Joint Ownership Accounts

Owning some or all your assets in joint ownership with your heirs (your spouse & kids) is common practice for many investors, particularly seniors. The main reasons to hold assets jointly is to avoid probate fees, make the administration of your estate easier/quicker, avoid certain taxes, and provide your heirs with a way to help you manage your finances. This post describes some of the basic concepts to consider when deciding whether to hold assets jointly.

Joint Tenancy vs Tenancy in Common

There are two main ways assets can be owned jointly: Joint Tenancy & Tenants in Common.

Joint Tenancy refers to owning an asset together with someone else. Each joint tenant owner holds an equal undivided interest in the asset. With certain exceptions, when an asset is owned in joint tenancy, ownership of the asset passes to the remaining joint tenant(s) when one dies. This is certainly true when joint tenants are spouses, and mostly true when joint owners are children. But, when joint tenancy is held with children, the children must demonstrate their parent’s intention to pass ownership to them upon their death. Documentation is key. This can be demonstrated in the following ways:

• Make records (signed, dated, witnessed) of the intention behind holding the assets jointly. Document what the parent’s intentions are.
• Provide supporting documentation to the financial institution (bank, brokerage) holding the joint accounts.
• Pay taxes and fees/maintenance on the asset/account in a way that confirms intentions.
• Report taxes in a way that confirms intentions.

Compared to Joint Tenancy, Tenancy in Common refers to owning assets together but without the right of survivorship. When a joint tenant dies, their ownership share does not automatically pass to the remaining joint owners. Instead, the ownership share of tenants in common passes to their estate, which is entitled to a defined (possibly unequal) portion of the asset held jointly.

Account Types

Many investors choose to maintain personal bank & brokerage accounts jointly with their children. This is often done after a surviving parent reaches an age where maintenance of financial accounts becomes a bit more burdensome, or when the parent (or child) may be exposed to fraud. Many seniors are vulnerable to various types of financial fraud. Holding accounts jointly with their adult children is one way to mitigate this risk.

There are two main bank & brokerage account types to consider when deciding whether to hold accounts jointly: Joint Tenants with Right of Survivorship (JTWROS) and Joint – Gift of Beneficial Right of Survivorship (JGBRS). With JTWROS accounts, ownership of the account automatically passes to the remaining joint account holder(s) after an account holder dies (bypassing probate). Each JTWROS account holder has full control of the account. This means they can withdraw any amount at anytime.

Whereas JGBRS account holders name successor beneficiary account holders that automatically inherit beneficial ownership (bypassing probate). With JGBRS accounts, successor account owners do not have control of the account while the account holder is still alive. Only when the account holder dies do the successor account holder take full control of the account.

Each account type has different tax and legal rights so consulting with the bank, brokerage, and/or your estate lawyer to determine which account structure is best suited to your situation & goals is important.

Other alternatives?

Rather than broadly holding all or most of your assets in joint ownership, consider your goals and capacity before making any final decisions. Consult with professionals such as your estate lawyer, accountant, investment advisor, and family office. When making estate plans and managing your financial accounts, consider other arrangements such as limited powers of attorney, testamentary trusts, corporate ownership structures, etc. Consider holding a small bank account that can be used to pay bills jointly with a child who helps you, rather than holding your larger assets jointly. Consider the tax consequences of moving assets into joint ownership. Ensure your will is up to date and your intentions are well documented and communicated to your heirs.

There are many ways to structure your finances to achieve your goals. It helps to develop good working relationship with your professional advisors such as your accountant, your lawyers, your investment advisors, and your family office because those professionals will bring their own unique perspective to your situation. Oftentimes, making financial arrangements includes a lot of documentation. Filling out forms, preparing documentation, logging transactions. Simply opening a new brokerage account can mean hours worth of time filling out forms and coordinating with banks & brokerages. This is where your family office can provide you with leverage and allow you to focus on decision making instead of administrative tasks. Lean on your family office to do the grunt work of making your financial life easier.