What is Right of Survivorship on a Bank Account?

Written by , February 14, 2014

What is Right of Survivorship on a Bank AccountIf you’re diligent about trying to achieve your estate planning goals then you’ve probably prepared a will, set up a power of attorney and possibly also a living trust. You’ve probably also taken those goals into account when you named the beneficiaries on your life insurance, as well as the beneficiaries who would receive your individual retirement accounts and 401(k) plans.

But what about your other financial accounts, namely your bank and checking accounts. You can name a beneficiary on your account, but there’s also another way to make sure that your bank account gets passed on to the person you choose – the right of survivorship.

Here’s some banking advice on what Joint Tenants With Right of Survivorship, or JTWROS, which is an abbreviation that banks sometimes use.

  • Right of Survivorship Basics. The right of survivorship is an account feature whereby if the primary holder of the account passes away, the named individual retains full ownership over all of the funds in the account.
  • Right of Survivorship Bypasses Your Estate. As with naming a beneficiary, a right of survivorship enables the assets in the underlying account to bypass the probate process after you pass away. This means that the funds in the account will not be distributed per your will – the right of survivorship conveys ownership to the person you’ve identified before they will comes into play.
  • The Right of Survivorship is Not Automatic. It’s important to understand that joint account ownership does not necessarily imply a right of survivorship. You might have a joint account with your spouse, for example, but if that account does not include a right of survivorship provision (JTWROS) then the amounts in the account would go through the probate process upon one of you passing away. While it might not seem particularly problematic, you may wish to consider potential situations where there may be other family members (such as children from prior marriages) who might make a claim to the funds in the joint account.
  • Right Of Survivorship Separate From Joint Ownership. A right of survivorship feature can go hand-in-hand with joint account ownership, but it does not necessarily need to. As you may know, joint ownership over a bank account gives each owner the full rights to access the account, potentially without the consent or knowledge of the other. Be very careful when setting up a new account if you only wish to convey a right of survivorship to someone, but not give them any current ownership rights over the account.
  • Tax Implications of a Right of Survivorship. It’s important to understand the tax implications of a right of survivorship. Funds that pass through a right of survivorship will generally be taxed as an inheritance (and not as income), provided that the survivor can establish that the original source of the funds was the deceased party. If you’re looking to use a right of survivorship as a significant part of your estate planning, consult a tax adviser to make sure of the best way to reach your goals.
  • While the majority of your assets will be covered by your will and various beneficiary designations, you can use the right of survivorship that is available for many bank accounts to make sure your estate planning goals are met.

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