Myth: When one account holder of a joint account passes away, the contents of the account automatically passes to the other holder of the account.
Fact: Many banks freeze an account – held by joint owners – after the first account holder’s death.
An example can help illustrate the issue. Husband and Wife hold a joint account at their local bank. Husband passes away before doing any kind of estate planning. Wife attempts to access funds to pay for Husband’s funeral, and is advised the account is frozen.
Even though Wife’s name is on the account, half of the contents (or potentially even more) belong to Husband’s probate estate. Without a process like probate, the assets cannot be transferred into the name of the (new) sole owner.
A will that bequeaths Husband’s share of the account to Wife solves the problem of getting joint assets into the Wife’s name. But a will requires probate, which some families wish to avoid. To transfer the assets without probate, the account may be placed in a trust as part of a larger estate plan. Or Husband and Wife could enter into an agreement that gives rights of survivorship to the surviving spouse.
Section 113.151 of the Texas Estate Code specifically provides that account holders may agree to the right of survivorship in joint accounts. There is not necessarily magic language to use in this agreement, however the document must be clear that the funds are to be transferred to the remaining account holder upon the other’s death. An account designated as a “joint account” or one held in “joint tenancy” is not sufficient for the statute’s requirements. Additionally, if the account contains community property between a husband and wife, the agreement must be signed by both parties.
While adding the right of survivorship to a bank account is a quick and easy way to carve the account out of the probate estate, it should only be done as part of a larger plan. A person who makes individual decisions about individual assets – without regard to other assets and beneficiaries – runs the very real risk that the right assets do not end up in the right hands.
Contact Balmos Law today to start your plan.