Ownership of Joint Accounts

A Pennsylvania mother successfully prevented her adult daughter's creditor from seizing a brokerage account that the mother had established in the joint names of the mother, her daughter, and an adult son.

The mother opened the account as a "convenience" account. The law labels bank and brokerage accounts as convenience accounts when a depositor names a friend or family member as a joint owner of an account for the convenience of having the friend or family member be able to withdraw funds or otherwise assist the depositor in performing banking operations.

Convenience accounts also give the depositor an advantage in estate planning. Established joint accounts generally are not subject to probate or estate taxes. A family member or a friend who holds joint title with survivorship rights to an account simply becomes the sole surviving owner after the death of the depositor. Sometimes referred to by the courts as "a poor man's will," the jointly titled bank account is a tool often used by a person of modest means to pass his or her money to family members following the depositor's death.

The mother made all of the deposits to the brokerage account and, from the outset, she told her account advisor that she intended to control the money herself. Her main purpose in making her son and daughter co-owners was to empower them to draw funds for her use if she should became incapacitated. All of the interest earned on the account was always reported on the mother's tax returns, and she kept all of the account records.

The daughter was employed as a bookkeeper and was arrested after she embezzled substantial money from her employer. Convicted of theft and forgery, she was ordered by the court to pay $300,000 in restitution to her employer. To assist her daughter, the mother issued a check to the employer for $60,000 as partial payment of the restitution obligation. The employer noticed that the account on which the check was drawn was a joint account and promptly went to court to seize the daughter's share of the account to pay off the balance of the restitution owed. The Pennsylvania Supreme Court protected the mother's right to keep all of the money.

The Pennsylvania Multiple Party Account Act is a law that defines the interests of joint owners in financial accounts. During the lifetimes of the owners, if a dispute arises as to ownership, each named owner has an interest in the account in proportion to his or her deposits into the account. Thus, where one person has made all or substantially all of the deposits to a jointly titled account, that depositor has the right to control all of the money in the account.

The Act does provide that where there is clear and convincing proof that the depositor actually intended to make a gift to the other joint owners, the other owners are the true owners entitled to the money in the account. Where joint owners are children under the age of 18, the Pennsylvania Uniform Gifts to Minors Act controls ownership issues. Minors' accounts belong to the minors, not to the adult who is named as custodian.

The creditor argued that the Act applies only to bank accounts and not to brokerage accounts. The Pennsylvania Supreme Court disagreed, finding that just about any financial account with any financial institution is covered by the Act's protections.

While establishing joint accounts can be a very wise component in estate planning, not all joint accounts will help your heirs avoid probate. Be sure to consult with an attorney experienced in estate planning before using joint accounts as part of your estate plan. If you have a convenience account now or intend to establish one, you must keep control of the account records, report all of the interest income on your own tax return, and control the deposits into the account if you expect to win a dispute over the ownership of the account. Keep in mind that disputes about ownership do not arise just among owners--often, they are started by the creditors of one of the joint owners.

Back to Table of Contents