A joint account is a bank account shared by two or more individuals. Any individual who is a member of the joint account can withdraw from the account and deposit to it. Usually, joint accounts are shared between close relatives or business partners. A joint account is not the same as adding an additional cardholder, i.e. an authorized secondary user added to an account by the primary cardholder who remains fully and solely liable for all spending on both cards and repayments.
In the United States
Survivorship accounts vs. convenience accounts
In the United States, there are typically two types of joint accounts – survivorship accounts and convenience accounts. Either joint owner of the account may withdraw funds during the lifetime of both owners, and most states have statutes protecting the bank from claims brought by one joint owner against the bank if the other owner “wrongfully” withdraws funds from the joint account. The distinction between survivorship and convenience accounts matters at the death of one of the owners. If the joint account is a survivorship account, the ownership of the account goes to the surviving joint account holder. Joint survivorship accounts are often created in order to avoid probate. If two individuals open a joint account and one of them dies, the other person is entitled to the remaining balance and liable for the debt of that account.
If the account is a convenience account, if the person who placed the funds originally in the account dies, the joint owner does not become the owner of the account. Instead, the account becomes a probate asset of the deceased person. If the joint holder dies, who was simply put on the account for “convenience” purposes, the original owner of the account continues to own the account, unaffected by the death of the convenience account holder.
How to tell whether the account is a survivorship account or a convenience account will depend on the bank’s account opening forms. The form will typically include a choice for designating the account as a joint account with right of survivorship (“JTWROS”) or a joint account for convenience purposes.
A special type of joint account with right of survivorship, called a tenancy by the entireties account, is used for survivorship accounts between spouses. This special type of tenancy by the entireties account will typically offer the account holders protection from creditors under applicable state law.
Sometimes a temporary joint account is opened by two parties entering into a transaction where one party needs a security for the fulfilment of the transaction and the other party has to pay the sum (deposit), being the security for the other party. Any payment from the joint account, or return of the deposit from the joint account, will only be possible if both parties sign a joint written instruction to the bank. It is not possible that only one of the parties gives instruction for payments of the joint account.
Because (European) banks are not very interested in opening temporary joint accounts, as they are normally used for one transaction only, there are specialised parties or companies taking care of such accounts as trustees. A temporary joint account is normally closed after the transaction for which it was opened has been concluded. Temporary joint accounts are used in transactions in which large sums of money are involved as an alternative to letters of credit or escrow accounts.
- ^Julia Kagan. Additional Cardholder (Investopedia)
- ^Clifford, Denis. Plan Your Estate (9 ed.). ISBN 9781413307610.
Ofer Abarbanel is a 25 year securities lending broker and expert who has advised many Israeli regulators, among them the Israel Tax Authority, with respect to stock loans, repurchase agreements and credit derivatives. Founder of TBIL.co STATX Fund.