MAY I JOIN YOU?

WHEN IT COMES TO JOINT ACCOUNTS, WHAT IS THE SMARTEST MOVE FOR YOU?

One of the most important financial decisions a person can make is whether to keep accounts separate or hold them jointly with others. Married couples often keep joint financial accounts, and it’s become a common way for adults to share assets with children or other family members. However, co-owning an account is not something to be undertaken lightly as there are many financial and tax implications in doing so. It’s important you consult a financial professional and educate yourself about the particulars of joint accounts before making any financial decisions. You should know about a few common joint account types although each option may not be available in every state.

• Joint With Rights of Survivorship (JTWROS): This is the most common joint ownership type and is frequently used between married couples or family members. Under this agreement, each account owner has an equal share of the account and when one dies, the survivor automatically inherits the deceased’s portion of the assets.

• Joint Tenants in Common (JTIC): This is an agreement where two or more owners can own equal or unequal shares of the account and each share is separately owned. There are no survivorship rights and in case of death, the decedent’s share passes to the estate or a named beneficiary.

• Joint Tenants by Entirety: This account type is only available to married couples; each account owner has an equal and undivided share (meaning they each essentially own the entire account.) There are rights of survivorship, similar to those of a JTWROS account, but there are some important differences in certain states. One important difference is neither account owner can withdraw funds without the signed consent of the other.

There are some definite advantages to joint accounts. Accounts that carry survivorship rights allow a joint account holder to avoid probate when the other account holder dies. This allows for continuity after the death of a spouse or parent in that the assets aren’t frozen with the death of one owner. Another key benefit is joint owners share in any assets or debt, simplifying legal ownership.

Nevertheless, there are also important shortcomings to joint accounts of which you should be aware. With some joint accounts, including JTWROS accounts, there is very little protection if one account owner withdraws funds without the consent of the other. This can be a problem when relationships change or estrangement occurs. Jointly owned assets can also be garnished or frozen during divorce, bankruptcy, or collections actions against one account holder. It’s quite common for parents to open joint accounts with their minor children in order to save for college or instill money management skills. However, those assets legally belong to the parent and can be attached to any legal proceedings, even if the adult never contributed to the account.

You should also keep in mind any rights of survivorship would take precedence over a will, meaning that the deceased will lose control over how assets will be distributed after death. For example, you may intend for some assets to go to another family member, but those assets will pass directly to the other account holder and remain outside of your estate.

For many, the desire to take care of another person drives the decision to have a joint account. A financial professional can help you explore some other options you may want to consider for the following:

• Spouses or other direct beneficiaries: Set up accounts to “pay on death” or “transfer on death” to skip probate and help ensure access to funds.

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• Elderly parents or other family members: Set up durable powers of attorney, which can grant access to accounts during illness or incapacity.

• Minors: Set up Uniform Transfer to Minors Act (UTMA) accounts, where the money legally belongs to the minor but an adult serves as custodian.

There are no perfect solutions to debates over account ownership, and each family needs to figure out what works best for them. Remember every state has different rules regarding joint accounts, particularly in community property states. Joint accounts are not a substitute for estate planning, and you should consult a financial professional before making any decisions that may affect your longterm financial plans. There are also tax implications to joint asset ownership, and it’s important to speak with a tax professional to determine the potential impact of estate and capital gains taxes on your heirs.

Financially savvy couples discuss their money management strategies and keep the lines of communication open. One conversation is seldom enough to cover all the bases, and as your relationship matures and evolves, your financial plans must reflect your changing needs and priorities. A financial adviser can help you review your finances and be sure that your current strategies and estate plans remain current.