There are about seven different types of joint accounts which are: either or survivor, anyone or survivor, validity, former or survivor, latter or survivor, jointly, and jointly or survivor,” said Magdalena G. Johndrow, M.SC., CFS®, CDFA, financial advisor and partner at Johndrow Wealth Management. “The various types of accounts typically refer to how the funds in the account are handled if one of the two account owners passes away. Two of the most common joint accounts in the US are joint tenancy with rights of survivorship (JTWROS) and convenience accounts.”

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Johndrow explained that in both survivorship and convenience accounts both account owners have equal rights to the account. 

“One account owner does not need the permission of the other account owner to transact within the account,” Johndrow said. “This includes any trading (in a joint investment account), additions into the account, and withdrawals from the account. The major difference between the types of joint accounts is how the funds are handled upon an account owner’s death.”

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The Upsides: Convenience…And, Well, Death Stuff 

The primary reason to open a joint account is to be able to conveniently co-manage money and maintain financial goals together — but, to harken back to the wedding altar image, there is also a “’til death do us part” aspect.

The right kind of joint account between couples ensures that a surviving spouse will have uninterrupted access to funds should the co-owner of the account die. For this feature, couples should open a JTWROS account. 

“In a JTWROS situation, when one of the account owners dies, the money immediately passes to the other living account owner and avoids probate,” Johndrow said. “For this reason, this is the most common type of joint account, especially for married couples. Probate can be expensive but also time-consuming. The funds may be unusable by the surviving account owner until the court establishes who the new account owner is based on the last will and testament or state laws. This could be problematic for a widow(er) who needs access to their bank account for daily expenses. As a JTWROS, the funds immediately pass to the surviving spouse, avoiding this potential problem.”

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The Downsides: Possible Legal Nightmares 

Joint bank accounts have downsides, too. 

“The biggest threat we see is the potential for a lawsuit of one party, which then allows the joint account to be seized as well,” Bachner said. “This is why we typically do not recommend joint accounts unless it is between spouses. If an adult child is helping their elderly parent with their finances but the child is targeted in a lawsuit, the parent’s savings could be at risk if the child does not have other assets to cover the amount sued. Sometimes being an authorized user will still grant limited access to the account, but may prevent some of these issues.” 

Joint bank accounts should not be set up between couples who are prone to rough patches or those who don’t warrant total trust from one another.  

“Should a relationship sour, there is nothing to stop an angry partner from emptying the account and closing it altogether without the other’s knowledge,” Sabree said. 

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Alternatives to Joint Accounts 

If a joint bank account doesn’t sound like the right situation for you, but you want to ensure your partner can access your account should something happen to you, then now is the time to make an exceedingly thorough will and/or trust

“Whether it’s a will or trust or even a listed beneficiary, there are plenty of other ways to pass on assets appropriately that do not require the heir to be listed as a joint owner,” Bachner said.   

The options available to you depend on your financial wishes and circumstances, so to move forward, it’s ideal to talk with your CPA or CFP.  

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