When someone passes away, the process of settling their estate often involves probate, a court-supervised procedure to validate their Last Will and Testament and distribute assets. However, not all assets go through probate. A joint account can avoid probate in certain situations, offering a simpler and faster way to transfer assets. A joint account is where two or more individuals share ownership of an asset.
How a Joint Account Can Avoid Probate
A joint account typically has two or more owners, and all parties have access to the funds during their lifetime. When one account holder dies, ownership of the account usually passes automatically to the surviving co-owner(s). This transfer happens outside of probate, which can streamline the process of asset distribution.
There are two main types of joint accounts:
– Joint Tenants with Rights of Survivorship (JTWROS): When one owner dies, the surviving owner automatically inherits the deceased person’s share of the account. This is the most common type of joint account designed to bypass probate.
– Tenants in Common: In this type of account, the deceased’s share does not automatically pass to the surviving owner(s). Instead, the deceased’s portion may be subject to probate and distributed according to their will or state law if there’s no will.
Why a Joint Account Can Avoid Probate
Probate is required to transfer ownership of assets solely in the deceased person’s name. However, since joint accounts with rights of survivorship already have a surviving owner, the account is not considered part of the decedent’s probate estate. This means that the funds in the account pass directly to the surviving joint owner without court intervention.
Advantages of Avoiding Probate with a Joint Account
– Immediate Access to Funds: The surviving owner gains immediate access to the account funds without waiting for probate to conclude. This can be especially helpful for paying bills or managing financial responsibilities.
– Lower Costs By avoiding probate, the estate can save on legal fees, court costs, and other expenses associated with the probate process.
– Privacy: Probate is a public process, meaning that the estate’s financial details become part of the public record. Assets transferred through joint accounts do not go through probate, so the transfer remains private.
Potential Drawbacks of Using Joint Accounts to Avoid Probate
While joint accounts offer benefits, they also come with potential risks and complications:
– Access During Lifetime: Since all joint owners have equal access to the account, any co-owner can withdraw funds or use the account without the other’s consent. This could pose a problem if there is a lack of trust or communication.
– Unintended Consequences of when a Joint Account Can Avoid Probate: A joint account may unintentionally benefit the surviving co-owner at the expense of other heirs. For example, if you intend to leave equal shares of your estate to your children but name only one child on a joint account, that child will inherit the entire account, potentially creating family disputes.
– Gift Tax Implications: Adding someone as a joint account holder could be considered a gift, potentially triggering gift tax implications depending on the account balance and other factors.
Alternatives to Joint Accounts for Avoiding Probate
If you’re concerned about probate but hesitant to set up a joint account, there are other estate planning tools that can help avoid probate while giving you more control over asset distribution:
– Payable-on-Death (POD) Accounts: These accounts allow you to designate a beneficiary who will receive the account funds upon your death. Like joint accounts, POD accounts bypass probate but do not give the beneficiary access to the funds during your lifetime.
– Revocable Living Trusts: A trust allows you to transfer ownership of assets into the trust while retaining control during your lifetime. Upon your death, the trust assets are distributed according to the terms of the trust without going through probate.
When Joint Accounts Might Still Go Through Probate
In some cases, joint accounts may still be subject to probate:
– Tenants in Common Accounts: As mentioned earlier, if the account is set up as “tenants in common,” the deceased’s portion of the account may need to go through probate.
– Disputed Ownership: If there is a dispute over whether the joint account was truly intended to pass to the surviving owner, the account may be included in probate proceedings until the issue is resolved.
Conclusion of When a Joint Account Can Avoid Probate
A joint account can indeed avoid probate, making it an attractive option for those looking to streamline the transfer of assets. However, it’s important to weigh the benefits against potential risks, such as unintended inheritance consequences or co-owner access issues. For those seeking to avoid probate while retaining more control over how assets are distributed, alternatives like POD accounts or living trusts might be a better fit.
Estate planning is highly personal, and the best approach depends on your unique circumstances. It’s always advisable to consult with an estate planning attorney to ensure your goals are met efficiently and effectively.