Convenience Account or Joint Account?

Many times our clients will add a name to their bank accounts, making the account a joint account. Sometimes that client wishes to have the person who was added to the account handle the account for the convenience of the client. It may be that the client is an elder person and wishes to have an adult child help to pay bills, reinvest the amounts in the account from time to time. This account would be considered a convenience account. It may also be that the client intended that the person that is added to the account is meant to receive the proceeds of the account at the death of the client, based upon the donative intent of the client. If the client’s account is deemed to be a convenience account, the amount left in the account is added to the client’s probate estate at his or her death, to be shared among all the beneficiaries of the estate. If, on the other hand, the account is deemed to be a joint account, it is payable to the other joint tenant at the death of the client and the other beneficiaries of the estate are entitled to no part of it.

Over the years, there was no way to distinguish whether a joint account was meant to be a convenience account or a true joint account. When a person opened the account, they may have checked the box as joint account, as there was no other choice offered. There was no statute to establish a convenience account either. Effective January 1, 2010, there was a change to the statute which established a convenience account designation. Now, any person who opens a joint account with another person, can choose to list the account as a convenience account. A person will probably have to request that the bank open the account this way, as many banks have yet to create a designation for convenience accounts to offer to their customers.

For instance, if an elder mother who is competent to make decisions, opens an account with her daughter’s name on the joint account, but fails to list it as a convenience account, as the bank fails to have the proper designation of “convenience account”, it is important for the mother to have some other writing to establish what she intended by opening the account. Without any such writing, there is a presumption under the law that a gift to the daughter is intended at the death of the mother.

What happens if the other joint tenant writes out checks for their own expenses prior to the death of the person who opened the account? In such case, there is a presumption of fraud when that other person takes the money out of the account prior to the death of the person who opened the account. To overcome this presumption would require the person to show that the person who opened the account intended to make a gift to the other person at the time the account was opened or at the time that the second person’s name was added to the account. This may be a written document prepared by an attorney or a gift tax return which established the gift.

In the above example, the elder mother may become incompetent and cannot state what she intended, thereby causing the other family members to demand of the daughter who wrote out checks for herself to prove that was their mother’s intent and go to court to force that daughter to put the money back into the account for their mother’s care.

I’ll bet you never knew that opening a joint account could be so complicated!