Joint accounts: A matter of trust

Many people turn to the convenience of joint bank accounts without much thought. Be warned: They are not to be treated lightly.

Joint accounts allow two or more people to have exactly the same cheque-writing and withdrawal privileges, making it easier to transact day-to-day business with a minimum of fuss and bother. They can be especially helpful to people who pay day-to-day expenses together – spouses, parents and children, close friends, even roommates. But the convenience should not preclude you from giving them careful thought. Teaming up with anyone on a joint account is certainly practical, but potential danger lurks.

In fact, the feasibility of a joint bank account boils down to a single, simple question: How much trust exists between the people involved? When you give someone else the legal right to sign cheques on an account, you are in reality giving them the right to withdraw every cent in that account whenever they wish.

The courts are jammed with cases in which a husband or wife cleaned out entire joint bank accounts at the first sign of marital trouble. And, trying to collect after the fact can be almost impossible. In many instances, one of the parties sply took off with all the funds, never to be seen or heard of again.

If, in your case, trust does exist and you feel a joint account is right for you, further decision-making is required. There are two kinds of joint bank accounts with far-reaching differences, both practical and legal.

The first is called “joint tenants with right of survivorship.” This legalese simply means that, if one party dies, the other obtains problem-free ownership of the account – even before the deceased’s will is probated.

The second is called “tenants in common.” In this case, if one person dies, the account is frozen and no money can be released until probate. That might be exactly what you want. On the other hand, it could place unnecessary financial hardship on your family.

If you choose the first type, a survivorship account, your partner in the arrangement will have immediate access to the funds upon your death. While this might seem to be the appropriate choice in every case, you have to consider potential problems for your estate. Let’s assume your joint account is set up with an adult child. If you give him or her right of survivorship, the money in that account will become the property of that child long before your estate is settled.

However, this could create strife if your will stipulates that the entire estate – which would include the money in the account – is to be divided equally among all heirs. The situation could develop into a family feud, because the child who is your partner in the joint account would have legal ownership of its entire contents.

It’s best, in fact, not to employ a joint account for this purpose. A power of attorney document is much superior. It gives your adult child the ability to access the account should you become incapable, but no future ownership. After death, your will would govern what is to happen to any money remaining in the account.

But these are all secondary points. If there is even the slightest lack of trust, keep the banking arrangements separate.