Argument about finance are among the top reasons why relationships and friendship fails, therefore it is important to talk about money before it becomes a problem.
Understanding the pros and cons of merging money before you open a joint account is very essential. So,
What is joint account
A joint account is a bank account shared by two or more individuals. Any individual who is a member of the joint account can withdraw from the account and deposit to it. Usually, joint accounts are shared between close relatives or business partners.
A joint account is not the same as adding an additional cardholder , i.e. an authorized secondary user added to an account by the primary cardholder who remains fully and solely liable for all spending on both cards and repayments.
A joint bank account can be convenient for handling day-to-day transactions or taking care of loved ones.
When you open a joint bank account, each person on the account has access to it. For example, each owner will receive checks and a
debit card with a checking account. Usually, transactions made by one owner won’t require the consent of another owner. This means that both (or more) owners share the responsibility of maintaining the account. Successfully owning a joint bank account will include a lot of transparency between owners.
Many joint bank accounts include a “right of survivorship” feature. This states that if one account owner dies, the other owner will receive 100% of the account funds. This comes in handy when you want the money to go to the co-owner. But you’ll have to be wary of this feature if you want your money to go elsewhere after you die. The “right of survivorship” feature will override your will if you have one.
How to open joint account
Combining savings can be financially beneficial. But before joining savings together, make sure that you understand the legal distinction between becoming co-tenants and one party. Discussing this with your partner will help you begin your merging of money with such seemingly small details ironed out.
Opening a joint bank account is relatively easy. All you really have to do is go through the steps of opening a regular account, but choose the option of making it a joint account. When you open a joint account, don’t forget to provide the information of all the owners. This includes Social Security numbers, photo identification, addresses and more.
Depending on the account type and the institution, you may have the option to simply add someone to an existing account. The new owner will still have to provide the necessary information and documents.
Before signing on the dotted line, make sure you and the co-owner know the terms of the joint account. It can also help to make a plan outlining who will take care of what on the account. For example, if someone overdrafts the account, will you both assume responsibility? Or will the person who overdrafted have to deal with that themselves? Check with your financial institution about how they handle joint bank accounts.
Despite the fact you open a joint bank account, you should still keep a separate account open which only you have control over.
Mostly, joint bank accounts are opened by married couples. But it’s not only married couples who can open a joint bank account;
unmarried couples who live together, roommates,
senior citizens and their caregivers
parents and their children can also open joint bank accounts.
Note; Before combing your assets, it might be worthwhile to first sit down together with a financial advisor to ensure you’re both on the same page.
Benefit of joint account
Putting your money in joint account will force you to talk about money regularly and seriously look at your spending, saving, and investing goals. This will make it easier to stay on a budget and to recognize when you’re going off track.
Furthermore, a joint bank account is a good way to deal with shared expenses, as with married couples or roommates. Instead of splitting a bill between two bank accounts, the funds can simply come from one joint account. Couples can also more easily budget their expenses with a joint bank account. A joint bank account also provides a way for a pair to keep an eye on each other’s expenses, like with a parent and their child. This way, the child can gain some banking experience while the parent keeps watch.
Booby trap of a Joint Bank Account
opening a joint account , whether with family members or business associates, has potential pitfalls, as well.
Although pooling your money may imply love or trust, the consequences of having a shared account can range far beyond what both parties expect, especially if things go sour.
•Rights of ownership.
•Risk of tax triggers
If someone other than a spouse is co-owner of a bank account while all parties remain alive, additional tax issues may arise.
Annual exclusions apply to gifts to each donee,
according to the IRS. There is an annual exclusion of $15,000 for 2018 and 2019. Generally, the donor is responsible for paying the gift tax, but under special arrangements the donee may agree to pay the gift tax instead. Always consult your tax professional for your individual circumstances. The IRS defines a gift as any transfer to an individual. This transfer can be either direct or indirect, where full considerations — which is measured in money or money’s worth — isn’t received in return.
• Rights of survivorship
• Most joint accounts carry rights of survivorship.
“So, if one of the joint holders dies, there is nothing the surviving joint owner has to do to get that money,” Radna says.
In most cases, a joint account holder’s rights to the funds in the account supersedes what’s written in a will, says Randall Kessler, a divorce attorney based in Atlanta and past chairman of the American Bar Association’s Family Law Section.
• Risk of debt collection, credit damage
• Joint bank accounts lay open to:
• Overdraft charges.
• Debt collection.
• Judgments or garnishments.
Even in cases where joint account holders are not married (or perhaps not even related), what happens in one person’s life can affect the other’s money.
Read also: what is personal finance
Here are a few examples:
An elderly parent puts an adult child as an account co-owner. If that adult child gets divorced, the account can be considered part of the adult child’s assets, even though the implicit understanding is that it’s the parent’s money.
A grandparent opens a joint bank account with a grandchild to save for college, but sometime later, the grandparent faces a lawsuit or goes bankrupt.
Either party uses the account as collateral for a loan, then defaults.
“In most cases, if it’s with a child or an elderly relative or maybe a casual business associate, we think there are much better ways to structure your assets than just to have a joint bank account with those people,”
Now that you have read the benefits and drawback of joint account, do you still consider joint account a good idea?
Comment bellow let’s know your mind.