A pitfall I ran into recently with a new client was a good reminder about making sure Joint Accounts are properly set up. If you’re a client of mine with a Joint Account, this is already taken care of, but I would hate to see others run into this kind of problem.
A Joint Account With Rights of Survivorship is intended to simplify the ownership issues if one of the account holders dies. Hence the term “rights of survivorship”. However, when setting up this type of account, there is usually an option concerning whether withdrawals require two signatures or one, and whether checks are issued to Account Holder 1 AND 2, or Account Holder 1 OR 2. Sometimes people feel like there is added security by choosing the “AND” option and requiring two signatures, but this can create problems when one of the account holders no longer has the ability to sign paperwork, particularly in the event of death.
I ran into this when I went to transfer a Joint account from a previous institution after one of the account owners died. The surviving client set up a new single-trustee Trust account. The transfer was rejected because the Joint account required two signatures, and a death certificate is not sufficient. At this point the easiest course of action would be to convert the Joint account to an Individual account, but the previous advisor wanted to charge in the neighborhood of $3000 to do this, essentially holding the money hostage. The next option was to have the account liquidated and a check issued, which could then be deposited in the client’s bank. This worked on a previous disbursment for a relatively small amount, but the bank has a policy that any check over $1000 needs two signatures. So hopefully you see the pattern. Joint accounts are supposed to make things easy, but if they have the restriction of requiring two signatures, there is the potential for problems.
As a quick disclaimer, there are times when requiring two signatures may be a wise thing to do. In the case I ran into, there should not have been a problem converting the Joint account to an Individual account except for the previous advisor attempting to extract more money before losing the client. One call from an attorney fixed the issue in short order, but it was unfortunate that the client had to go through the stress and confusion.
