Understanding Multiple-Party Accounts

When you hear the term “estate planning,” you probably think about meeting with an attorney to write a will and other documents. Estate planning certainly includes that but, as I tell my clients, even if you’ve never done a will before and I’m the first attorney you’ve ever worked with, you’ve almost certainly done some estate planning before coming to my office, even if you didn’t realize it.

If you have any financial accounts, real estate, or vehicles that you own with another person, the way those accounts or properties are titled has important implications for the lifetime ownership and management of those assets and their disposition after your death. It’s important to understand the effect of different account types to ensure that your accounts are set up in a way that is consistent with your estate planning goals rather than inadvertently undermining them.

Read on to learn more about some of the common flavors of joint ownership:

Joint Tenancy in Common

For accounts held in joint tenancy, each owner owns their own “net contribution” to the account, which is all deposits made to the account by or for that party less their withdrawals, plus a pro rata share of any interest or dividends. During the lifetime of all parties to a joint account, the account belongs to the parties in proportion to their net contributions unless there is clear and convincing evidence of different intent. The financial institution may pay any sum in the account to any party at any time. 

After the death of a joint owner, the joint owner’s interest in the account does not pass automatically to the remaining owner(s). Rather, it passes to the deceased owner’s estate. 

Joint Tenancy with Right of Survivorship (JTWROS)

An account held in joint tenancy with right of survivorship is like one held as joint tenants in common except that after the death of one party, the party’s interest in the account passes to the surviving owner(s). On the death of the last surviving party, if no payee on death (POD) is named, the account passes to the estate of the last surviving owner.

Payee On Death Designation

An account owned by an individual owner or by joint owners can name one or more POD beneficiaries who receive the account after the death of the last owner. The POD beneficiaries have no ownership interest in or management of the account during the life of the owner(s) and only acquire an interest after the death of the last owner. A POD designation is analogous to a beneficiary designation.

Convenience Signer

Account owners may choose to name one or more people as convenience signers. A convenience signer has no ownership interest in the account during life and does not receive ownership of it after the owners’ death but can make transactions from the account on behalf of the owning party(ies). Convenience signer authority is like having power of attorney, but only for a specific account.

It's important to remember that accounts with a POD designation or held as JTWROS will pass pursuant to the account agreement and not pursuant to the account owner’s will (unless the owner is the last surviving owner and there is no POD). Think of it this way: your will can only give away what you own at your death that you haven’t already given away by other means. It’s as if JTWROS and POD designations take effect immediately upon death and the will (or lack thereof) comes along a minute later to dispose of any property that remains. 

As you can imagine, a JTWROS or POD designation that isn’t thoughtfully considered can wreak havoc on an estate plan. Imagine that Mom has a will that leaves everything equally to her three children but then later adds one child as a joint owner on her bank account so that the child can help her manage it, not realizing that this now creates a question of how much of the account Mom owned and how much the child owned. Or, if Mom styles the account as JTWROS, the whole balance will pass to the child. While the will may call for the estate to be split equally, it only applies to assets that pass under the will. 

Or a person may decide that rather than creating a will, they can just fashion an estate plan out of a series of JTWROS and POD designations. While this may seem like an easy shortcut, it doesn’t allow for the level of complexity and contingency planning that a well-drafted will or trust agreement does, and if the intention is to provide for multiple beneficiaries equally that can be difficult to do. It’s like an estate plan written on a series of post-it notes.

On the other hand, for a married couple whose estate plans call for everything to go to the surviving spouse, then on to the couple’s children, having an account held in JTWROS may ensure that the survivor can quickly access funds after the first spouse’s death to pay their expenses. Then, after the survivor passes, the account will pass pursuant to their will to the couple’s children. 

Or a person planning to leave his estate to some children but exclude another might choose to name the excluded child as a POD on a bank account and leave the rest of his estate to his other children in a will so that the excluded child is not a will beneficiary entitled to notice of the probate. And for an unmarried person without children or property, POD designations might be a good stopgap until they are ready to create a more robust estate plan.

Multiple-party accounts can play a role in a well-drafted estate plan, but it’s important to zoom out, look at the overall estate planning goals, and then thoughtfully consider how each piece fits within it.

If you have a question about how multiple-party accounts fit into your estate planning goals, reach out to us to schedule a consult.