Joint Accounts: the Good, the Bad, and the UGLY
Perhaps nothing frustrates me like joint bank accounts.
When I say that “I see it every day,” I mean it literally: every. single. day.
Here’s how it usually goes. An adult child, maybe in their 50s, notices that Mom or Dad, in their 70s or 80s, could use some help paying their bills. They convince Mom or Dad to “put them on the account.” An overworked bank employee barely explains — if at all — the different types of accounts, so they end up with a multiple-party or “joint” account with “rights of survivorship.”
Tomfoolery ensues, especially when Mom or Dad dies and Junior learns that he has legal title to all their money, regardless what the last will and testament says.
What seems like a simple solution to a common problem undoes an entire estate plan.
It’s too bad, because joint accounts have their place — they can be a great way to pass on money seamlessly and outside of probate.
Let’s talk about the good, the bad, and the downright ugly when it comes to joint accounts in Alabama.
The Good
The good thing about joint accounts in Alabama is that they can be used in so many different ways: to allow a party the convenience to write checks on behalf of another, or to make a present gift of money to another while still maintaining access to funds, or to transfer money at death instantly, or to do any number of other things.
Alabama has adopted the Uniform Multiple-Party Accounts Act, which spells out fairly clearly how different joint accounts work. See Alabama Code, Section 5-24-1. A well-trained bank employee should be able to guide customers toward the account that best suits their needs, and the forms themselves should be straightforward and easy to understand.
The Bad
The bad thing is that some bank employees aren’t trained to understand, much less explain to customers, the nuances of joint accounts. Rather, in most cases, the banks simply assume their customers want a joint (or “multiple-party”) account “with rights of survivorship.”
For example, most people don’t realize that just because a joint account is created between two or more people, it doesn’t mean that each person on the joint account has 100% legal ownership of the account during their lifetimes (even if they have full access to the money in the account!). To the contrary: Alabama law says that while both owners are alive, each party’s ownership percentage of the monies in the joint account is based on how much they put in, unless there’s very clear evidence that the dominant account holder (i.e., the person who put most of the money in) meant to make a gift to the “added” account holder. Alabama Code Section 5-24-11.
But everything changes once either account holder dies: if it’s a “rights of survivorship” account — and, in my experience, it more than likely is — then the surviving account holder instantly becomes the legal owner of all the funds in the account. Alabama Code Section 5-24-12. This is true even where the dominant account holder has a last will and testament that expresses an intent to treat all heirs equally, or otherwise didn’t intend for one heir (the “added” account holder) to receive all of their money. It just doesn’t matter. And legally speaking, it’s very difficult to undo after death, at least without some creative lawyering.
The Ugly
Which brings us to the ugly: the dashed expectations of heirs who must grapple with the fact that their sibling has essentially gotten away with (legal) robbery. In many cases, the “added” account-holder-sibling will “do the right thing” and share the money anyway with the other heirs — but not nearly always. I’ve had many cases involving this precise scenario, on both sides of the ledger.
It’s a real problem, and it causes a lot of family infighting after the death of a loved one.
The Solution
Well, there are a few — but the first thing to understand is that time is of the essence. It’s virtually impossible to fix the problem after the dominant account holder’s death. You cannot wait.
As long as the dominant account holder is alive, he or she (Mom or Dad) can sign an “alteration of rights directive” to the bank to change the terms of the account. See Alabama Code, Section 5-24-13. Essentially, the account holder needs to send a signed writing to the bank that states which modifications or alterations to the account status he or she wants. While it’s doubtful that they can remove a joint owner unilaterally, they can convert the account from “rights of survivorship” to “without rights of survivorship.” You can use our “Joint Account Alteration of Rights Directive” on our DIY Estate Planning page to do this yourself.
There are other options. The dominant account holder could create a signed document that memorializes that the money in the account that transfers upon death to the “added” account holder is to be treated as an advancement on inheritance — essentially, that the money should be considered when “evening up” the distributions to each heir. Or the heirs themselves could enter into an “inheritance equalization agreement” that lays out the terms, in advance, by which they agree to divide Mom or Dad’s estate, whether the assets go through probate or not.
Whether you’re the “Mom,” “Dad,” the “added” account sibling or another heir in this scenario, don’t wait to set up an appointment so that we can guide you through the process of making sure nobody is treated unfairly.
