What Happens to Joint Accounts When One Dies?

When a joint account holder passes away, the disposition of the account’s assets can vary significantly. The outcome is primarily determined by the specific type of joint ownership established when the account was opened. Understanding these distinctions is important for surviving account holders to navigate the necessary processes. This article clarifies the different forms of joint accounts and outlines the steps involved in managing them after a co-owner’s death, along with relevant tax implications.

Different Types of Joint Accounts

Joint accounts are structured in various ways, each with unique implications for how assets are handled upon the death of one owner. One common arrangement is Joint Tenancy with Right of Survivorship (JTWROS). With a JTWROS account, ownership of the entire account automatically transfers to the surviving owner or owners upon the death of one account holder. This transfer typically occurs outside of the probate process.

Another specific form of joint ownership, exclusively for married couples, is Tenancy by the Entirety (TBE). Similar to JTWROS, a TBE account ensures that upon the death of one spouse, the entire account automatically transfers to the surviving spouse. This arrangement also bypasses the probate court. TBE accounts can offer certain protections against individual creditor claims, meaning a creditor of one spouse generally cannot seize the jointly held asset.

In contrast, Tenancy in Common (TIC) accounts do not include a right of survivorship. When a co-owner of a TIC account dies, their share of the account does not automatically transfer to the surviving account holders. Instead, the deceased owner’s portion becomes part of their estate, subject to their will or state intestate laws if no will exists. This means the deceased’s share will likely need to go through the probate process before it can be distributed to their heirs.

Beyond traditional joint ownership, Payable on Death (POD) and Transfer on Death (TOD) designations allow assets to pass directly to a named beneficiary upon the account holder’s death. A POD designation is typically used for bank accounts, while a TOD designation applies to brokerage accounts and securities. These designations bypass probate, ensuring a direct transfer of funds or securities to the designated individual. While they function similarly in bypassing probate, they differ from true joint ownership because the designated recipient generally has no active control over the account during the account holder’s lifetime.

Information and Documents Needed

Surviving account holders need to gather specific information and documents before initiating any formal transfer process with financial institutions. This includes the deceased’s full legal name, their date of death, and their Social Security Number. Access to all relevant joint account numbers is also necessary.

A certified copy of the death certificate is required. Financial institutions require this document as proof of death to process any changes to the account. Obtain multiple certified copies from the vital records office in the jurisdiction where the death occurred, as various institutions may require their own original certified copy. These copies typically cost a small fee, ranging from $10 to $25 per copy, varying by state and county.

The surviving account holder(s) will also need to provide proof of their own identity. This requires a valid government-issued identification, such as a driver’s license or a passport. Recent account statements for all joint accounts can confirm account details and ownership information. These statements provide account numbers, balances, and registered ownership names.

For accounts that do not have a right of survivorship, such as Tenancy in Common accounts, additional probate documents may be required. These documents, like Letters Testamentary or Letters of Administration, are issued by a probate court. They authorize an executor or administrator to act on behalf of the deceased’s estate, including accessing and distributing assets that pass through probate. The financial institution will require these legal instruments to ensure they are dealing with the appointed representative of the estate.

Steps for Surviving Account Holders

After gathering all necessary information and documents, the surviving account holder should initiate contact with the relevant financial institutions. This can be done by calling the customer service number provided on account statements, visiting a local branch in person, or utilizing secure online messaging systems if available. Report the death of an account holder and inquire about the process for joint accounts.

During this initial contact, the financial institution will request the certified death certificate and the surviving account holder’s identification. These documents can be submitted in person at a branch, mailed via certified mail, or, in some cases, securely uploaded through an online portal. The institution uses these documents to verify the death and the identity of the surviving owner to process account changes.

Financial institutions will then provide their own internal forms that need to be completed to transfer ownership or close the deceased’s portion of the account. These forms are specific to each institution and type of account, requiring accurate completion with account information and personal details. Review these forms carefully and ask questions if anything is unclear to prevent delays.

Once all required documentation and forms have been submitted and processed, confirm the updated account status. Verify that the account ownership has transferred to the surviving account holder or that the funds have been distributed. This confirmation can be done by reviewing new account statements or contacting the institution again. For accounts without a right of survivorship, such as Tenancy in Common, the process will involve the estate’s executor or administrator working with the probate court to manage the deceased’s share according to legal directives.

Tax Considerations

The death of a joint account holder can have various tax implications for the surviving owner or the deceased’s estate. Federal estate tax applies only to very large estates with a high exemption threshold. For married couples holding joint accounts, 50% of the account’s value is included in the deceased spouse’s taxable estate for federal estate tax purposes. However, for joint accounts held with non-spouses, the full value may be included in the deceased’s estate unless the surviving owner can demonstrate their financial contribution to the account.

Beyond federal estate tax, some states impose their own estate or inheritance taxes, which can apply to smaller estates than the federal threshold. These state-level taxes vary significantly in their rules, rates, and exemptions, and their applicability to joint accounts depends on the specific state’s laws. Consider these potential state taxes, as they can impact the net value of inherited assets.

An income tax consideration for inherited assets, including those from joint accounts with a right of survivorship, is the “step-up in basis.” The cost basis of the deceased’s portion of the asset steps up to its fair market value on the date of death. This adjustment can reduce capital gains tax liability if the asset is later sold by the surviving owner, as the gain is calculated from the stepped-up value rather than the original purchase price. However, income earned on the account after the date of death, such as interest, dividends, or capital gains from sales, is considered taxable income to the surviving owner and must be reported on their income tax return.

Financial institutions may issue tax forms to the surviving owner or the estate, such as Form 1099-INT for interest earned or Form 1099-B for proceeds from securities sales. These forms report income or proceeds for tax returns. While these general principles apply, specific tax situations can be complex, and consulting with a qualified tax professional is advisable to ensure compliance and optimize financial outcomes.