Many individuals who open a joint bank account in New York are completely unaware of the legal and tax implications associated with these types of accounts. This is quite ironic, given that joint accounts are often opened to simplify inheritance matters, not to complicate them.
There are two presumptions associated with joint accounts, under NYBL 675:
1. Moiety Rule: When a deposit is made into a joint bank account in the name of the depositor and another person, each account holder is granted an immediate and unconditional one-half interest in the deposited funds.
2. Survivorship Rule: The surviving joint account owner has a right of survivorship. The presumption can be rebutted by clear and convincing evidence, by the burden of proof is upon those challenging the rights of the survivor.
There are several issues commonly associated with joint accounts:
1. Question of intent. Most individuals are not aware of the presumption of moiety and survivorship, do not intend the joint account holder to immediately receive one half of the funds and want to open the joint account fund for “convenience only.” Therefore, the donative intent is lacking. To accommodate the need of the individuals, in New York, NYBL 678 was enacted, to enable a person to make a joint account specifically “for the convenience” of the depositor, without the right of survivorship. Yet these accounts are seldom used. Many banks are not aware of them and do not offer them to customers.
2. Creditor Claims. It may come as a surprise, but when a parent deposits money into a joint account with an adult child, a judgment creditor of the child is immediately able to seize one-half of the account.
3. Tax Reporting. A deposit into a joint account qualifies as a gift under federal tax law, and one half of it should be reported on that year’s federal gift tax return. New York State presently does not have a gift tax, but the gift may still be included in the decedent’s gross estate for New York state estate tax purposes, if the depositor is a New York State resident and dies within 3 years of making the deposit.
Alternatives to joint accounts
If one does not like the above presumptions and unknown risks associated with creditors, some alternatives are available. First, ask your bank if they have a “for convenience only” account option. In order for provisions of Banking Law 678 to apply, the words “for the convenience” or similarly “for convenience only” must appear in the title of the account. Second, if this option is not available, open an individual account and provide the third party with a power of attorney limited to that account.
Please contact Sverdlov Law PLLC at 212-709-8112 or firstname.lastname@example.org if you need help with your estate planning and have questions about proper titling of accounts.