Joint bank and investment accounts are among the most common assets families hold together. When one account holder dies, the surviving owner often expects immediate, uninterrupted access. In many cases that expectation is correct, but the details matter more than many people realize. How a joint account is titled determines who gets it, how quickly, and what tax consequences follow.
How Joint Tenancy With Right of Survivorship Works
Most joint accounts in Massachusetts are held as joint tenants with right of survivorship (JTWROS). This means that when one owner dies, the surviving owner automatically becomes the sole owner of the entire account. The transfer happens by operation of law, not through a will or trust. No probate court is involved, no executor needs to sign off, and no waiting period applies under the account agreement itself.
This automatic transfer is one of the reasons joint accounts are so popular. Families use them to ensure a surviving spouse or adult child can access funds without delay. But the simplicity of JTWROS can mask complications that surface after the death, particularly around taxes and unintended beneficiaries.
What Happens at the Bank
Even though the legal transfer is automatic, the practical experience at a financial institution can be less smooth. When a bank learns that one account holder has died, it will typically require a certified death certificate before making changes to the account. Some institutions temporarily restrict activity on the account until documentation is processed. This is not a legal freeze in the way a probate court might impose one; it is an internal compliance procedure.
Families should be prepared for this. Having several copies of certified death certificates on hand and contacting the bank promptly can reduce delays. The surviving account holder should also ask whether any automatic payments linked to the account need to be updated.
Joint Accounts That Do Not Carry Survivorship Rights
Not every joint account includes a right of survivorship, such as accounts held as tenants in common. Bank and brokerage accounts are governed primarily by the account title and account agreement. Families should understand that survivorship depends on the account agreement and applicable statutes, not on a general common-law presumption. When an account does not carry survivorship rights, the deceased owner’s share becomes part of their estate and passes under their will or under Massachusetts intestacy law if there is no will.
This distinction matters more than many families realize. The difference between JTWROS and tenancy in common can be the difference between a surviving spouse having immediate access to funds and needing to wait for appointment of a Personal Representative to access the decedent’s share. Families should confirm how their accounts are titled and understand what that titling means.
Estate Tax Inclusion Under IRC Section 2040
Joint accounts carry estate tax implications that are easy to overlook. Under federal law (IRC Section 2040(a)), the full value of a jointly held account may be included in the deceased owner’s gross estate, reduced only to the extent the estate can show that the surviving owner furnished consideration from funds that originally belonged to the survivor and were not derived from the decedent for less than full and adequate consideration. This is known as the tracing rule.
For example, if a parent adds an adult child to a bank account for convenience, and the parent funded the entire balance, the full account value is included in the parent’s estate at death. The estate bears the burden of substantiating any reduction from full inclusion, and in practice the surviving co-owner usually must provide the records showing the survivor’s own contributions.
There is an exception for spouses. Under IRC Section 2040(b), joint accounts between spouses are automatically treated as owned 50/50, regardless of who contributed the funds. Half the value is included in the first spouse’s gross estate. However, if that interest passes to a surviving U.S.-citizen spouse, it will ordinarily qualify for the marital deduction under IRC Section 2056, so the inclusion often does not produce federal estate tax at the first death. This spousal rule simplifies the calculation but does not eliminate estate tax exposure for larger estates when both spouses’ combined assets are considered.
For Massachusetts estate tax purposes, federal gross-estate inclusion concepts are generally incorporated through MGL c. 65C. Under current law, no Massachusetts estate tax is due if the taxable estate is two million dollars or less. Families who hold significant joint assets should understand how those accounts factor into the estate tax calculation.
Stepped-Up Basis Considerations
When a joint account holder dies, the tax basis of the account’s assets may change. Assets included in a decedent’s gross estate generally receive a basis adjustment (up or down) to fair market value at the date of death (or the alternate valuation date, if elected). For joint accounts between non-spouses, only the portion included in the decedent’s estate (determined by the tracing rules above) receives the adjustment.
For spousal joint accounts, the surviving spouse receives a basis adjustment on the half included in the deceased spouse’s estate. The surviving spouse’s own half retains its original basis. In community property states, both halves of qualifying community property generally receive a basis adjustment at the first spouse’s death, but Massachusetts is not a community property state.
This basis adjustment can have real consequences. A surviving spouse who sells appreciated stock from a joint brokerage account will owe capital gains tax on any appreciation above the adjusted basis. Understanding which portion received an adjustment and which did not is essential for accurate tax reporting after a death.
When a Joint Account Is Not the Best Tool
Joint accounts are convenient, but they are not a substitute for a comprehensive estate plan. Adding a child to a bank account to avoid probate can create unintended consequences. The child becomes a legal co-owner during the parent’s lifetime, which means the account could be exposed to the child’s creditors, divorce proceedings, or financial difficulties. Additionally, if an aging parent adds one child to a large bank account for convenience, they may unintentionally disinherit their other children, as the account would transfer automatically to the joint owner, rather than according to the terms of their estate plan.
For joint bank accounts, a completed gift generally occurs when the other party withdraws funds for that person’s own benefit. Gift-completion rules may differ for jointly titled brokerage or securities accounts depending on the rights transferred.
A revocable trust or a payable-on-death (POD) designation can often accomplish the same goal of avoiding probate without the risks of adding a co-owner. A POD designation keeps the account in the original owner’s name during life and transfers it to the named beneficiary at death, similar to a beneficiary designation on a retirement account. The account is generally not reachable by the beneficiary’s creditors before the transfer occurs, though the extent of protection may depend on the circumstances and applicable law.
Planning Ahead
Joint accounts deserve more thought than many give them. The titling of a single bank account can affect probate, estate taxes, income taxes, and creditor exposure. Families who take the time to review how their accounts are titled and discuss the alternatives with an attorney are in a much stronger position to avoid surprises.
At RackiLaw, we regularly help families evaluate whether joint accounts, POD designations, or trust-based ownership best fits their overall estate plan. A short conversation can clarify the options and ensure that account titling works with the rest of the plan rather than against it.
References
- IRC Section 2040(a) (estate tax inclusion of joint interests, tracing rule)
- IRC Section 2040(b) (qualified joint interests between spouses, 50% inclusion)
- IRC Section 2056 (marital deduction)
- IRC Section 1014 (basis adjustment for assets included in gross estate)
- IRC Section 1014(b)(6) (community property full basis adjustment)
- Treas. Reg. § 25.2511-1(h)(4) (gift tax treatment of joint bank account withdrawals)
- MGL c. 167D, § 3 (deposit account survivorship; banking statute)
- MGL c. 190B, Sections 2-101 through 2-103 (Massachusetts intestacy distribution)
- MGL c. 65C, § 2A (Massachusetts estate tax threshold)