What Happens to a Joint Account When my Spouse Passes Away?

How Do Joint Accounts Work?

This will usually consist of one or more people who will retain full access to the money contained in a joint bank account, irrespective of who actually opened it or which person is making the majority of the deposits.

These people could be related, such as with a parent and adult child who has trouble managing their own finances, or this could be a spouse, but they don’t have to be family. You always have the option to open a new ​​joint account with your neighbor, or your best friend if you wanted to.

Joint accounts will often be created as part of some estate planning strategies, and this is so that a family can easily pay either of the original account holder’s bills, if the unfortunate day comes when that person dies or otherwise becomes incapacitated and unable to care for their financial responsibilities.

Each of the co-owner’s creditors will also have legal access to any funds held in a joint account. Therefore it is also possible that a creditor may come in and seize an entire account if one of the accounts co-owners were to default on a loan or otherwise miss payments on any type of debt account, though this will often depend on individual state laws, and a creditor will typically need to file a lawsuit first.

A family member could be left scrambling to pay for life’s essentials when a loved one passes away, especially if a death was not expected. Perhaps even more importantly, any bank accounts which are held solely in the deceased’s name – can’t be touched or depleted except through the probate process, so this money can be considered somewhat “out of reach”.

The term “sole name” is definitely key for this scenario. There are many individuals who choose to hold a joint bank account with another person, so you should not be concerned if you are the sole name on the account.

Rights of Survivorship

There are some joint accounts that come with “rights of survivorship” which is an arrangement also known as “tenants by the entirety” in other states, whenever an account is held by spouses. Any surviving co-owners will then be able to take control of these financial accounts when the other account holder passes away – by simply presenting the deceased owner’s original death certificate to their financial institution.

We recommend that you check with your own financial institution to determine whether your own joint accounts carry these automatic rights of survivorship. In some cases, you may need to sign additional documents to indicate that this is what you want.

A surviving owner will continue to have complete access to money in the account even if the co-owner of the joint checking account passes away, again this is if your account actually carries these rights.

Possible Income Tax Effects

The survivor on the account will become completely responsible for paying any tax due on income earned by the account at the time you take sole ownership of the account.

This may not be very noticeable with a basic checking or savings account but could be more significant if you’ve been heavily funding any investment or retirement accounts.

It’s important to note that any income that is earned by the joint account prior to you taking over sole ownership needs to be reported more or less in the same way as before you took over the joint account.

Any income earned prior to taking sole ownership should be reported on the decedent’s final income tax return if they were reporting 100% of the account’s income before their death. Alternatively, you might decide to split it – if this was your arrangement before your spouse’s death.

Please always check with your Estate Planning Attorney as joint accounts can complicate your tax position if the decedent’s other assets may be subject to probate. You will also want to check for the existence of a living trust, as you might want to work with the executor of his or her estate (or the trustee) if this is the case.

Click here to read part two of this article!

Want to read more about living trusts? Here is a great resource from the WSBA on Revocable Living Trusts.