When the primary holder on a joint account dies

BY Pamela Lewis

Sunday, July 14, 2019

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Financial institutions from time to time come face to face with the situation of the death of an account holder and the grief that this can cause, not just emotionally but also financially.

There are medical bills to pay, funeral expenses, credit card debts and a whole host of expenses which can overwhelm the deceased's loved ones. So, in addition to the devastation of losing someone who has been a close friend and confidante, the survivors must seek to put the financial puzzle together, and this can be very exhausting and, truthfully, traumatic.

When the death is that of the primary holder (ie the principal) on a joint account, the situation takes on a whole new perspective, presenting additional concerns as opposed to those experienced when the death is that of a secondary holder.

Note, too, that the situation is not as complicated when there is only one secondary holder; but when two or more persons are named secondary holders on an account there are more considerations.

Joint accounts are often used to protect the joint holders from having to rely on the court for distribution of the funds in the account. The court process can be extremely long, tedious, and very expensive.

When an investor opens an account with two or more joint holders, the ideal situation is that the primary holder should decide (at the point of opening the joint account) how the funds in the account are to be divided, on the primary holder's death.

This is a conversation the primary holder should have with his financial advisor.

A good financial advisor will advise such a client that the best solution for the division of his financial assets is for the primary holder to open separate joint accounts with each of the persons he or she wishes to have a share of the funds. For example, X wants to leave his money for his two daughters, A and B. X will open two joint accounts, one with A being the secondary holder and the other with B being the secondary holder. On both accounts X will be the primary holder.

So, what happens if the primary holder did not do separate accounts at the beginning? Generally, when the primary holder dies the two daughters become what is known as “joint tenants” on the account.

“Joint tenants” is a legal concept which first of all gives the two daughters the right to share the assets equally. It can also give each daughter the right of survivorship. This means that if neither of the daughters severs the joint tenancy, the entire amount of the funds in the account will pass to the other daughter if one of them subsequently dies.

In this situation, the amount to which the deceased daughter was entitled cannot pass to the deceased daughter's heirs; it must go to the other daughter (ie her sister).

In some family situations, the right of survivorship will be the desired situation. However, in other cases, the joint tenant may want his share to pass to, say, his children when he dies. When this is the case, the joint tenant must sever the joint tenancy while he is alive. This may be done by the joint tenant simply requesting her one-half share of the funds (note: if there were three daughters the share would be one-third, and so on).

There are other ways to sever a joint tenancy, but it is important here to understand that whatever method is used, it requires the agreement of all the joint tenants.

The above is a simplified version of a very wide and complex area of law, and the intention of raising it is simply to make investors aware of some of the problems that can arise in the situation presented and how to approach the problem.

In addition, it is a good idea to speak to your attorney before you set up your financial affairs to reduce potential issues or complications in the future.

The information above was not intended to be a legal opinion or advice, and it is highly recommended that investors seek the advice of an attorney when faced with these situations.

Pamela Lewis is vice-president, Investments and Client Services at Sterling Asset Management Ltd. Sterling provides financial and advisory services to corporate, individual, and institutional investors. Feedback: If you wish to have Sterling address your investment questions in upcoming articles, please e-mail us at: info@sterlingasset.net.jm or visit our website at www.sterling.com.jm


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