What is a joint bank account?

A joint bank account lets you name a co-owner for your bank account. Funds in the account transfer to your co-owner automatically if you die. Your estate generally avoids the expenses and delays of probate.

Holding checking and deposit accounts as joint bank accounts can be a simple and inexpensive way to transfer funds immediately upon your death. It guarantees your spouse (or other co-owner) continuing access to the family checking account to pay monthly bills. You can change the designation until your death. However, the co-owner can withdraw funds from the account until revoked as co-owner.

A typical bank account would be subject to probate at your death. Property subject to probate generally incurs fees, such as attorney’s fees, and the transfer of probate property may be subject to delays of one to several years. A joint bank account usually avoids probate, and the co-owner can generally continue to access the funds immediately afteryour death, without delays.

The requirements for a joint bank account may vary somewhat under state law. Ask your bank, attorney, or financial advisor to make sure that the account won’t be subject to probate.

You do not make a gift for gift tax purposes when you name the co-owner of a joint bank account. However, you do make a gift when the co-owner withdraws funds you contributed to the account. You generally remain subject to income tax on funds you contributed to the joint bank account while you are alive. And funds in a joint bank account may be subject to estate tax at your death. In general, if co-owned with your spouse, one-half of the account is included in your gross estate; if co-owned with anyone else, the account is included in your gross estate except to the extent that you can prove contributions were made by the other co-owner.

Gifts qualify for a $14,000 annual exclusion in 2013. Of course, if your spouse is the co-owner, the funds would qualify for the gift or estate tax marital deduction. If the co-owner is two or more generations younger than you (e.g., a grandchild), the funds may also be subject to generation-skipping transfer (GST) tax. Substantial exemptions ($5,250,000 in 2013) are available to protect property from gift and estate tax or GST tax.