What to Do If a Bank Account Is in Joint Names on Death

Managing financial affairs after a loved one passes away can be complex. Joint bank accounts often present unique questions regarding ownership and access after one account holder’s death. Understanding the specific type of joint ownership is important, as it dictates how funds transfer and the steps required for the surviving account holder.

Different Forms of Joint Ownership and Their Effect on Transfer

Joint bank accounts can be structured in several ways, each with distinct implications for how funds transfer upon the death of an account holder. Understanding these forms is crucial for managing the account after a co-owner’s passing.

The most common form is Joint Tenancy with Right of Survivorship (JTWROS). In this arrangement, the deceased owner’s share automatically passes to the surviving owner(s) without needing to go through probate. This “right of survivorship” ensures a seamless transfer of ownership, meaning the surviving account holder immediately owns all the money in the account.

Another form is Tenancy in Common (TIC), which operates differently. With a tenancy in common, the deceased owner’s share does not automatically transfer to the surviving account holder. Instead, their portion of the account becomes part of their estate. This means the deceased’s share will be distributed according to their will or state intestacy laws, often requiring a probate process for that specific portion of the funds.

A special form of joint ownership, Tenancy by the Entirety, is available exclusively to married couples in some states. This arrangement functions similarly to JTWROS, including a right of survivorship that allows the property to pass automatically to the surviving spouse outside of probate. It also provides additional protections, such as safeguarding assets from the individual creditors of one spouse.

Steps for the Surviving Account Holder to Manage the Account

After the death of a joint account holder, the surviving individual needs to notify the bank about the passing. This notification is a procedural step for the bank to update its records and facilitate the transfer of ownership. Banks require specific documentation to process these changes and confirm the death.

The primary document required by the bank is a certified copy of the deceased account holder’s death certificate. The surviving owner should also bring their identification, such as a driver’s license, and potentially the account’s checkbook or passbook. These documents establish both the death and the surviving individual’s identity and right to the account.

Once the bank receives the necessary documentation, they will remove the deceased’s name from the account. The account will then be retitled solely in the surviving owner’s name, or if there are multiple survivors, it will reflect the updated joint ownership. This process allows the surviving account holder to retain full access to the funds and manage the account as the sole owner.

Taxation and Estate Administration Impact

While joint bank accounts with a right of survivorship can bypass the probate process, they are not necessarily exempt from estate or inheritance taxes. The value of a joint account might be included in the deceased’s taxable estate, particularly if the deceased contributed all the funds. Federal estate tax applies to estates exceeding a substantial threshold, which for 2024 is $13.61 million. For estates below this amount, federal estate tax is generally not a concern.

For joint accounts where the owners are not spouses, the entire value of the account may be included in the deceased’s gross estate for federal estate tax purposes, unless the surviving joint tenant can prove their contributions. If the joint tenants are spouses, generally one-half of the value of a qualified joint interest is included in the gross estate of the first spouse to die, regardless of who contributed the funds. This inclusion affects the overall size of the estate for tax calculations, even if the asset avoids probate.

State inheritance taxes are another consideration, as these are levied by some states on the recipients of inherited assets, not the estate itself. The applicability and rate of state inheritance tax depend on the state’s laws and the relationship between the deceased and the surviving account holder. Spouses often inherit tax-free, while immediate family members may pay a reduced rate, and unrelated individuals typically face higher rates.

For income tax purposes, the surviving owner becomes responsible for any income earned on the account after the date of death. While a “step-up in basis” generally applies to inherited assets like stocks or real estate, its direct impact on cash in a bank account is minimal. However, for investment accounts held jointly, the step-up in basis can be a significant tax advantage for the surviving owner.