Misuse of Joint Bank Accounts by a Family Member

A joint bank account can be an effective estate planning tool, particularly for individuals hoping that their heirs can avoid the probate process.  Nonetheless, caution is warranted. Costly and traumatic family disputes can arise over the use – and abuse – of accounts held jointly between two or more family members, especially when one member has diminished capacity.

Right of Survivorship

A common key feature of a joint bank account is the right of survivorship.  When one joint owner dies, the surviving owner automatically takes ownership of all funds in the account.  The funds pass to the surviving account owner outside of the estate, so the right of survivorship controls over any terms in the decedent’s will.  The clarity provided by the right of survivorship in joint bank accounts can be helpful to surviving spouses and family members responsible for administering an estate.

Ownership of Joint Accounts

Despite the clarity surrounding survivorship rights, a common misconception about ownership of joint account funds can lead people into trouble.  Ownership of a joint bank account is shared between two people.  However, even though they share ownership of the account, the account holders do not necessarily share ownership of the funds in the account.  In other words, the mere presence of funds in a joint account does not mean that the funds are owned jointly.  This distinction may seem like semantics, but it can significantly impact the use of the account funds.

Here, context is everything.  In determining the owner of funds in a joint account, North Carolina courts will observe who deposited funds into the account, the source of the funds, and the intent of the depositor, among other factors.

In many cases, funds deposited in a joint account are intended for shared ownership.  For example, if the account holders are married and the funds deposited are earned income to be used for ordinary household expenses, ownership may be shared evenly.

In other cases, funds remain the sole property of the depositor despite being held in a joint account.  Where a daughter is helping her elderly father manage his finances, they may open a joint bank account funded by the father’s assets.  In that scenario, the father would typically maintain ownership of the funds during his lifetime despite sharing ownership of the account with his daughter.

However, many cases are less clear and present a challenge for family members evaluating the transactions completed by the joint account holders.

Ripe for Abuse

Let’s imagine an aging man who finally asks for his dutiful eldest daughter for help in managing his affairs.  The father converts his checking and savings accounts to joint accounts with right of survivorship with his daughter to give her full access to his accounts and authority to make payments.  The father’s social security payments are deposited directly into the joint checking account, and she pays his monthly expenses with the joint accounts.  The daughter takes over managing his finances and scheduling, drives him to doctor appointments, does his grocery shopping, and cleans his house.

Over time, the daughter begins to add a few extra items for herself to the grocery list and fills up her gas tank with her father’s funds.  Then she begins writing checks to herself from the joint account – perhaps intended as “reimbursements” for her expenses or even her time.  The daughter considers her right of survivorship in the account and her father’s plan to pass the funds in his joint accounts to her.  She wrongly believe that her status as joint owner of the account gives her the right to spend the money however she wants.

One day, her siblings decide to meet and discuss her father’s diminished mental capacity and his finances.  The siblings are concerned about the numerous transactions in the joint account.  Did he approve the use of funds for her benefit?  Did he intend for those checks to the daughter to be gifts?  How much did he understand?  Did he even know about the transactions?  And what about the decision to liquidate an investment and move money into the joint accounts?  Did he really intend for those funds to pass directly to the daughter by right of survivorship upon his death?  The siblings are left in the unenviable position of evaluating their sister’s conduct without the benefit of their father’s input.

Hopefully, it is clear that a joint account intended for use by only one of the owners is ripe for abuse.

Liability for Misuse of Funds

When one account owner withdraws or spends joint account funds without the joint owner’s knowledge or consent, he may be liable to the owner for misusing those funds.  When evaluating the management of a joint account, one must consider who owns the funds, whether the owner approved of the use of funds, and whether the funds were used in the owner’s best interest.  These matters are particularly challenging when the owner’s mental capacity was diminished, and they often involve family dynamics and relationships are just as important to the parties as any monetary outcome.

At Miller Monroe & Plyler, our attorneys have experience prosecuting and defending claims involving the misuse and conversion of funds in joint bank accounts, as well as similar claims involving abuse of powers of attorney and breaches of fiduciary duty by guardians, estate administrators, and trustees.  We appreciate every opportunity to aid individuals navigating such difficult circumstances and seeking to protect a family member.