In the world we live in where cash is no longer king, most of us have a bank account. Usually, we even have credit cards and debit cards associated with the account. The same bank may hold our mortgage, savings account, business account, and even our IRAs or other investments. With bank accounts, inheritance rules are relatively simple in North Carolina. Let’s examine how your money is distributed after death and the disadvantages inherent in joint bank accounts.
Planning for the day you won’t be around makes life better for those you leave behind. Take time and think about how you want to own an account with another person. North Carolina banking laws allow for a few different ways of holding a bank account’s ownership.
Joint Account With Right of Survivorship
When you share a bank account with the right of survivorship, you both can withdraw any amount of money at any time without permission from the other owner. If you don’t trust the other person, this type of account is a bad idea.
A Joint Account with Right of Survivorship works well for spouses or an elderly family member who needs a trusted loved one to help manage an account. When one owner of the account dies, the other automatically inherits. If spouses own jointly, there is often no dispute that the funds go to the other spouse after death.
However, let’s say an adult child cares for her father and owns a joint account with him. When he dies, the other children may dispute the one daughter inheriting the entire account unless the will specifies the account goes to her. By law, it does go to her as the listed owner with the right of survivorship. However, other children may try to make claims on the money in probate court if his intentions were unclear.
A shared account does not go through probate even though it may be subject to claims from creditors in probate. However, if you own a joint account that earns interest, you could pay taxes on the income. Without the right of survivorship, the taxes you owe depend on the proportion of the account you own.
Joint Account Without Right of Survivorship
Without the right of survivorship, a joint account is simply a shared account owned by the holders in proportion to the amount they contribute. Let’s say a 30 something couple holds an account together without the right of survivorship, and one dies.
The surviving co-owner of the account has no legal right to the decedent’s portion but has access to their own account portion. The amount you own depends upon the amount you contribute to the account.
This varying amount of ownership is a problem for the surviving owner since a probate court may require you to report the entire contents as an estate asset. However, if you can trace your ownership interest, the court may let you keep the portion you can prove is exclusively yours.
When both account holders die, the money goes to the listed beneficiary on the account.
Payable on Death Accounts
In a payable on death account, a named beneficiary inherits when the owner(s) dies. This beneficiary name inherits the money whether the will specifies another person or not. By law, the beneficiary name overrides the names in the will.
A problem occurs if you open an account in your 30s, naming a spouse as the beneficiary. You write a will and feel like your affairs are in order. However, going through a divorce in your 40s, you then have a child with a new partner.
You revise your will to name your child as the sole heir of your estate. Again, you might think your affairs are in order, but you are wrong this time. If you die at age 50 and do not change the beneficiary name on your bank account, the money in that account will go to your ex-spouse instead of your child.
It is common for probate courts to see scenarios where someone forgets to change the beneficiary names on an account. Family tensions rise when the will says one thing and an account says another. The one who inherits the account is under no legal obligation to pay the one named in the will. Court battles quickly start over this kind of situation.
If no beneficiary is listed, money passes to heirs based on the will. If there is no will, the money generally goes through probate court to an heir based on North Carolina intestate law.
Estate Planning with Bank Accounts
During the estate planning process, consider whether a joint bank account with a right of survivorship may help your loved ones avoid a lengthy probate court process. Payable on death accounts with designated beneficiaries may streamline the transfer of your assets when you die. Limiting court involvement in the process of settling your estate gives you more control over what happens and allows your loved ones to inherit sooner.
Trusts are also a valuable tool in estate planning. With a trust, you appoint a trustee to distribute your estate assets, eliminating the need for court interference. A trust is simply a legal framework that holds your bank accounts, personal property, and real property.
Ensure that you set up each account with the proper designations and keep the paperwork with your specifications in an estate planning folder for your loved ones. Having proof of the bank account designations may help if a bank has wrong information on your account. It is crucial when estate planning to know the designations for each of your accounts.
We Can Help
If you need help ensuring your accounts will go to the heirs you’ve designated in your will, contact us at Hopler, Wilms, and Hanna. Our experienced estate planning attorneys can help you start making plans for the future of your loved ones. Whether you need to draw up a simple will or you need to revamp your entire estate plan, we can help. We employ the legal tools and frameworks you need to maximize your assets for your family. Our focus includes the different types of trusts, power of attorney documents, advanced directives, wills, financial planning, and more. Contact us today to find out how we can help you.