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Introduction: The Many Types of Accounts
Bank accounts come in a variety of types, and these different types serve different purposes. If you’re a Marylander who is engaged in your estate planning, it is important that you be well-informed regarding these various accounts, as these accounts can be valuable tools in the estate planning process. There are individual bank accounts, joint bank accounts, and trust accounts. In this post, we will briefly go over how these distinct accounts function and then discuss how they can be used during your estate planning journey.
Individual & Joint Bank Accounts
Individual bank accounts are quite straightforward: they are opened by a single individual, all the money in the account belongs solely to that individual owner, and only that individual owner can take money from the account. When the individual owner passes away, the remainder in the account becomes part of the owner’s estate and is then disbursed to beneficiaries. If no will exists, then the remainder in the account becomes subject to Maryland’s intestacy laws.
Joint bank accounts are co-owned by two or more individuals, and all co-owners share in any deposits made to the account equally. Under Maryland law, the default state of affairs with respect to joint accounts is that there are no restrictions on how much or how frequently one of the co-owner can withdrawn joint account funds. In other words, to withdraw funds, only one co-owner needs to sign for the withdrawal, and there is no default limit or maximum on the amount of the withdrawal.
Joint accounts can, however, have special restrictions imposed with respect to maximum withdrawals for co-owners, and those restrictions would be part of a special contractual agreement with the bank. If one of the co-owners passes away, then his or her share is distributed equally among all surviving co-owners. So, if a joint owner has three co-owners, and one co-owner passes away, then the remaining funds are equally shared 50% / 50% by the two surviving co-owners.
Trust Accounts
A trust account can be either singly owned or jointly owned, but whenever the owner or owners pass away, all the remaining funds are distributed directly to the “death beneficiary.” Hence, these accounts are classified as a type of “pay on death” (POD) account. While the owners are alive, the funds are 100% owned exclusively by them, and cannot be accessed by anyone else. Importantly, when the owners pass away, the remaining funds don’t become part of any estate; they are paid directly to the beneficiary, thereby avoiding any possibility of attachment by creditors. Obviously, this fact alone makes these instruments highly valuable in the estate planning process.
POAs Can Be Added to Bank Accounts
Another useful piece of information regarding bank accounts is that account owners can give “power of attorney” (POA) to another individual over accounts. When this happens, the person holding the POA is known as the “attorney-in-fact,” although this person doesn’t technically need to be a practicing lawyer. The attorney-in-fact gains the ability to withdraw funds for the benefit of the account owner; importantly, the attorney-in-fact cannot use the funds for personal gain, and faces serious repercussions in the event that funds aren’t used properly. Also, this POA arrangement can be ended unilaterally at any point, and so account owners (and the attorneys-in-fact) aren’t required to maintain the agreement indefinitely.
Contact the Murphy Law Firm for More Information
Readers who want to know more about estate planning ramifications of bank accounts, trust accounts, creating a valid last will and testament, or any other related estate planning topic, contact one of the estate planning attorneys at the Murphy Law Firm today by calling 240-219-5243.
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