Who owns your real estate, investment accounts, bank accounts and other assets?. Being joint tenants with right of survivorship with someone else gives each of you ownership rights to assets. That’s helpful if one of you passes away. Here’s how it works and what to know if you’re opening joint accounts.
Joint Tenants With Right of Survivorship Definition
Say two people own a bank account or investment account. In that case, they can elect to be joint tenants with right of survivorship. Being joint tenants means that if one person passes away, the survivor automatically becomes the sole account owner. Those in real estate ownership situations also consider it tenancy in entirety.
Being joint tenants with right of survivorship isn’t the same as naming someone as beneficiary to a taxable brokerage account or retirement account. Joint tenants have equal rights to the asset while both are still living. Then when one dies, the remaining tenant assumes control over the entire account. However, beneficiary can only receive assets from the account once the account owner dies.
In addition to brokerage accounts and investment accounts, joint tenancy with survivorship rights can also apply to:
- Real property you own with a spouse or another individual.
- Shared bank accounts.
- Business accounts if you run a business with a partner.
- Money market accounts.
It’s important to note that some accounts can’t be titled using a joint tenancy with right of survivorship arrangement. For example, custodial accounts established for children would typically fall under a child’s ownership. However, you (or another adult) could act as a custodian until the child comes of age.
Joint Tenants vs. Tenancy In Common
Tenancy in common is another way to title assets that you own with someone else. This arrangement is typically used in connection with real property. For example, that may include a primary home or investment property you own together. You also could apply it to financial accounts.
When you have a tenancy in common agreement, ownership in the property or asset isn’t shared equally. If one person passes away, then the tenant in common doesn’t maintain their right to own the property. Instead, the ownership stake of the deceased person passes on to their heirs.
Benefits of Joint Tenants With Right of Survivorship
Owning a brokerage account as joint tenants with a spouse offers certain advantages. The first is convenience.
When you and your spouse both own the account as joint tenants, you both have equal access to it. You can make trading decisions, withdraw money or manage other tasks like rebalancing and tax loss harvesting jointly. That might appeal to you if you both have similar investment goals. Also, it could identify a streamlined way to build wealth together.
Being joint tenants with right of survivorship is also helpful in the worst-case scenario. The surviving account owner wouldn’t be prevented from accessing any of the assets in the account. That’s something you or your spouse might appreciate if one of you passes away and needs money to cover burial expenses, debts or other expenses. That could also come in handy in a business partnership situation since the surviving partner wouldn’t have to cut through any red tape to continue managing shared assets.
This kind of ownership arrangement can also be beneficial for avoiding probate after an account owner passes away. Probate can be a lengthy and sometimes expensive process in which the probate court tallies up the deceased person’s assets, pays off any debts left by their estate, then distributes any remaining assets to their heirs. Assets held in a joint tenants with right of survivorship arrangement would automatically transfer to the surviving account owner, allowing them to sidestep probate for that part of the estate.
Cons of Joint Tenancy
While joint tenancy can make certain things easier when it comes to managing shared investment or bank accounts, it can also add a few wrinkles to your financial plan.
First, joint tenancy means that you can’t leave those assets to someone else if you pass away. All of your investments or any property you owned as joint tenants would go to the other account owner so you wouldn’t be able to pass them on to children or grandchildren. You could work around that by leaving retirement or other financial accounts that allow you to name a specific beneficiary but doing so has certain tax implications you’ll need to keep in mind.
Next, owning a joint brokerage account means you can make decisions about the account independently of one another. So if your spouse gets nervous about market volatility and decides to sell off a chunk of your stock holdings, they don’t have to ask you about it first. If you don’t communicate regularly about how to manage joint investments and other assets, that could lead to money arguments.
Another potential issue is that holding an investment account as joint tenants with right of survivorship doesn’t shield you against creditors. So if your spouse runs up business or personal debts in their name only, your jointly held accounts could be targeted for collection efforts.
The Bottom Line
Setting up a brokerage account using joint tenants with right of survivorship has its advantages. But it can also have downsides. You might consider tenancy in common if you want your assets divided differently when you pass away. Talking to an estate planning attorney could help if you’re not sure which option to use. They can help you title investment accounts or other assets with a spouse, business partner or someone else.
- Consider talking to a financial advisor about setting up a joint brokerage account. Ask whether or not it makes sense for your situation. Your advisor can help you weigh the pros and cons. Also, you can compare the benefits of being joint tenants with right of survivorship versus tenants in common. If you don’t have an advisor yet, finding one doesn’t have to be complicated. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
- Choose wisely when naming beneficiaries for qualified retirement accounts and life insurance policies. Remember, a named beneficiary would supersede the terms of your will. So as you’re planning your estate, consider who should receive your 401(k), IRA, life insurance benefits, etc.
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