One confusing aspect of estate planning is the numerous myths about the co-ownership of bank accounts. The different types of bank accounts are often confused with the standard forms of property co-ownership. This article discusses some of the myths about the co-ownership of bank accounts.
A Bank Account Is a Contract With the Bank
There is a myth that a joint bank account is a particular form of co-ownership. The myth is not true because a bank account is a contract between the bank and its customer. A “joint” account does not necessarily represent co-ownership. When a joint account does represent co-ownership, it may mimic either a tenancy in common or a joint tenancy with right of survivorship.
Joint Accounts That Are Not Co-Ownership
There is a myth that all joint banks accounts involve co-ownership. The myth is not true because businesses, especially corporations, commonly have bank accounts in which the signatures or two or more persons are required to complete a transaction. A signature card is prepared when a bank account is opened and maintained as long as the account is opened. The signature card specifies who has access to the account and under what conditions. Like a corporation, and individual can, in theory at least, agree with a bank that other persons may have access to, but not own, the account.
“And” Versus “Or” Accounts
Generally, a bank account may be either an “and” account or an “or” account. For an “and” account, the signatures of each person connected by “and” are required to complete a transaction. For an “or” account, the signature of any one person connected by “or” is sufficient to complete a transaction. The persons who are required to sign do not have to be the owners of the account.
Regardless of whether a bank account is an “and” or an “or” account, it may not represent co-ownership, and when it does represent co-ownership, it may mimic either a tenancy in common or a joint tenancy with right of survivorship. If the bank agrees that two or more persons are to be co-owners of the account, the signature card should explicitly identify them as such. If a bank agrees that the balance of the account is to be payable to the survivor, the signature card should explicitly designate “with right of survivorship.”
Payable On Death Accounts
One kind of bank account that is often effectively used in estate planning is the payable on death account. It is a contract by which the bank agrees to pay the balance of the account at the owner’s death to the designated beneficiary. Though the account is not probate property, it is subject to estate taxes, but the designated beneficiary and creditors of the designated beneficiary have no control over the account until the owner’s death.