Planning Things to consider with a joint brokerage account

A joint account is owned by more than one individual. When ownership is shared, all account holders are empowered to make transactions and otherwise control the account.

Types of joint brokerage accounts

There are many types of joint accounts. The rules pertaining to shared ownership vary depending on the state in which the account is established. Before deciding whether a joint brokerage account is for you, it’s important to confirm the details relevant to your specific circumstances.

Details relevant to joint accounts include the relationship between the co-owners, inheritance rules and recognition of percentage ownership among the account holders.

The three joint account types are:

• Joint tenants with rights of survivorship (JTWROS)¹ accounts may be owned by two or more people, each of whom own an equal percentage of assets. If one account holder dies, the whole account is inherited by the remaining owner(s).
• Tenancy by the entirety (TBE)² accounts follow similar rules to the JTWROS, except they are only available to married couples.
• Tenancy in common (TIC)³ accounts allow for unequal owners’ shares. For example, one individual may own a 20% share of the account, while the co-owner owns the remaining 80%. When one owner dies, the remaining account owner(s) will not automatically assume ownership of the decedent’s portion. Rather, the decedent’s portion is included in his or her estate and may be bequeathed to any named beneficiary.

Check out our guide on why it matters how you own your assets to learn more.

Purpose of the joint account

People may choose to set up a joint account for a variety of reasons.

For some, the goal is to streamline their finances by having fewer accounts to manage. Access to lower costs is another reason – brokerage firms will sometimes reduce fees for larger accounts.

Account titling also provides a means to assist someone who has, or is at risk of developing, diminished capacity. For aging or otherwise at-risk individuals, having a trusted person authorized to transact on your behalf to help keep up with bills and manage the account should you lose the ability to do so can provide peace of mind.

Joint account pros

• They are typically easy and inexpensive to establish.
• They facilitate financial management, especially if one owner intends to take the lead.
• They provide peace of mind for those with aging loved ones or relatives unable to manage their finances.
• They can simplify estate planning.

Joint account cons

With a JTWROS or TBE, beneficiaries may not be designated. The rights of survivorship of the joint account holder trump any bequests identified in a will. The downsides to this arrangement are:

• The risk of misuse of funds: A co-owner may not respect the intended use of the account.
• Creditor risk: If an account owner is subject to claims by creditors, all or some portion of the account may be seized.
• The risk of loss as a result of a divorce: An account holder’s ex-spouse may claim a portion of the account.
• Possible gift tax implications: If just one person is contributing to the joint account, any deposits made may be considered gifts if the joint owner is not a spouse.⁴

Weighing the tradeoffs

When considering a joint account, first be sure to identify your goals and weigh the risks.

It is crucial to determine if a prospective co-owner is trustworthy and financially responsible. Unfortunately, even family members who sign on to “help” an aging parent may be unable to resist the urge to spend shared funds. If potential joint owners are deemed too risky, instead take the time to do proper estate planning. Doing so can protect the family peace and stave off any potential lawsuits over fiscal mismanagement.

For example, an alternative way to gain peace of mind that your assets will continue to be appropriately managed in the event of diminished capacity is via a power of attorney (POA).⁵ With a POA, you can grant specific powers to another party while retaining the freedom to name your beneficiary.

If you’d like to simplify managing your finances but also would like to bequeath funds to someone other than the prospective joint account holder, a JTWROS or TBE won’t work. Instead, consider a TIC or open two accounts, one of which is not a joint account.

On the other hand, if you and the co-owner plan to make roughly equal contributions, share the same goals for the account and don’t have someone else in mind as a beneficiary, a joint account may be the right choice for you.