What Happens When a Joint Account Holder Dies?

When a joint account holder passes away, understanding the implications for the account and its surviving owner is important. The legal framework surrounding joint accounts dictates how assets are transferred, influencing immediate access to funds and complex tax and estate considerations.

Understanding Joint Account Ownership

Joint accounts are typically structured under one of two primary legal ownership types: Joint Tenancy with Right of Survivorship (JTWROS) or Tenancy in Common. The distinction between these structures is significant, as it determines how the deceased owner’s share of the account is handled. For accounts held as Joint Tenancy with Right of Survivorship, the deceased owner’s interest automatically transfers to the surviving co-owner(s) upon death. This means the surviving individual becomes the sole owner of the account without the need for a probate court process.

This right of survivorship applies to bank accounts, brokerage accounts, and sometimes real estate. The automatic transfer ensures immediate access to funds for the survivor, helping manage financial responsibilities without delay. Conversely, in a Tenancy in Common arrangement, there is no right of survivorship. When one owner dies, their share does not automatically pass to the surviving co-owner(s); instead, it becomes part of the deceased’s estate.

The deceased owner’s share in a Tenancy in Common account will then be distributed according to their will or, if no will exists, by state inheritance laws. This often necessitates a probate process, which is a court-supervised procedure to validate the will and distribute assets. While JTWROS accounts bypass probate for the transfer of ownership, Tenancy in Common accounts often require it, potentially leading to longer and more complex asset distribution.

Immediate Steps and Necessary Documentation

Upon the death of a joint account holder, the survivor must gather specific documentation. Obtaining certified copies of the death certificate is essential, as financial institutions will require this document. It is advisable to secure multiple certified copies, as each institution may require its own. These certificates are available through the funeral home or the vital records office in the state where the death occurred.

Gathering the deceased’s identification, such as a driver’s license or passport, and their Social Security number is also necessary. Account numbers and recent statements for all joint accounts should be compiled. This information provides the necessary details for financial institutions to identify and process the accounts accurately. Having these documents ready before contacting banks or brokerage firms can significantly streamline the subsequent steps.

Preparing these documents ensures that when the time comes to notify financial institutions, all required information is readily available. This proactive approach helps to avoid delays in transferring ownership or accessing funds.

Notifying Financial Institutions and Accessing Funds

After gathering the necessary documentation, the next step involves notifying the relevant financial institutions. For accounts held as Joint Tenancy with Right of Survivorship, the surviving owner should contact the bank or brokerage firm to inform them of the death. Most institutions have specific departments or procedures for handling accounts of deceased customers, often referred to as estate care centers. The surviving account holder will need to provide a certified copy of the death certificate to the institution.

Upon receiving the death certificate, the financial institution will process the change in ownership, removing the deceased person’s name from the account. Joint accounts with right of survivorship are not frozen, allowing the surviving owner to retain full access to the funds. The bank may also require the surviving owner’s identification and potentially a signature on internal forms to formally complete the transfer.

While the process is straightforward for JTWROS accounts, some institutions might offer the option to retitle the account into the surviving owner’s sole name or open a new individual account. It is advisable to inquire about any specific forms or additional documentation the financial institution might require, as policies can vary. This ensures a complete and efficient transition of the account to the surviving owner.

Tax and Estate Considerations

Beyond the immediate transfer of assets, the death of a joint account holder also brings tax and estate considerations. Assets held in joint tenancy with right of survivorship avoid the probate process, passing directly to the surviving owner outside of the deceased’s will. Despite bypassing probate, these assets may still be included in the deceased’s taxable estate for federal estate tax purposes.

The federal estate tax is levied on the value of assets an individual owns or controls at their death, exceeding a certain exclusion limit. For 2025, the federal estate tax exclusion amount is $13.99 million per individual, or $27.98 million for married couples. Only estates exceeding this threshold are subject to the tax, which has a maximum rate of 40 percent. This exclusion amount is subject to change, with a potential decrease projected for 2026 unless Congress acts.

Another tax implication for inherited assets, including those held jointly, is the “step-up in basis.” This provision adjusts the cost basis of the inherited asset to its fair market value on the date of the deceased owner’s death. This adjustment can reduce potential capital gains taxes if the surviving owner later sells the asset, as the taxable gain is calculated from this stepped-up value rather than the original purchase price. For jointly owned property, only the deceased’s portion receives a step-up in basis, though in community property states, the entire jointly owned asset may receive a full step-up for married couples. Inherited retirement accounts, such as IRAs or 401(k)s, do not receive a step-up in basis, and withdrawals remain subject to income tax.