Many people rely on Joint Accounts and Pay on Death (“POD”) Accounts to manage their finances and to transfer what remains at death without probate. These are sometimes used as alternatives to Trusts where the remainder of a person’s estate is less than $150,000 in gross value and there is no intention for any inheritances to be held in further trust.
A Joint Account is a financial account payable upon request by any one or more of the joint parties to the account. In California, if the parties are married to each other then the account is presumed to be a community property asset and subject to all Community Property laws, unless clear and convincing evidence to the contrary is provided. A Joint Account, therefore, between spouses is very appropriate place to deposit retirement monies and social security earned during the marriage.
Some people also create Joint Accounts to add their children as parties in order to allow them to manage their finances without the necessity of a power of attorney. This approach can sometimes lead to unintended gifts at the parent’s death to any child who was added as a party when other children were not also added.
Any account where more than one party can withdraw funds is a Joint Account regardless of whether there are explicit survivorship rights transferring a deceased party’s interest to the surviving parties. In California, while parties to a Joint Account are alive, each party’s interest in the account is based on his or her net contribution; how much each party deposited less how much they withdrew from the account, plus their share of any interest.
If any party to a Joint Account withdraws more than his or her net share, then the remaining party, or parties, each have a claim for their share of the excess withdrawal against the withdrawing party. California amended its Probate Code in 2013 to overturn a 2005 California court decision involving one party to a Joint Account who made a very large excess withdrawal after she learned that her engagement to her fiancé (the other party) was over. The court found that the fiancé made a gift of the excess withdrawal, albeit unintended, because he had contributed the money into a Joint Account that allowed either party to withdraw all the money on deposit.
When a party to a Joint Account dies, unless there is clear and convincing evidence to the contrary, the deceased party’s share of the account is divided equally amongst the surviving parties. Thus, each surviving party increases his or her original share of the Joint Account and the deceased party’s share in the account does not pass by the decedent’s will.
Only when the last surviving party to a Joint Account dies is the account included in that party’s estate at which time it passes pursuant to the deceased party’s will, or else by intestacy.
Another frequently used bank account is a Pay on Death Account (“POD”). A POD Account is one which is payable to one or more parties during their lifetime(s) and then payable outright to one or more POD “payees” after the last party has died. As each party to the POD Account dies any remaining parties share equally in the deceased party’s share of the POD account.
A POD Account can, therefore, be completely exhausted during the lifetime of the parties leaving nothing for any surviving POD payee(s). If none of the designated POD payees survive, however, the POD account is included in the estate of the last party who died and passes according to that party’s will, or else intestacy.
Joint Accounts and POD Accounts each have their place in estate planning. While they do not cost any money to establish they are also very limited in what they can accomplish and can sometimes have unintended results.