I recently had a conversation with someone the other day and he explained to me that he didn’t realize that there were so many different account styling’s.  He was confused and asked that I explain them. I did, but I also realized this is perfect for the banking 101 series, as well. There are actually more styling’s then what I am going to list here; however, I don’t deal too much with some of them, so I won’t go into great detail on those.

Without further adieu, let’s talk styling!

Individual Accounts

This one is pretty self-explanatory. This type of styling means that you are the only person with access to the account. The bank cannot – and should not – be giving ANY information about your account to anyone else, no matter what (unless subpoenaed by court, but that’s a different topic altogether). It’s really a pain when people come into the credit union to make payments or deposit money to cover an overdraft and don’t have the information upfront. We can’t give out personal information on the account to anyone but the account holder.

It really sucked the other day because I had a member come in whose dad had a stroke and was in the hospital. He needed to pay an overdraft so that a check they wrote to the hospital would clear. He wanted to know the amount. Sadly, the father’s account was set up as an individual account, which meant that I had to tell him I couldn’t give him any information. He left angry because I refused, but that’s not my rule, that’s the privacy policy’s rule. We would do the same for his account. In this case, I suggested he look into getting a power of attorney for his father.

Joint Accounts

Joint accounts mean that there are two or more parties on the account. Each individual has equal access to the account to make withdrawals and deposits. I’m not sure what the rules in all states are, but Texas has a really funky rule where any individual on the account may close it out and take the money; all parties do not have to be present in order to do that. However, if one party wants to have their name removed from the account, then all parties must be present in order to do that. It doesn’t really make sense to me, but that’s the rule.

Joint accounts have two designations: With Right of Survivorship (WROS) and Tenants in Common (TIC). With Right of Survivorship means that in the event something happens to one party, the funds within the account go to the remaining parties on the account. Tenants in Common means that the funds within the account are divided equally among the parties. For simplicity sake, let’s say that an account only has two owners. 50% of the money goes to one and 50% goes to the other. In the event that something happens to one, the funds in the account revert to the decedent’s estate, not the other owner. This is most often used by couples in their second and above marriage that have kids from previous marriages. By having the funds revert to the estate, they can ensure that those kids will be provided for.

Now, as I mentioned, there are other styling’s out there, but these are the two most common. Either styling can include a payable upon death (POD), or beneficiary, if the owner(s) so desire. But, some other styling’s you might see – or have – are as follows:

• Estate

• Trust

• UTMA

• UGMA

• IOLTA

Estate and Trust Accounts

Estate and Trust accounts are usually set up due to the advice of an attorney or financial planner. The Trust is a particularly difficult beast because you have Revocable and Irrevocable Trusts to deal with. It is possible to switch between the two, and while I’m told it is not terribly difficult for the individual doing the switching, it can be a headache on the financial institution’s side.

UTMA and UGMA Accounts

UTMA stands for Uniform Transfer to Minor Act, and UGMA is Uniform Gift to Minor Act. Both of these accounts are custodial accounts for minors and their differences are rather subtle, but most states work solely with the UTMA now. Essentially, the custodian “gifts” money and/or assets to the minor, giving up any claim to that money whatsoever. It’s held in the account until the minor reaches the age of majority for their state and then they can do whatever they please with the money. Anyone can “gift” to the account, it is not restricted to just the custodian.

Some things to note: the donor can be gift taxed, depending on the amount and total lifetime contributions so be sure to consult a tax advisor. The minor pays taxes based on their tax bracket, so when you sit down to do your taxes every year, be sure you’ve got the minor’s information handy because you’ll probably want to help them with that. And finally, the funds in the account belong solely to the minor. Any withdrawals from the account should be used for the minor’s benefit and not to help you cover a bill you’re short on that month. While financial institutions do not police this directly, if you are every audited by the IRS and found to have used the funds for your own purposes rather then the minors, you could be slapped with a fine.

IOLTA

This account only applies to attorney’s and not every financial institution does them. The Supreme Court declared that all attorney’s must open this Interest on Lawyers’ Trust Account (IOLTA), or a regular interest-bearing account for client funds. Basically, anytime an attorney holds funds for a short-period of time for their clients, they are required to deposit those funds in either an interest bearing account or an IOLTA. Once the funds are distributed to the clients, the interest then goes to the IOLTA committee and is used to help better the justice system and legal process.

The credit union I work for does not do IOLTA accounts, so I’m not entirely familiar with the process. However, I believe that if the account is designated as IOLTA, the financial institution automatically sends the interest to the IOLTA committee, but if the attorney chooses to do an interest bearing account, then they are responsible for turning the earned interest over to the IOLTA committee. Any attorney’s out there, please correct me if I’m wrong on this.

What experience do you have with different account styling’s? Do you have something that’s not on the list?

Related posts:

1. Banking 101: Deposit Account Holds
2. The New Insurance Rules
3. Banking 101: The Five Points of Negotiability
4. The Difference Between Checking and Savings
5. The Difference In Money Market Accounts