Joint Account w/Right of Survivorship Liability

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Question:

A joint account with right of survivorship that has a deceased primary owner: What are the ramifications of reporting interest earned on a deceased primary owner's SSN when an account has a surviving joint owner? Who is liable for these ramifications - we, the institution, or the surviving owner(s)? When a primary owner dies, we request that the surviving owner(s) close the existing account and re-open a new one in their name, but we don't REQUIRE it. Are we doing something wrong?

Answer:

The IRS can impose a penalty of $50 for each incorrect 1099-INT submitted, and the penalty is due from the reporter (the bank). Often, these penalties are waived, depending upon circumstances.

If you close the old account and open a new one for the surviving owner(s), you will have to adjust the 1099-INT reporting fields so that you don't report more interest under the deceased individual's SSN than the amount earned through the date of death, and to reflect the correct amount paid to the remaining owner(s).

If you leave the old account in place and update the ownership information to include the SSN for interest reporting, it would not be incorrect to simply report all the interest for the year under the new SSN (since you could have reported it under that SSN even if there had been no death of an owner).

First published on BankersOnline.com 10/15/12