Joint Bank Accounts in New Jersey

It is a fairly common practice for people to open joint bank accounts. Often joint accounts are held by spouses, and the funds do actually belong to both individuals. However, sometimes these accounts are opened for the convenience of allowing a child or to access funds and write checks to pay bills, or as a way to have ownership of the funds pass to the surviving joint account holder upon death. While this is an effective and simple way to give someone else control of your assets of have the funds pass to another upon death, there are problems associated with joint accounts which should be considered before opening a joint account.

1) The joint account holder has unfettered access to the funds in the account. There is no oversight over the way the funds are used. Both joint account holders can utilize the funds for any reason; there is no need for permission – either account holder can withdraw of any portion or all of the money in the account for any purpose.

2) A joint bank account is at risk from legal actions by the creditors of either account holder. If the joint account holder has a judgment entered against her, all the funds in the joint bank account can be attached and used to pay the judgment. For example, a one account holder gets divorced and his spouse claims a right to some of the funds in the account, then the account holder who deposited the funds in the joint account would need to go to court to prove that the money does not belong to the divorcing account holder. Another example is if the other joint account holder is sued, loses and does not pay the resulting judgment.

3) Upon the death of either account holder, the money would indeed pass to the surviving joint account holder. However, the money remains subject to estate and inheritance taxes. If the individual who passes is not the individual who contributed the funds to the account, the account would nonetheless be taxed as part of the deceased account holder’s estate. In other words, the survivor would have to pay inheritance tax even if she deposited the funds in the first place. Depending on the amount of assets in the account, the relationship between the two joint account holders, and the value of the decedent’s total estate, this can result in a significant death tax burden which could have been avoided.

Pursuant to the New Jersey Multiple-Party Deposit Account Act, clear and convincing evidence is required to overcome the presumption that the account is deemed to be owned one-half by each account holder. This is a difficult standard to meet. To defeat the perception, a person must present evidence that is so clear, direct weighty and convincing the fact finder cannot reasonably come to another conclusion. The New Jersey Department of Banking requires banks to provide notice to joint account holders regarding the ownership of the accounts and the rights of the joint account holders.

Another way to challenge the general rule that surviving account holder owns proceeds is to claim undue influence. Undue influence challenges have been traditionally used in the context of will contests. When contesting a will, to claim undue influence and prevail, a party must show two things: 1) a confidential relationship – for example elderly and infirm person who relies on the beneficiary for care and support; and 2) a suspicious circumstances- for example, a dramatic change in plans. A challenger to a will must prove both in will contests, and when both of these are proven, the defender of the will has the opportunity to show that there was not undue influence. However, the New Jersey courts have held that the party claiming undue influence must only show a confidential relationship and the defender must rebut by clear and convincing evidence.

Joint accounts can be useful but the potential pitfalls must be assessed before establishing such an account. This should be done as part of a comprehensive estate and/or elder care plan Our attorneys can assist in these decisions, for a consultation, contact us by e-mail or telephone at 973-890-0004. You can visit our website for more information. We are located in Totowa, New Jersey, conveniently situated near Wayne, Clifton and Montclair.