Does a Will Override A Joint Bank Account?

Sharing a bank account with a spouse or adult child is relatively common. Joint bank accounts make it easier to track financial activity in one place. If you are paying bills or managing the affairs of an elderly parent, opening a joint bank account can make a lot of sense. However, since the funds are shared in a joint bank account, what happens to the money if one of the account holders dies? Does a will override a joint bank account?

What happens to a joint bank account upon death?

A joint bank account is a checking or savings account with more than one owner. Account owners can be spouses, couples, parents, friends, or children. Most joint bank accounts are established with rights of survivorship. Upon the death of one account holder, the other holder retains access to the bank account.

However, there may be times when ownership does not automatically pass to the surviving account holder. When the account holders are joint tenants in common, each owner retains their share and may specify how their money should be allocated based on their will or another agreement. In addition, ownership amounts may not be equal. One account holder may own 80% of the funds, whereas the other holder owns 20%. 

Determining the ownership of a joint bank account

Reviewing the bank’s documents can determine who owns a joint bank account. Most joint bank accounts are established with the right of survivorship. The remaining funds automatically pass to the surviving account holders.

However, you may be able to establish that the other account holder was added as a convenience to the decedent. In that case, the funds held in a joint account may be paid out based on the terms of the will. 

When a will may override a joint bank account

A will controls probate assets, which are property that does not pass to a beneficiary through other legal means. Conversely, assets that designate beneficiaries — such as a life insurance policy — or have rights of survivorship are considered non-probate assets and cannot be controlled by the terms of a will.

Upon the death of one account holder, the funds in a joint account with right of survivorship pass automatically to the other account holder. Remaining funds left in the account transfer without going through probate. Even if the will dictates how to distribute the remaining funds, the money held in a joint bank account with survivorship rights does not fall under the authority of the will.

Some state laws allow exceptions to this rule. Most states presume that joint account holders want to share the rights of survivorship. However, if you can demonstrate that a joint bank account was not the deceased’s intent, state law may allow the remaining funds to fall under their will.

For example, a second account holder may be added as a convenience to pay the bills for an elderly parent. In this case, a court may find that the decedent did not intend to transfer the money to the remaining account holder. So, the will may override the terms of the joint bank account. 

Split accounts

When the account holders are tenants in common, the deceased person’s share does not transfer to the surviving account holder. In some cases, the account holders may decide how to distribute the deceased person’s share of the account. However, the allocation may be different than what is found in the will. There may be a joint beneficiary or a different calculation in the will. In that case, the funds are distributed based on the terms of the will. 

Designated beneficiaries

Even if you name a beneficiary on your joint bank account, the other account holder retains ownership when you die under the rights of survivorship. If you want your beneficiary to access your money, consider how you set up the joint account vs. the beneficiary.  

What’s the difference between a will and a trust?

Wills and trusts are legal arrangements that protect assets and guide their use. When you prepare a will, this legal document shows how you want your assets distributed and affairs handled after you die. A will may also reveal if the deceased intended for joint accounts to be part of an estate.

Similarly, a trust is an estate planning tool used to pass assets to beneficiaries. Unlike a will that commences upon death, a trust becomes effective when the assets are transferred. A trust is a separate legal entity apart from the trust maker. Since the trust remains in effect after the trust maker’s death, the assets held in the trust avoid probate.  

Are joint accounts part of an estate?

Joint accounts typically are not part of an estate. However, when the account holders are tenants in common, the deceased person’s share of the money can become part of their estate. 

Other considerations for joint bank accounts and wills

A joint bank account is opened with a legally binding contract. As such, joint bank account agreements usually take precedence over a will. So, it’s important to remember who you want your money to go to — joint account vs. beneficiary. 

Suppose you want your money to go to your beneficiaries or pay for certain expenses when you die. You will be placing a great deal of trust in the other account holder to follow your wishes. 

Distribute assets based on your will

Joint bank accounts make it easier to manage your financial affairs in one account. However, you should consider the consequences of holding your money in a joint bank account. The surviving joint bank account holder generally retains the money. A joint bank account can prove problematic if you wish the money to go elsewhere. 

FAQ

Does a joint checking account become part of an estate?

A joint checking account established with the rights of survivorship is generally not considered part of an estate. Instead, the money in the bank account automatically transfers over to the surviving account holder. Suppose the joint bank account was set up for the convenience of one account holder, such as a parent adding an adult child to pay bills. In that case, the remaining proceeds in the account may be considered part of the estate.

Can an executor freeze a joint bank account?

Funds held in a joint bank account with rights of survivorship are transferred to the other account holder upon your death. An executor cannot freeze or access the bank account. However, if the account holders are tenants in common, the executor can access the decedent’s share of the account.

Do joint accounts avoid inheritance tax?

When one of the holders of a joint bank account dies, funds automatically transfer to the remaining account holder. Since the remaining funds shift to the other account holder, they are not considered assets of the estate and would not be subject to inheritance tax.