In a common notion, a bank account title represents the account owners of a bank account. However, in many cases, the legal owners and the bank account title can be different.
A bank account title has several uses and it is important for the account holders. It has several legal and compliance uses as well.
Let us discuss what is a bank account title, the types of account titles, and their importance.
What is a Bank Account Title?
A bank account title is a unique name assigned to a bank account. It represents the bank account owner(s). It can be the same as the name of the bank account owner but it may be different in many cases as well.
In most cases, the bank account title represents the bank account ownership. For individual accounts, the normal practice is to enlist account holder names as account titles.
However, the practice is different for corporate and trust bank accounts. For example, the owner of a small business Rebecca flowers may set its business name “Rebecca Flowers” as the bank account title. In practice, the name of the business owner can be Ms. Rebecca Winslet.
The bank account title is important from a legal, banking use, and bank/customer’s perspective. It may have repercussions for account holders in several ways. From tax obligations to probate on death, the bank account title plays a crucial role.
Bank Account Title for Different Types of Account Ownerships
For individuals, the bank account title remains a critical aspect for several reasons. Foremost, it lets an account holder operate the bank account without any legal complications. It means the title provides them with ownership rights.
Estate planning is another important aspect when you plan a bank account title. The legal ownership and protection of rights will differ depending on the type of bank account you operate.
Let us discuss a few key account types and the importance of account titles for each type. Please note it is not based on account types such as savings, current, or IRA. We have listed account types depending on the ownership rights.
Individual (or Single) Account
Account title for these accounts represents the ownership rights of an individual. Commonly, an individual account holder includes a will that decides the ownership rights of a deceased account holder.
If the owner of this type of account passes away, the remains in the account would be subject to probate or according to the will of the deceased person.
Single Party Account with Pay-on-Death (POD)
It is similar to an individual account. The title of the account represents the ownership rights of the individual account holder. The difference here is the remains of the account would be transferred to a nominee. The account holder nominates a person or an entity with a pay-on-death (POD) clause with the bank.
Joint Bank Account – With Rights of Survivorship
A joint account for two parties or a multiple-party bank account can be opened with rights of survivorship. The account title represents all of the account holders in this case.
If one of the account holders passes away, the account ownership transfers to the next survivors until there is none.
Joint Bank Account – Without Rights of Survivorship
The account title for this type of account also represents two or more parties. The difference here is that if one of the account holders passes away, the account title ownership does not transfer to the survivors.
Other account holders can have access to the account but the contribution of the deceased remains subject to probate or will of the person.
Multiple Party Bank Accounts
The account title will represent all of the account holders in this case. It is commonly used with estate or trust planning. The account title represents the account holders combined.
Commonly, this type of bank account will nominate account beneficiaries.
Custodial Bank Account Titles
The account title will remain with the minor person in this account. The parent or guardian holds the right to operate the account until the minor reaches the legal age of account ownership.
Parents and guardians can add their children as joint account holders as well. However, this practice has some limitations when it comes to ownership rights.
Bank Account Titles for Business Accounts
The bank account title has similar use and importance for business accounts as well. The account title normally represents the business name. The ownership of the bank account is the same as of the business as a normal practice.
Here are a few main types of business accounts.
Sole Proprietorship Bank Account Title
This type of bank account is used to separate the bank accounts of the business owner and the business. Although the legal owner of both entities remains the sole proprietor of the business.
Thus, the bank account title will be usually the company name that suggests a separate legal bank account from the owner.
Partnership Bank Account
Like individuals opening a joint account, joint partners of a business can open this type of bank account. The account title represents all partners in this account.
As with other business accounts, the title of the account can be a business name.
Limited Liability Company (LLC) or Corporation Bank Account Titles
LLCs and corporations are set up to protect the owners of a business legally. Thus, the account title gives access to the bank account holders but protects them legally as well.
The account title represents the LLC or the corporation with this type of bank account rather than the owners of the business. Both parties are considered different legal entities.
The account holders need to fulfill certain documentation such as the proof of entity structure, tax identifications, and account access.
Importance of a Bank Account Title
As discussed above, the bank account title serves as legal ownership for the bank account holder in many cases. Thus, it has several important repercussions for the account holder.
In Estate Planning
In many cases, the account title decides the legal heirs. Even some legal procedures allow account title nominees as preferred beneficiaries. In several estate planning scenarios, the account title may have a preference over the will of the deceased person.
Thus, the account title is legally and contractually very important with estate planning.
In Banking Use
Although it seems a routine practice the account title remains a critical feature of routine banking tasks. Without the proper use of a bank account title, none of the banking transactions can take place.
Some important transactions where a bank account title is a critical include:
- Account Deposits – cash, check, pay orders, etc.
- Electronic funds transfers, wire transfers, and ACH clearings.
- Account title on credit cards, ATM cards, etc.
- Account title for checkbook printing, credit contracts, and other legal documents.
A bank account title provides legal protection to the bank account holder. It is the identity of each account holder with the bank that entitles a person or business to operate the bank account with legal ownership rights.
Some key areas where a bank account title can legally protect an account holder include:
- Access and ownership of the bank account
- Pay on death (POD), beneficiary, and will clauses
- Protection from legal issues such as money laundering, theft, or fraud
- Tax compliance
- Estate planning