Do you have a joint bank account with your spouse, friend or business partner? Was the account opened in Florida and subject to Florida’s banking laws? Think you know what will happen to the funds in the account if you or they pass away?
Maybe. But the answer may not be as simple as you think.
There are many ways to structure a joint bank account in Florida. Some of these structures include Tenants by the Entireties (spouses only), Joint Tenants with Rights of Survivorship, Joint Tenants in Common, Power of Attorney/Convenience Accounts, and Joint Payable-On-Death accounts. The type of protection the account will provide you and who will own the funds when an account holder passes away will depend on which structure you choose.
Like the Templar Knight said to Indiana Jones in The Last Crusade: “You must choose, but choose wisely.” In the movie the guy who failed to “choose wisely” drank water out of the wrong cup, shriveled up and turned to dust.
Choosing the wrong structure for your joint bank account may not result in you turning to dust, but your account may not be so lucky. The structure you choose will determine whether the account is subject to garnishment or inclusion in an account holder’s bankruptcy proceeding. Whether the account funds are owned in equal or unequal shares. And who will own the funds once an account holder dies.
Make sure you know what you are getting into before opening a joint bank account in Florida with your spouse or another person.
Start by asking yourself the following question:
What do we want to accomplish by opening a joint account?
The answer to this question should address whether the account will be used (a) by spouses to operate their family budget, (b) by business partners to operate their business, (c) to assist an aging parent manage finances, (d) to leave money to beneficiaries, or (e) for some other purpose.
Your purpose in opening the account will have the biggest influence on the way you structure the account.
1. Account Holders as Spouses
Florida law presumes joint spousal bank accounts are intended by the spouses to be treated as Tenancies by the Entireties. In other words, if the bank account signature card signed by the spouses does not indicate what type of account it is, Florida law presumes it is a TBE. Of course, to be safe you can always spell out on the signature card that the account is intended to be a Tenancy by the Entirety.
TBE’s can be beneficial to spouses for several reasons.
One benefit of a Florida TBE (probably the biggest) is creditors cannot garnish TBE’s for the debt of just one spouse. TBE’s are not subject to garnishment unless the garnishment arises out of a debt owed by both spouses.
The TBE essentially views the “marriage” as its own legal entity separate and apart from either spouse. The “marriage” owns the TBE property; not either spouse. When only one spouse owes a debt to a creditor the TBE prevents the creditor from going after property owned by the “marriage.”
Florida law allows a debtor to shield assets from creditors (absent a fraudulent transfer) using a TBE if the debtor can show:
1. The debtor and his or her spouse have joint ownership and control of the property;
2. The debtor and his or her spouse have identical ownership interests in the property;
3. The ownership interests of the debtor and his or her spouse were created by the same legal document;
4. The ownership interests of the debtor and his or her spouse began at the same time;
5. The surviving spouse will own the property upon the death of the other spouse; and
6. The debtor and his or her spouse must have been married when the property became titled in both of their names.
7. The debt is only owed by one of the spouses.
It is important that the TBE be set up for a purpose other than to hinder, delay or defraud a creditor. Any such purpose will likely result in the TBE being declared a fraudulent transfer and allow creditors to attach the TBE funds to a garnishment. The safest way to avoid the fraudulent transfer issue is to set up the TBE before a debt is incurred or a lawsuit is threatened.
A second benefit of a Florida TBE is it is not included in the bankruptcy estate unless both spouses file for bankruptcy or the TBE is the result of a fraudulent transfer as previously discussed.
A third benefit (or is it a hinderance?) of a Florida TBE is both spouses are required to sign off on the withdrawal of TBE account funds.
So why does Florida law favor TBE’s when spouses are involved?
Simple. To limit marital discord by preventing one spouse from losing the family fortune to his or her creditors, tying the family finances up in bankruptcy or draining the bank account without the other spouse’s consent.
It is important to note that upon the death of a spouse, TBE joint bank accounts funds become the sole property of the surviving spouse.
2. Account Holders as Business Partners
Florida law presumes joint bank account holders intend to create a “Right of Survivorship” unless there is some written indication that a joint tenancy is not desired, or the account is set up between two spouses (i.e. presumed TBE). This presumption can be overcome if there is evidence that the account holders intended differently (evidence like notating on the signature card that no Right of Survivorship is intended).
This means when one account holder passes away the account balance automatically vests in the surviving account holders.
Two major differences between the Right of Survivorship account and the TBE is creditors can garnish a Right of Survivorship account, and the account can be subject to the bankruptcy proceedings of a single account holder.
Florida joint account laws do not address ownership rights and interests between the account holders when all account holders are alive. Instead, it is left to account holders to determine such rights and interests via contract or course of dealings with each other. The prevailing law in Florida is that (absent a contract detailing account ownership interests) each account holder has the right to his or her individual share of the account.
If account holders designate that the bank account is not to include “Rights of Survivorship,” but instead “Tenants in Common,” each account holder owns an undivided equal fractional share.
Account holders of both Joint Tenants with Rights of Survivorship and Tenants in Common accounts are liable to the other account holders if they withdraw more than their share of the bank account funds.
3. Assist Aging Parent Manage Finances
Florida law allows your aging parent to sign a Power of Attorney naming an “Agent” to manage his or her finances. With a POA, the Agent can open a checking account and the POA will determine the Agent’s rights and responsibilities regarding the checking account. In general, an Agent can only use funds deposited into a joint POA bank account for the benefit of the aging parent (i.e. “Principal”).
4. To Leave Money to Beneficiaries
Florida law allows you to open a “payable-on-death” bank account. These accounts provide two principal benefits: (a) name a beneficiary to the bank account, and (b) avoid having the account go through probate.
It is important to know what type of joint bank account you want to open. If you know what type of bank account you want to open make sure you indicate it on the signature card of the account. If you do not indicate the type of account you want to open Florida law makes two presumptions (a) if the joint account holders are spouses the account is presumed to be a Tenancy by the Entirety; (b) if the joint account holders are not spouses the account is presumed to be a Joint Tenancy with Rights of Survivorship.