A bank account title designates the ownership of the account. In addition to naming the owners, the title can determine control of the account, the distribution of money upon the death of an owner and the calculations for paying taxes. There are a variety of bank accounts to choose from, so it's best to do your research to choose the best one for your particular situation.
Individual Bank Accounts
An individual account is an account that is held and owned by a one person. That person is solely responsible for deposits, withdrawals, credits, debits and taxes due in the account. Generally speaking, upon the death of the owner, the distribution of an individual account will either go to a surviving spouse or be covered in the owner's will.
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Understanding Joint Accounts
Joint bank accounts have multiple owners, with each one having a full access to and ownership of the account. This type of account can be used by a couple to share household expenses, by the child of an elderly person to help manage finances or for an adult to manage a minor's money. Most joint accounts are set up with rights of survivorship, meaning that upon the death of a tenant, ownership automatically is transferred to the surviving tenant.
Beware that the equal ownership provided to joint tenants on an account can lead to a variety of problems related to spending, taxes and inheritance.
Custodial Bank Accounts
Custodial accounts usually are set up by a parent of relative for the benefit of a minor. These accounts often are used as college savings funds. While the funds are the property of the minor, the custodian controls the account until he comes of age. The minor can assume control of the account upon becoming an adult, which is defined as either 18 or 21 years of age, depending on the state.
Trust Bank Accounts
Trust accounts are legal entities established to control assets that are included in the trust upon the death of one or more of the trustees. Trusts are used to avoid the probate process, and instead have specific instructions to appoint one or more successor trustees to organize and distribute money, assets and property.
Sole Proprietorship Account
A sole proprietorship is a simple business entity that is owned by one individual. A sole proprietorship account generally is set up to separate the deposits and expenses of the business from personal uses, which can help to keep records organized. The business uses the owner's taxpayer ID and files an individual tax return that includes deductions and taxable income resulting from the operation of the business.
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Corporation or LLCs
Corporation and LLC bank accounts are stand-alone entities that are separated from individual owners. These business bank accounts are set up under the employer identification number and legal name of the corporation or the LLC. Setting up an account generally requires documentation regarding the structure of the business, its purpose and the people empowered to control the account.