The downside to adding someone to your accounts can be huge. On a joint account, whether it's a bank or investment account, the person you add has the same rights and ownership of the account as you do. The legal consequences of this joint ownership can be devastating to the senior.
Adding someone to your business bank account
For banking purposes, this does not mean that they own the company in any way, they are just a signer on the bank account. They will be able to write checks, make cash withdrawals, order items like stamps, new checks and their own debit cards.
Married couples should definitely have joint bank accounts! Not only are there several benefits of combining your accounts, but statistics show that couples with joint accounts are more likely to stay together. That's right, couples with joint accounts tend to have better communication and connection.
Regardless of how you set up the rest of your accounts, I highly recommend that you either put both names on the accounts, or you put your spouse's name on as Payable On Death to make things so much easier should one of you pass. That way the bank has zero questions about what needs to happen in that case.
Disadvantages of a joint bank account with separate finances
You will need to agree who tops up the joint account if you get unusually large bills or direct debits go up. And you need to decide who is going to pay for big items such as holidays or a new washing machine or car.
But a jointly owned account belongs to the surviving owner, despite what your will says. As a result, division of those assets may not follow the will's terms. Taxes: Adding a person other than your spouse to a bank account can trigger the federal gift tax.
Disadvantages of opening a joint account
Keep in mind that you won't have control over the transactions and withdrawals the other person makes in the same account. Because of this, it's important to have open lines of communication and manage everyone's expectations prior to opening a joint account.
Most joint bank or credit union accounts are held with “rights of survivorship.” This means that when one account owner dies, the money passes to the surviving owner, or equally to the rest of the owners if there are multiple people on the account.
A joint account might damage your credit score
Opening a joint account adds a financial link to the other person. This means companies will look at both of your credit histories as part of any credit checks. If they have a poor credit history, this might lower your chances of acceptance.
While sharing a joint bank account is a convenient option to assist in your parent's finances, it does present some risks, such as: Financial risks with joint accounts: With any joint account, each account holder could be impacted by the financial decisions of the other.
If you have a joint account, you both may have to pay taxes on a portion of the interest income. However, the bank will only send one 1099-INT tax form. You can ask the bank who will receive the form because that person has to list the income on their tax return.
While each owner is granted equal access to the account, a few important points merit considerations. Once the joint account is established, any owner retains the right to withdraw funds or even close the account entirely.
Each account owner can get a debit card, write checks and make purchases. Both account holders can also add funds or withdraw them from the account. The money in joint accounts belongs to both owners. Either person can withdraw or spend the money at will — even if they weren't the one to deposit the funds.
If you contact the bank before consulting an attorney, you risk account freezes, which could severely delay auto-payments and direct deposits and most importantly mortgage payments. You should call Social Security right away to tell them about the death of your loved one.
And an authorized signer's privileges are only legitimate while the account owner is alive. A joint owner, with the right of survivorship, allows the new joint owner complete access and rights to the funds in the account. They can also remove funds and close the account.
If your husband passed away and you are not listed on his bank account, the account will likely go through probate unless it is a joint account or has a named beneficiary. Probate is a legal process where the court oversees the distribution of assets.
After receiving notification of an account holder's death, a bank will take prompt steps to secure the assets. For an account owned by a single individual, this typically includes: Account status review: The bank reviews the account to confirm its ownership status and determine whether it has a beneficiary designation.
Financial Disagreement: Everyone has their own idea of how to best manage finances. This also leads to every individual having a different relationship with money. Joint banking accounts can cause disagreements and strife between account holders if they cannot agree on a middle ground strategy.
Joint bank accounts are best for couples who've been together for a year or more and have shared expenses, but only if both people manage their finances responsibly. If your spending habits are similar to your partner's, you're more likely to benefit from joining funds.
You will both be responsible for paying debt/fees even if it's incurred by one person. If one person is bad with money and one isn't, it could cause tension. One person could drain the account. Having a joint account could make you more vulnerable to financial abuse or manipulation by your partner.
You could add them as an agent under a power of attorney or add them as a designated beneficiary to that account and that is something different, but making a child a joint owner on a bank account is almost never a good idea.
One major drawback of joint bank accounts is the automatic transfer of ownership upon the death of one account holder. This can bypass the deceased's will and complicate estate planning. A POA does not grant ownership; it merely allows the agent to act on behalf of the principal.
Joint bank accounts may also complicate your tax situation. All owners of a joint account pay taxes on it. If the joint account earns interest, you may be held liable for the income produced on the account in proportion to your ownership share.