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Who Owns Funds Held in a Tennessee Multi-Owner or Joint Account After One of the Account Owners Dies?

Posted by Nina Whitehurst | May 11, 2020 | 0 Comments

This question comes up a lot, but usually after one of the owners has died, unfortunately.  I write "unfortunately", because more often than not result is not what the true account holder intended, and this results in a lot of family strife at a time when stress levels are high.

The answer to this question is, as usual, it depends.  Tennessee law is very clear on this, but usually when people open these types of accounts aren't particularly clear on what it means.

Here are the options that the bank should offer you when you are opening an account in the names of two or more persons (or adding a person to an account formerly held by only one person) and what each option means:

Joint Tenants

How much can each account holder withdraw?

100%

How much can one account holder pledge to his or her creditor(s)?

100%

How much can an unsecured creditor of one account holder reach?

100%, unless the other depositor goes to court and proves what share of the funds belong to him or her and not the judgment debtor.

What happens to an account holder's share when he or she dies?

Contrary to popular belief (especially by persons who moved to Tennessee from another state), this form of ownership carries no right of survivorship unless a contrary intention is expressly stated.  If one of the account owners dies, his or her share (which is presumed to be an equal share unless proven otherwise) goes to his or her estate and is subject to probate.

Recommended for:

Unmarried, cohabiting couple with children from previous relationships, if each would one his or her share to go to his or her descendants rather than to the other account holder. In that situation, each should have a separate account, but they might choose to open a joint tenancy account to handle household expenses. 

Not recommended for:

Married or unmarried couple that wants the survivor to take all.

Joint Tenants With Right of Survivorship

How much can each account holder withdraw?

100%

How much can one account holder pledge to his or her creditor(s)?

100%

How much can an unsecured creditor of one account holder reach?

100%, unless the other depositor goes to court and proves what share of the funds belong to him or her and not the judgment debtor.

What happens to an account holder's share when he or she dies?

If you add the magic words "with right of survivorship", that changes the result if one of them dies.  Those words "with right of survivorship" following "joint tenants" means that the survivor takes all when the other depositor passes, and it is conclusively presumed that is the result that the parties intended. 

Recommended for:

Married or unmarried couple that wants the survivor to take all.

Not recommended for:

Unmarried, cohabiting couple with children from previous relationships, if each would one his or her share to go to his or her descendants rather than to the other account holder. In that situation, each should have a separate account, but they might choose to open a joint (no right of survivorship) account to handle household expenses. 

Also not recommended for adding a friend, child or other relative to an account unless it is your intent to make a present gift of all of the funds to him or her and you are content to leave all the funds remaining in the account to him or her at your death.

Tenancy by the Entirety (available to married couples only)

How much can each account holder withdraw?

100%

How much can one account holder pledge to his or her creditor(s)?

None.  Both account holders would need to sign the pledge.

How much can an unsecured creditor of one account holder reach?

None.

What happens to an account holder's share when he or she dies?

The survivor takes all when the other depositor passes.

Recommended for:

Married couple that wants the survivor to take all and also appreciate the limited asset protection that this form of ownership allows during their joint lives.

Cannot be used by:

Co-owners that are not married to each other.

Additional authorized signatory

How much can each signatory withdraw?

100%, or as otherwise provided in the power of attorney that established the signatory's authority.

How much can the depositor/account holder pledge to his or her creditor(s)?

100%

How much can the additional signatory pledge to his or her creditor(s)?

None.  That would be a breach of the fiduciary duty of the additional signatory to do with the money only what is in the best interests of the depositor.

How much can an unsecured creditor of the depositor/account holder reach?

100%

How much can an unsecured creditor of the signatory reach?

None.  It's not his or her money.

What happens when the account holder dies?

It passes to the death beneficiary designated by the account holder. If there is no death beneficiary designated, it passes to the account holder's estate.

Recommended for:

Individual that needs help managing his or her finances but does not intend to make a gift of the entire account to the authorized signatory.  Requires a financial power of attorney instrument to implement.

Not recommended for:

This is actually a very good choice for the vast majority of situations, but a trust is often better, especially if the account holder's plan of distribution at death is even a little bit complicated, or if the account holder in interested in asset protection in general or Medicaid pre-planning in particular.

And here are options that the bank will not offer to you, but that are available if you hire an experienced estate planning attorney to help you:

Community Property With Right of Survivorship
(available to married couples only)

How much can each account holder withdraw?

100%

How much can one account holder pledge to his or her creditor(s)?

Usually none; both signatures are required.

How much can an unsecured creditor of one account holder reach?

100%

What happens to an account holder's share when he or she dies?

The survivor takes all when the other depositor passes, and it is conclusively presumed that is the result that the parties intended.  When the surviving spouse passes, the account passes according to the terms of the trust, avoiding probate.

Recommended for:

Married couple that wants the survivor to take all and also appreciates the double step up in basis at the first death.  This form of ownership can only be achieved in Tennessee through the use of a special kind of trust.

Cannot be used by:

Co-owners that are not married to each other.

Tennessee Investment Services Trust

How much can the depositor (grantor) withdraw?

100% of the interest and principal based upon needs according to the stated standard of distribution

How much can the depositor pledge to his or her creditor(s)?

None.  The whole purpose of this kind of trust is to shield assets from creditors, i.e. for asset protection.

How much can an unsecured creditor of the depositor reach?

None after a two-year waiting period (or six months after the creditor learns of the account, if shorter).

What happens to the depositor's share when he or she dies?

It passes according to the terms of the trust.

Recommended for:

Individuals and couples that are primarily interested in asset protection.  Examples includes individuals in high-risk occupations such as doctors (especially obstetricians, surgeons and anesthesiologists) and owners of manufacturing businesses concerned about product liability lawsuits or in general anybody concerned about potential future lawsuits against them.

Not recommended for:

Individuals for whom asset protection is not so important that they are willing to pay the additional upfront and annual expenses required to establish and maintain this type of trust.

Joint Revocable Living Trust

How much can each trustor/grantor/settlor withdraw?

100%

How much can one trustor/grantor/settlor pledge to his or her creditor(s)?

None, unless the trustor/grantor/settlor is also a trustee, in which case it depends on the terms of the trust, which might require the signatures of both trustees if there is more than one.

How much can an unsecured creditor of one trustor/grantor/settlor reach?

100%.  This not an asset protection trust.  For asset protection, see Tenancy by the Entirety or Tennessee Investment Services Trust above.

What happens to an account holder's share when he or she dies?

Passes according to the terms of the trust, avoiding probate.

Recommended for:

Married couples that wish to plan ahead for eventual incapacity and death and also avoid probate.

Not recommended for:

Unmarried couples (who should have separate trusts).

Medicaid Asset Protection Trust

How much can each trustor/grantor/settlor withdraw?

None.  That is what gives it asset protection.

How much can one trustor/grantor/settlor pledge to his or her creditor(s)?

None.

How much can an unsecured creditor of one trustor/grantor/settlor reach?

None, as long as the creation of the trust was not a fraudulent conveyance at the time.

What happens to an account holder's share when he or she dies?

Passes according to the terms of the trust, avoiding probate.

Recommended for:

Individuals and married couples that wish to plan ahead for Medicaid to pay their nursing home expenses in the future, and to avoid probate.

Not recommended for:

Dysfunctional families.  Usually the trustees of the trust are the individual's or couple's children, who must be highly trustworthy, reliable and good with finances.  Alternatively, a professional trustee can be selected, as long as the balance in the account is sufficient to justify the fees that will be charged by the trustee.

If you need help determining how to title a bank, brokerage, investment or other type of account, we can help.  Give our Crossville, Tennessee office a call at 931-250-8585 to schedule an appointment.

About the Author

Nina Whitehurst

Attorney at Law Nina has been practicing law for over 30 years in the areas of estate planning, real estate and business law She is currently licensed in Alaska, Arizona, California, Colorado, Oregon and Tennessee. Her Martindale-Hubbell attorney rating is the highest achievable: 5 stars in peer...

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