Joint accounts can help in many situations, however, they can also complicate and generate liability. Each account holder enjoys full right to withdraw, deposit, and manage funds.
Some banks assign one as the primary holder and this doesn’t change the fact that everyone owns everything.
Once money is deposited, all of it belongs fully and equally to each account holder regardless of the source. Moreover, once a joint account is established, any holder can close the account.
Considering such terms, putting your money in a joint account requires great deal of trust in account holders.
No holder can remove another without his consent and banks will stop you from withdrawing or transferring the entire balance on your own.
Joint accounts have what is called the ‘right of survivorship’. This means, upon passing of one holder, the funds will go to the surviving holders in equal portions.
Most joint accounts have two holders, in which case the surviving holder receives 100 per cent of the funds.
Alternatively, a joint account might operate under another rule called ‘tenancy in common’. When a holder passes away in this case, his share passes to his estate.
For example, if there are two account holders and one dies, the survivor receives 50pc of the balance, unless the account holders previously agreed to a different allotment.
The remaining 50pc is distributed according to the will of the deceased or the provisions of the law if no will exists.
Another thing to consider in case of the death of a holder is the position of the beneficiaries. A beneficiary gets the money in the account upon passing of all holders.
Any living account holder can change beneficiaries at any time.
In a joint account organised under the right of survivorship, all of the funds will go to the surviving account holder.
As the surviving holder has unilateral authority to change beneficiaries, it is critical that you choose a trustworthy account holder in a right of survivorship situation.
By contrast, a joint account with tenancy in common allows you to pass your share of the funds directly to your beneficiaries in the event of your death.
At least, this prevents any potential changes to the allotment of funds after your passing.
Other pros and cons of joint accounts will be discussed soon.