As long as the proper documentation is submitted to a financial institution, any two adults can open a joint account. This type of account can provide convenience and shared financial commitment, but can also create problems because of the structure of joint tenancy accounts.
The Structure of Joint Accounts
Joint accounts are established with the two people having equal access to and ownership of the assets on deposit, regardless of how much each party has contributed. In a joint account each tenant has unlimited access and neither party can place restrictions on gifting, spending or withdrawals by the other tenant. Additionally, each party can make independent decisions in brokerage accounts regarding the allocation of assets as well as buying and selling stocks and bonds.
Advantages of Joint Accounts
Having a joint account allows both tenants access to shared money for a variety of purposes, including paying bills, shopping for groceries and taking vacations. This type of account can also allow the partners to divide labor based on each one's skill set. For example, in a joint account, a couple can delegate bill paying to the person who keeps a calendar for scheduled payments and maintains a balanced checkbook. This can provide a much better solution than having separate individual accounts that require one partner to constantly chase down the other when bills are due.
The problems that may come about in a joint account arise from the equal and unrestricted access of each tenant. According to Brent Adams, senior vice president at Private Bank of Buckhead in Atlanta, a bank is powerless to stop one party from withdrawing all the money in a joint account. Less dramatic actions can also become problematic in joint accounts. For example, one party's proclivity to go on expensive shopping trips can cause major discord between the two tenants. Unequal contributions, gifting and transfers can create problems between tenants as well.
The Meaning of Rights of Survivorship
Many joint accounts are set up with rights of survivorship. According to Sandra M. Radna, a family attorney with Radna & Androsiglio in New York, if a joint tenant dies, the account is automatically transferred to sole ownership by the survivor.Because of the survivor's rights in this type of account, it is essential that both parties understand how the assets will be treated and that they are legally excluded from distribution instructions that may be included in a will or family trust.