Owning an account with another individual is a common occurrence. Even so, there is often little consideration given to the question of what type of joint account ownership is best for a particular situation. The implications can be far-reaching and may include elements such as determining control of the assets, potential tax ramifications, subjectivity to creditors’ claims, and the allocation of assets upon the death of an owner. There are many factors to consider when determining which joint account type is appropriate for your unique personal circumstances.
The Outline below explores the different categories of joint ownership.
1. Tenants with Rights of Survivorship:
This arrangement entails shared ownership between two or more parties. Upon the death of an account holder, ownership is transferable to the surviving owner. Following the initial owner's death, a half step up in cost basis is awarded.
• Provides for the easy transfer of assets upon death, without assets being probated.
• May provide tax benefits by increasing the cost basis of the asset.
• This form of joint account ownership is not applicable in all states.
• All owners have equal rights to assets, potentially complicating matters in contentious relationships or divorce.
2. Tenants in Common:
Each party, referred to here as a 'tenant,' possesses a separable interest in the account. Such shareable interests, in the event a tenant dies, are not essentially divided evenly but become a component of their estate. Distinct from Tenancy with Rights of Survivorship, there is no right of survivorship inherent to this form of joint ownership.
• Share can be any percentage and does not require equal division.
• Upon death, an owner’s share is transferred to desired beneficiaries or their estate.
• Assets may be part of probate, which can lead to complexity in estate management.
• The lack of automatic rights of survivorship may cause problems if unclear who the intended recipient is at death.
3. Community Property:
This model states that all assets and debts acquired during the marriage are joint assets. When a marriage dissolves, assets are divided equally. Each tenant has a 50% interest in the account, half of which belongs to the surviving spouse, while the remainder undergoes probate upon the departure of either spouse. Interestingly, community property ownership might be achievable in a Common Law (i.e., separate property) state like Alaska.
• Ensures equal division of property during a divorce.
• May receive a full step up in cost basis upon the death of first spouse.
• Restricts individual control over one's property.
• Not applicable in all states; community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
4. Tenants in Entirety:
Tailored specifically for married couples, both tenants maintain complete interest in the account. Often, asset protection benefits are incorporated for protection if the owner is litigated. This type of ownership is acknowledged only in certain states. State rules may be different for real property vs. other assets, such as investment accounts.
• May provide stronger protection against creditors.
• Assets transfer directly to the surviving spouse upon death.
• Not recognized in all states.
• Both parties must agree on any decision regarding the property.
Each of these joint ownership types has its own unique characteristics and implications that are innately legal. To ensure the joint account type you choose will meet your legal needs, a qualified attorney who is well-versed in the specific laws of your state should be consulted. We invite you to connect with your Private Wealth Manager to discuss the particulars and gain further insight.
Derek Gray, CFP
VP of Private Wealth Management
At Curran we value service over sales and believe quality service yields happy clients. Below is our 4-step process (the first three steps at no cost to you).
A short introductory call for us to get to know one other. During this call we will discuss your financial goals, concerns and hopes for the future.
In this meeting we will go over your current financial situation, take a deeper look at your goals, discuss your risk tolerances, and collect the data necessary to build a formal proposal.
Based on our data gathering session, our Private Wealth Managers will present you with a custom proposal tailored to your needs. We encourage individuals to take the time to evaluate this proposal.
If you are comfortable with the proposal and choose to invest with Curran, our team will be there every step of the way assisting in opening the recommended accounts and facilitating all necessary parts of your onboarding process.