When should you use a joint brokerage account?
Joint brokerage accounts, of which there are several types, are shared by two or more people. Opening a joint brokerage account with your spouse, relative or business partner has certain advantages. There are also potential downsides, including financial ones. If you’re considering opening a joint brokerage account, it’s a good idea to speak with a financial advisor first. SmartAsset’s free financial advisor matching tool can help you find advisors who serve your area.
What is a joint brokerage account?
Joint brokerage accounts are shared by two or more people. If you and one or more other parties wish to open a brokerage account together, you can do so as a non-retirement account. Traditional retirement accounts like 401(k)s and Individual Retirement Accounts (IRAs) do not allow joint ownership of brokerage accounts.
Joint brokerage accounts are generally used by spouses, parents, partners and business associates, but it is important to remember that a joint brokerage account must be opened between two adults.
Types of Joint Brokerage Accounts
There are several types of condominiums, each with specific nuances. If you’re considering opening a joint brokerage account, pay close attention to these different ownership types so you can open one that fits your unique situation:
Co-owners with right of survivorship – This type of joint brokerage account provides that if one of the owners dies, the other receives the money from the account in full. During the life of the two owners, they both have full ownership of the assets in the account.
Tenants by totality – This type of account is mainly used by married owners who hold joint assets. In order for a spouse to make changes to the account, they must have the consent of the other spouse. When one spouse dies, the other spouse gets the full account.
Joint rental – Both account holders have full control of the account, but they each own a proportionate share of the assets. When an account holder dies, their estate determines what to do with their prorated share. The other account holder retains their share of the account.
It is important to make the right choice based on your situation when creating your joint brokerage account. Otherwise, problems could arise in the event of divorce or death.
Benefits of Joint Brokerage Accounts
A joint brokerage account can be accessed by either party at any time, which can be a major advantage. Transactions can be made, balances can be checked and funds can be deposited. Access is especially important if one of the account holders dies since the other can continue to use the funds without having to wait for probate, which can take a year or more.
A joint brokerage account can also simplify estate planning. In the case of Joint Ownership with Rights of Survivorship or Whole Ownership, the surviving account holder will automatically receive the proceeds of the account if one of the holders dies. This greatly simplifies estate planning and may allow the surviving account holder to skip probate. This remains true no matter what the deceased person’s will says.
Finally, joint brokerage accounts allow the pooling of resources. This allows both account holders to benefit from lower transaction fees and costs and the power of interest compounding. This can be extremely helpful for all parties involved.
Disadvantages of Joint Brokerage Accounts
Joint brokerage accounts do not allow beneficiary designations. If the co-owners were to die at the same time, the account could be put into probate for that process to determine how the money should be distributed, which could take a year or more.
Joint brokerages are also more exposed to creditor risk. If one of the owners of a joint brokerage account is having difficulty with debts and creditors, the joint account could be seized if the creditors come after the assets of one of the individuals. This puts the other person in financial danger.
If you have a joint brokerage account with someone other than your spouse, any deposit you make into the joint account could be considered a gift to the other account holder, which could trigger gift tax. Depending on your state’s laws, gift tax may be triggered when you deposit the money or when you withdraw it. Check with a lawyer or your tax accountant in this case.
Additionally, joint brokerage accounts require a certain degree of trust. If you have a joint account with your spouse and there has been a divorce, or if you have a falling out with the other account holder, you run the risk of one party selling assets. This could be devastating for family or professional relationships.
Weigh your options carefully before opening a joint brokerage account. If you have trust issues with a family member or business partner, there are other ways to ensure your chosen heir has access to your money if you die, such as enduring powers of attorney or trusts. . If one account holder contributes more to the joint brokerage account than the other, there may be a source of conflict. Another source of conflict could lie in the trust of each towards the other.
Tips for investing
Investing is often easier when you work with a financial professional like a financial advisor. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three financial advisors who serve your area, and you can interview your matching advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
Estate planning and planning for your financial future can be complicated. SmartAsset gives you tons of free online resources. For estate laws by state and other great estate planning tips, check out SmartAsset’s Estate Planning Guide.
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When should you use a joint brokerage account? appeared first on SmartAsset Blog.