Understanding Joint Ownership with Rights of Survivorship

There are many ways to pass on your assets without having to go through probate. Any account or policy with a beneficiary designation, payable on death clauses or joint ownership with rights of survivorship will not be considered to be a part of a probate estate. Those assets will pass to the person designated or the other joint owner at the time of your death. Despite being handy estate planning tools that help assure that the assets in question are never out of reach or frozen, many people fail to understand the nuances and rights associated with such designations and it is this failure that can frustrate and cause unintended consequences when dealing with a person’s estate.

Only After You Pass

Many people are familiar with a beneficiary designation on a life insurance policy. After you pass, the insurance company gives the money from the policy directly to your beneficiary avoiding probate. Similar to a beneficiary designation is what is called the payable on death clause (POD). At the time of your death, your designated beneficiary can claim the assets in the account by showing a death certificate, similar to claiming a life insurance policy. The designated beneficiary has no claim to the assets in the account while you are alive and cannot withdraw or otherwise dispose of them.

Joint Ownership Means They Own It

This is very different from having joint ownership with rights of survivorship. Doing so will allow the joint owner to have ownership of the account after you have passed. However, having another person as a joint owner with rights of survivorship, unlike the POD and beneficiary designation, does give that person immediate access to the account. Many people when they are older choose to put their children on a bank account to give their children access in order to take care of them.

Rights of Survivorship Can Frustrate Your Legacy

Granting a child joint ownership with rights of survivorship as a way to avoid probate can come with risks, as highlighted in a recent New York case. In Fischer v. Graham, three siblings were fighting over the contents of a joint bank account with rights of ownership set up by their parents. The parents had chosen to give one of the siblings joint ownership with rights of survivorship and directed that child to distribute the assets of the account in equal shares to each sibling. That child instead chose to ignore the parents’ directions and kept all of the money.

The siblings who were cut out brought suit but unfortunately for them, the court agreed that the sibling who was on the account did nothing wrong. It did not matter that the parents had left behind detailed instructions for the account to be divided up. Legally, the only person who had a right to the assets was the sibling. This is because joint owners with rights of survivorship have no duty to distribute the assets after the death of another owner. They own everything.

Be careful when choosing ways to avoid probate. Not understanding the consequences of the various ways to avoid probate can have disastrous consequences and frustrate your intent.

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