A common tool used to avoid probate is to own a bank account jointly with the right of survivorship held by a family member or friend. Bank accounts held jointly with the right of survivorship avoid probate because, upon death of a co-owner of the account, the funds in the account immediately transfer ownership to the surviving account holder. However, before adding a child or family friend to a bank account, be aware that if the person added to the account files for bankruptcy, the funds held in such joint bank account could be seized by the Bankruptcy Trustee.
When a person files for bankruptcy, all assets become property of the bankruptcy estate which is all property that the debtor holds a legal or equitable interest, including jointly held accounts. Co-owners of a joint bank account would have a legal interest in the account because, as a co-owner of the account, that person has unfettered access to the account. Therefore, even if the non-debtor was solely responsible for funding the subject’s joint account, the co-owner of the bank account who files for bankruptcy may cause the account to be seized by the bankuptcy trustee. Therefore, be cautious before adding a person to a bank account.
Byron E. Thomas, Esq.