A common goal of clients is to have their family avoid the probate process after their death. Therefore, bank accounts are often retitled to add others to the account, creating a joint account. Creating and owning a bank account as “Joint Tenants with Rights of Survivorship” with a child or another gives the child or other person legal interests in the account that may be unintended.
New York Banking Law § 675 governs joint accounts (joint with rights of survivorship). It states, that when “a deposit of cash … has been made … in or with any banking organization … in the name of such depositor … and another person and in form to be paid or delivered to either, or the survivor of them, such deposit … and any additions thereto made, by either of such persons, after the making thereof, shall become the property of such persons as joint tenants and the same, together with all additions and accruals thereon, shall be held for the exclusive use of the persons so named, and may be paid or delivered to either during the lifetime of both or to the survivor after the death of one of them….”
WARNING 1: The child or other person added to the account can withdraw the money during the parent’s lifetime.
WARNING 2: The account is exposed to the debt and judgments of the child or other owner.
The New York State Banking Board created Regulations to make sure that bank account depositors were informed of the rights of the joint account owners. According to the regulations, written notice, in plain language, must inform of the terms and conditions of the account, including the following:
(1)that such deposit, and any additions thereto, shall become the property of each owner as joint tenants and, as such, that the depositary may release the entire account to any owner during the lifetime of all owners;
(2)that the depositary may honor checks or orders drawn by, or withdrawal requests from, any owner during the lifetime of all owners;
(3)that the depositary may be required by service of legal process to remit funds held in the joint account to satisfy a judgement entered against, or other valid debt incurred by, any owner of the account;
(4)that the depositary may honor checks or orders drawn by, or withdrawal requests from, the survivor(s) after the death of any owner(s);
(5)the depositary may treat the account as the sole property of the survivor(s) after the death of any owners(s);
(6)unless the depositary receives written notice signed by any owner not to pay or deliver any joint deposit, or addition or accrual thereon, the depositary shall not be liable to any owner for continuing to honor checks or other orders drawn by, or withdrawal requests from, any owner; and
(7)after the receipt of the notice …, the depositary may require the written authorization of any or all joint owners for any further payments or deliveries.i
It is safe to say that, of the list (above), items (4) and (5) are usually the intended consequences of the person creating the account. Effectively, after the death of the depositor, the survivor owns the account and can draw checks against it. Query: what happens if child passes away first? Parent owns it again. Lesson: parent should probably create a last will and testament.
Items (1), (2), (3), (6), and (7) of the list (above) may be problematic or unintended. Items (1) and (2) inform the depositor that the account is immediately owned by the child or other person as well as the depositor and the child can write checks or withdraw the entire account if desired. Item (3) warns that the account can be used to satisfy the debts or judgments of the child if the bank is served notice of the debt or judgment. Item (6) holds the bank harmless if withdrawals are made and no written notice was given to the bank to prevent withdrawals or checks. Item (7) makes life difficult — both owners must give written authorization to withdraw money after a prior written notice was given by an owner not to permit a withdrawal.
By trying to make life easier for your children after death, you may be exposing yourself to dangers and harm during life. Understand the terms and conditions of joint accounts and speak with your attorney about your goals. Don’t unnecessarily stick your neck out trying to do your children a favor.
Aaron E. Futterman, CPA, Esq. is a partner in the law firm of Futterman & Lanza, LLP with offices in Smithtown, NY and clients throughout Suffolk, Nassau, Queens, Brooklyn, Bronx, Richmond, New York, Westchester and Rockland Counties. He concentrates his practice to Elder Law, Medicaid Planning, Medicaid Applications, Estate Planning, Probate, Estate Taxes, and Estate Administration.
i Regulation §15.3 of the New York Banking Department.