All About Estates

Two Isn’t Always Better Than One: The Perils of Joint Accounts

This blog was written by Lara Besharat

Earlier this month, a Toronto-based FinTech company launched a new feature for their app that aims to simplify the process of creating and maintaining a joint account. The app allows for joint accounts to be created and managed entirely via your mobile device, and, with equal power over the account, users can send e-transfers, deposit money, and reload the account with the pre-paid Visa card each party is provided (in digital and physical form). In addition to this, the app offers real-time balance updates, expense tracking, and the option to share savings goals.

This innovative, tech-savvy approach to what has historically been a much more complex and time-consuming procedure makes the process of obtaining and maintaining a joint account easier and more accessible than ever. The simplicity and convenience of the app means you no longer have to go to a bank branch with all your personal documentation, complete a multitude of forms, and so on. As long as you have a bank account, you can have a joint account. All of which sounds pretty great, doesn’t it?

A hassle-free way to keep track of your roommate’s rent payments, your elderly parent’s medical fees, your household’s expenses. The unprecedented ease will inevitably encourage people who previously didn’t have joint accounts to venture into the world of shared finances—and while there are certainly benefits to the joint venture, it is important to understand the risks as well.

First of all, in the event that the relationship between the parties involved sours, the account risks being handled in a way that goes against one (or more) of the account holder’s wishes. As a result, the angered party may have to go to court to challenge their fellow account holder’s actions—a process that is likely to be expensive, stressful, and time consuming.

What is more, despite one of the primary benefits of a joint account being that it can simply pass to the surviving party after the other account holder’s death (possibly bypassing probate), a host of issues could still arise when one of the account holders dies. If it was not made clear that the contents of the account were meant to be a gift to the surviving party, the contents of the account run the risk of becoming part of the deceased’s estate instead of passing over. While this can often be avoided provided the surviving account holder has the right of survivorship, it is a consequence to consider before opening the account.

Another unintended consequence to consider is one that could arise if the account is held by spouses: if they divorce or separate, the account could be claimed in the separation or divorce settlement. Alternatively, if the account was left to the surviving owner by the deceased account holder (i.e. a parent left the account to their adult child), and the surviving party then gets divorced, the account could be fought over in those divorce proceedings as well.

While bearing in mind the possibility that the money could end up with someone besides the surviving account holder, it is worth noting that the funds in the account are also available to creditors. If one party is in debt or declares bankruptcy, this could affect the joint account. This is especially an issue if one of the account holders dies and the funds end up forming part of the deceased’s estate, from which the creditors will look to collect their money.

Even with a shiny, new, and seemingly innocuous app, it is important to consider the risks. Per their Cardholder Agreement, consent is only needed from one of the users to close the account entirely—and the person initiating the closure will need to transfer all the funds in the joint account to their personal account, prior to closing it; a term of service that could undoubtedly backfire.

Ultimately, while a joint account can provide a simpler way to share expenses, ease the process of transferring funds to the survivor after death, and even help someone who has difficulty managing their account on their own, there are serious risks that come with sharing finances, and it is imperative to consider whether the pros ultimately outweigh the cons.

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