This article has been written by Muskaan Aggarwal, pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.

Introduction

Joint accounts, which work like regular accounts, except for the fact that two or more users are allowed to be parties for such accounts, are often opened by people for multiple reasons, including but not limited to the payment of loans, mortgages, or used as deposit accounts. Even though opening a joint account is simple, the agreement between the parties and the bank plays a very important role, throughout the existence of the joint account. This article aims to understand the working of the joint accounts, along with providing some important clauses that must be drafted in the agreement, signed between the joint account holders and the bank.

What is a joint account?

A joint account is a shared account between two or more individuals, which can either be a bank or a brokerage account. This type of account is usually entered into by couples, family members, or business partners, or someone who carries a level of trust or familiarity with each other. Therefore, the people sharing this account would be jointly allowed to access the funds within this account and would be jointly taking decisions with regard to such funds. 

How joint accounts work?

The joint or shared account works as a normal account and can either be permanent or temporary in nature. The permanent joint accounts are usually between couples, who wish to deposit their monthly salaries in a single account, for a long term. On the other hand, temporary joint accounts are entered into by parties who wish to contribute funds for any cause, for a short period of time, usually between business partners. 

Joint bank accounts, within their account holders’ name details, can either include the term ‘and’ or include ‘or’. If the term ‘and’ is used between the account holders’ names, then it is important to get the signatures of all shared parties to sign for any access to the funds within the account. However, if the term ‘or’ is used between the account holders’ names, then the signature of only one of the parties is sufficient to access the funds within the account at any period of time. 

Joint bank accounts can act as savings and checking accounts, or an account for other credit functions, such as for mortgages, loans, lines of credit, etc. The parties to the joint account not only have the right to have complete use over the account, but they are also responsible to make timely payment of any fees or charges that come as a part of such accounts. 

To open a joint bank account does not require the existence of a special procedure. The normal bank procedure is followed, wherein the parties must be present at the bank when such an account is opened. If a joint account is opened for credit cards, the addition of any authorized secondary user is the same as having an account that is jointly shared by both parties. 

Benefits and pitfalls of a joint account

Creating a joint account can be useful to people for the following reasons:

1. Minimum balance requirement – Most of the joint accounts, especially when a specific account type is created, require a bare minimum balance amount to be kept. This helps the parties in keeping the account for a long period of time, without worrying about any penalties or extra money to be kept aside for the same. 
2. Easy access – Joint bank accounts are useful for married couples who wish to combine their finances into a single account, or for any person who does not wish to access multiple accounts belonging to different people, by taking their specific permissions, for attaining a common objective. 

However, not everything is good with the creation of a joint bank account, and these accounts have their own problems that the parties must keep in mind before entering into a joint account agreement:

1. Unlimited fund access – Considering that multiple parties have direct access to the funds, especially when ‘or’ is used in the account holders’ name details, it becomes easier for a single party to control the functioning of the account. Such control cannot be challenged by the other party in any manner, considering that both are the joint holders of the account. This is the reason why it is always recommended to form a joint account only with the people that you trust and can rely upon. 
2. Fees and taxes responsibility – The use of the funds by a single party, makes all the sharers of the account liable for the payment of the fees and taxes that shall be attached to such use of funds. Moreover, if the balance of the joint account reaches zero, or if the account goes into overdraft, then all sharers shall be equally responsible for the charges imposed by the bank due to such a negative balance. 
3. Seize of funds – The government has the right to seize funds of the joint account if there is an outstanding amount due. This includes cases of bank taxes imposed on the parties. 

Joint account agreement and important clauses

A joint account agreement exists between the joint account holders, along with the bank, wherein, specific guidelines are provided to the extent of the rights and responsibility of the holders. This agreement is required to exist for both bank (savings and deposit account) and brokerage (loans, mortgages, etc.) accounts under the joint account. 

Some of the important clauses that must be drafted under a joint account agreement are:

1. Date of the Agreement – The date the parties entered into the agreement, or the execution date, is a very important part of the agreement. The parties are obligated to perform all the terms mentioned in the agreement from the execution date.
2. Parties’ clause – This clause is the introduction to the parties; wherein specific details of the parties are provided in detail. For individuals, this clause includes the area of residence, age, pan number, or Aadhaar number. On the other hand, for banks, the headquarter address and the bank representative are important to be included. 
3. Recitals Clause – This clause helps in providing a brief background of the parties, and their intention behind entering into the agreement. This helps in providing a specific context to the terms of the agreement. 
4. Account Details – This clause shall specify the account details, including the account number and other details in relation to the account, as provided by the bank to the account holders. 
5. List of documents submitted – Considering that the joint account requires documents related to the identity of the parties, the risk disclosure statements, consent forms, etc., along with other bank documents, it is important to provide a clear list of documents received and signed by both the parties during the transaction, either directly within the clause, or attachment of the same as an annexure to the statement. This helps in avoiding any future disputes in relation to the documentation between the parties. 
6. Obligations of the parties – for all parties to the agreement, including the account holders and the bank, a certain list of obligations needs to be fulfilled by the parties during the term of the agreement. This includes keeping a minimum balance, timely payment of fees and taxes, ensuring proper documentation, providing notice for any change in personal details, security of the deposited money, etc. Therefore, all obligations should ideally be provided in detail, to ensure that the parties do not get a chance to claim that they were not obligated to perform a certain task under the agreement or to avoid any additional tasks to be performed under the agreement. 
7. Authority of the Bank – This clause can help provide the powers of the banks in relation to the charges to the account or any foreseen situation that the account might space, such as negative balance, default in payment of taxes, etc. This clause will then be helpful in providing the consequences of such situations, that the bank can take against the account holders.  
8. Liability of consequences – Problems can sometimes be unavoidable under an agreement, either intentional or unintentional. Therefore, it is important to specify the party that shall be responsible for bearing the consequences and making efforts to rectify them. Usually, it is the account holders who are liable for any problems in the agreement, as most documentation and obligations are centred around the account holders. 
9. Joint Tenants with Right of survivorship – This clause helps in providing a backup for a situation where any of the account holders dies, while the joint account is still in force between the parties to the agreement. In an unfortunate case of when one of the account holders passes away, the surviving account holders shall get complete authority over the remaining account funds. However, there might be a change in the tax and restrictions, according to the bank policies. Therefore, any such policies or changes must be specifically specified within the agreement, to avoid future conflicts. 
10. Tenants-in-common – This clause helps in expressly providing within the agreement that the parties have agreed to jointly share the account and the funds deposited within the account. Moreover, the sharers shall be responsible for the payment of any taxes or debts, that they incur as a part of such a joint account. 
11. Counterparts – This clause shall specify the number of copies that shall exist of the agreement, considering that each party to the agreement shall be having a copy of the agreement with them. 
12. Any other clause, if required – even though a joint account agreement is usually the same for all parties, however, there is always a scope for any change to be made, depending on the negotiations. Therefore, the parties through mutual discussion, are free to enter any clause which they deem fit in the agreement.

The Agreement shall then require the signatures of all the parties, i.e., the account holders and the Bank, through their representative. 

Conclusion

Joint bank accounts are an efficient way of putting the funds of different parties in a common account, however, it becomes important for trust to exist between such parties. An ideal joint account agreement is usually more descriptive about the account holders and what is expected from them throughout the agreement. Therefore, if the parties wish to enter into a joint account agreement, they must explore all pros and cons, and find a reliable bank to seal the deal. 

References

1. “Joint Account Agreement”. 2021. Thefreedictionary.Com. Accessed June 19. https://financial-dictionary.thefreedictionary.com/joint+account+agreement. 
2. “Joint Account Agreement”. 2021. Www1.Oanda.Com. Accessed June 20. https://www1.oanda.com/documents/wl/r10n/US/en/JointAccountAgreement.pdf. 
3. “JOINT ACCOUNT AGREEMENT (WITH RIGHT OF SURVIVORSHIP)”. 2021. Www File.Megabank.Com.Tw. Accessed June 20. https://wwwfile.megabank.com.tw/upload/F610/MegaICBC_TA_5.pdf. 
4. Kagan, Julia. 2020. “What Is A Joint Account?”. Investopedia. https://www.investopedia.com/terms/j/jointaccount.asp. 

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join: