Sika, Floor Joints

Joint Bank Account

A joint bank account is a bank account jointly opened by two or more individuals both authorized to fully dispose of the account funds. Joint accounts are typically opened by close relatives (such as married couples) or by business partners, but they can be used in other circumstances, for example by clubs, associations etc.

Legal Considerations

A joint account is much more than just giving power of attorney to an authorised signatory on a personal account. Private clients planning to open a joint account should therefore carefully consider all organizational and legal implications in advance.

As a matter of principle, 100% of the funds on a joint account legally belong to both account holders, irrespective of which account holder has funded, or will fund, the account. In other words, a joint account confers full ownership rights and obligations to both account holders, that is (i) full rights of disposal of all of the funds on the account (even if they were generated by one account holder only) and (ii) joint and several liability for all transactions on the account, for example overdrafts (even if these overdrafts were caused by only one account holder).

Organizational and Succession Planning Considerations

Joint account designations come in two different types, as illustrated below:

John Major and Elizabeth Major

John Major or Elizabeth Major

From a succession planning perspective, there is a significant legal distinction between “AND accounts” and “OR accounts”, as in the event of death, the surviving "AND account" holder can no longer access the account funds, unless the deceased's heirs give their consent.

From an organizational perspective, "AND accounts" are difficult to manage in daily life, as all account administration acts (transfers, withdrawals, placing of a standing order, granting of a power of attorney, credit request, account closing etc.) need to be signed collectively by both account holders.

Typically, "AND" accounts are used by clubs and associations to prevent abuse.

Conversely, "OR accounts" presuppose a lot of mutual trust, as each account holder can freely dispose at any time of all of the funds without the involvement of the other account holder. However, some critical acts can be operated only jointly, such as account opening and closing, in addition to concluding and modifying (i) credit agreements and (ii) powers of attorney.

In the same spirit, any powers of attorney granted jointly may be revoked individually and each "OR" account holder may individually transform an "OR" account into an "AND" account.

To conclude, while "AND" joint accounts suffer from blind distrust, "OR" joint accounts suffer from blind trust.

Advantages of Joint Accounts

• Convenient handling of, and easy overview on, common lifestyle expenses (food, rent, car, internet, children, holidays)

• Account inflows can be booked in favour of any of the account holders

• In the case of "OR accounts", the surviving account holder has immediate access to the account (rights of survivorship)

• Many banks allow for the surviving account holder to close the joint account without involving the deceased's heirs

• In theory, one single joint account may be less expensive than keeping two personal accounts

• From the bank's perspective, (risk, etc.) notifications sent to one account holder are sufficient to meet the bank's duty of information

Disadvantages of Joint Accounts

• Risk of account pilferage and general discord in cases of separation and divorce

• In case of divorce, the accumulated joint account funds legally belong to both account holders, whereas inflows subsequent to the moment of divorce legally belong to the respective beneficiary of the inflow only

• If the joint account presents a debit balance or overdraft, both account holders are jointly and severally liable (even if the debit balance was caused by the other account holder)

Pitfalls of Joint Accounts

Even in cases where joint account holders are not married (or not even related), what happens to one person can affect the other person’s money:

• An elderly parent puts an adult child as a joint account holder: if the adult child gets divorced, the account may be considered part of the adult child’s assets, even though the funds were earmarked as the parent’s money

• A grandparent opens a joint account with a grandchild to save for college, but later, the grandparent goes bankrupt or faces a lawsuit

• Either party uses the account as a collateral for a loan, then defaults

The motivation for joint accounts is often the desire to “take care” of someone - just in case. In many cases, however, a simple power of attorney may be a better solution.

Open a joint account