What Happens to a Joint Account When Someone Dies?

When a joint account holder passes away, the disposition of the account’s funds depends significantly on the specific type of joint ownership established. A joint account is a financial account opened by two or more individuals, granting each equal access and responsibility for the funds. These accounts are commonly used by family members or business partners to facilitate shared financial management. This article explores the various outcomes for joint accounts following a death, outlining immediate actions for surviving account holders, how funds are handled, and the associated estate and tax implications.

Understanding Joint Account Ownership Types

Joint accounts are established under different legal ownership structures, each determining how assets are handled upon an account holder’s death. The most common types include Joint Tenancy with Right of Survivorship, Tenancy in Common, and Tenancy by the Entirety. Each structure carries distinct implications for fund transfer.

Joint Tenancy with Right of Survivorship (JTWROS) is a common arrangement where co-owners have equal ownership rights. Upon the death of one owner, their interest automatically transfers to the surviving owners. This means the deceased’s share bypasses their will and the probate process, passing directly to the remaining joint tenants. This ownership type is frequently chosen to simplify asset transfer and ensure immediate access for the survivor.

In contrast, Tenancy in Common (TIC) establishes that each owner holds a distinct, divisible share of the account. When a tenant in common dies, their share does not automatically transfer to the surviving joint owners. Instead, the deceased owner’s share becomes part of their estate and is distributed according to their will or state intestacy laws if no will exists.

Tenancy by the Entirety (TBE) is a specific form of joint ownership exclusively available to married couples in many states. Similar to JTWROS, TBE includes a right of survivorship, meaning the deceased spouse’s share automatically transfers to the surviving spouse without probate. This arrangement also offers protection against creditors of only one spouse, as neither spouse can sell or transfer their interest without the other’s consent.

Immediate Actions for Surviving Account Holders

Upon the death of a joint account holder, surviving individuals must take specific steps to manage the account effectively. Initial actions involve gathering necessary documentation and notifying the financial institution.

A certified copy of the death certificate is a primary document required by financial institutions to process the death of an account holder. It is advisable to obtain multiple certified copies, as various institutions and agencies may require them. The surviving account holder will also need their own identification and the joint account details to present to the bank.

The next step involves notifying the financial institution about the death. This can be done by contacting the bank by phone, visiting a local branch, or through a dedicated bereavement department. Banks review the account’s ownership status and request the death certificate to begin updating the account.

After notification, the financial institution initiates the process of updating the account information. For accounts with a right of survivorship, the bank removes the deceased’s name, making the surviving account holder the sole owner. This process may involve completing specific forms provided by the bank to formally transfer ownership and ensure continued access to the funds.

How Funds are Handled Post-Death

The accessibility and distribution of funds in a joint account after a death depend directly on the ownership structure established. The type of joint account determines whether funds bypass probate or become part of the deceased’s estate.

For accounts held as Joint Tenancy with Right of Survivorship (JTWROS) or Tenancy by the Entirety (TBE), funds automatically pass to the surviving owner(s) by operation of law. This transfer occurs outside of the probate process, allowing the surviving owner to gain full control and access to the funds once the bank processes the death notification. The surviving owner retains uninterrupted access to the account.

Conversely, for Tenancy in Common (TIC) accounts, the deceased’s share of funds does not automatically transfer to the surviving joint owner(s). Instead, this share becomes an asset of the deceased’s estate. Distribution of these funds is then governed by the deceased’s will or, if no will exists, by state intestacy laws, often necessitating a probate process to distribute assets to designated heirs or beneficiaries.

Direct deposits and automatic bill payments linked to the joint account may continue, especially in JTWROS or TBE arrangements where the surviving owner maintains control. It is prudent for the surviving owner to review and update all linked services to reflect the change in ownership and prevent potential disruptions. Joint accounts are not frozen upon the death of one holder in a survivorship arrangement; banks update records once the death certificate is presented.

Estate and Tax Implications

The death of a joint account holder can lead to various estate and tax considerations, which vary based on the account’s ownership structure and the relationship between account holders.

Joint accounts with rights of survivorship, such as JTWROS and TBE, avoid the probate process for the funds held within them. This direct transfer to the surviving owner saves time and reduces legal fees associated with probate. Tenancy in Common accounts do not avoid probate for the deceased’s share, as these funds become part of the decedent’s estate.

For federal estate tax purposes, the value of the deceased’s share in a joint account may be included in their taxable estate, regardless of how it passes to the survivor. If the joint account holders were spouses, one-half of the account’s value is included in the deceased spouse’s estate, benefiting from the unlimited marital deduction, which exempts transfers between spouses from federal estate tax. For non-spousal joint accounts, the entire value may be included in the deceased’s estate unless the surviving owner can prove their financial contribution. The federal estate tax applies only to estates exceeding a certain threshold, which was $13.61 million per individual in 2024.

State-level inheritance taxes may also apply to joint account transfers, depending on the state and the relationship between the deceased and the survivor. While the federal government does not impose an inheritance tax, some states do. Spouses inherit tax-free, and immediate family members receive reduced rates, while unrelated co-owners might face higher inheritance tax rates.

Income tax implications also arise for interest or dividends earned on the account. Income generated on the account before the date of death is reported on the deceased’s final tax return. Any interest or dividends earned on the account after the date of death become the responsibility of the surviving owner and are reported on their individual income tax return.