Pros Of Jtic Accounts
- Clear lines of ownership. With a JTIC, each owner can make decisions independently. Shares of ownership can easily be sold without disrupting the ownership structure, so new owners can be added to the investment at any time.
- More beneficiary control. Co-owners can specify who will inherit their shares otherwise, it will automatically go back to the estate upon the death of the owner.
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MK1973E 06/21
Tax, Retirement & Estate Planning Services Team,
Manulife Investment Management
Disadvantages Of Having A Joint Account
There are many estate planning instruments and joint accounts are not always the best option. Lets see why it is not advisable to opt for a joint bank account.
Financial problems of the co-owner. If the child or co-owner has financial problems, creditors or lenders could sue them and then access the funds in the joint account to pay the debts. In this sense, having added a child to safeguard the parents money may have the opposite effect.
- The joint account acts over the will. This is something that is generally not taken into account when adding a child as a joint owner of the account. Once the parent dies, all funds in the joint account become 100% owned by the co-owner. This is true whether or not that parent has left a will dividing those funds equally among their children. The other children will not receive a share of the joint account, as it belongs to the child who remains the owner. Of course, it will be up to the new account holder to decide if they wish to share those funds with their siblings, but there is no legal obligation to do so.
- It can ruin the estate plan envisioned by the parents. If the child who becomes the account owner decides not to share the funds with their siblings, they cause the other children to be disinherited. This completely ruins the estate plan that the parents had envisioned.
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How Does A Joint Bank Account Work
Having a joint bank account means that one or more people have full access to the money in the account. This is regardless of who opened the account in the first place and regardless of who makes the deposits.
Main features of a joint bank account:
- The joint bank account allows the person or persons who have access to make use of the money in the account. In short, the money in the joint account is now owned equally by the parent and the child. And this gives you the full right to use or withdraw money at any time without the parents consent even though the parent may have owned the account in the first place.
- The persons in a joint account can be family, i.e., parent and child or spouses. Although a joint account can still be created with a best friend, neighbor, distant relative, or whomever the account holder wants.
- One of the main purposes of joint accounts is estate planning. However, there are those who use them so that the family can easily pay co-owner bills in the event the person dies or simply becomes incapacitated.
- Regardless of who originally owned the account and who makes the deposits, the joint bank account belongs to both people. This means that in the event of debts, creditors or lenders could seize the money in that account to pay the delinquent accounts. However, before the creditor can take the money, there must be a lawsuit involved.
Learn More About Your Tax Obligations From An Experienced Lawyer
There are a wide range of tax planning options, but often very little room for error. As noted, there are several factors to consider just when setting up a joint tenancy. Getting it right the first time will save you money and pain in the long run. You can learn more about the current laws and your options by speaking with an experienced tax attorney.
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Last Will And Testament
- The last will and testament is a document through which a person expresses their last will.
- In the will you should name a personal representative to carry out your final requests, name beneficiaries who will inherit the property you have, name a legal guardian for your children, and so forth.
- Make sure the document is signed, updated and as complete as possible so that there are no doubts once you are gone.
- Also, make sure your will is in line with applicable state law.
- When the person who created the will dies, the probate court must consider it valid. Thus, through the process called probate, the estate will be distributed to the beneficiaries you stipulated in your last will.
Can I Set Up A Joint Brokerage Account
Most brokers will let you have whatever type of joint brokerage account you want. On occasion, some online brokers will limit their accountholders to the simplest joint account options, but that’s relatively rare.
In order to get started, you’ll typically need to have basic financial and personal information for each joint accountholder. That way, your financial institution will be ready and able to work with either joint accountholder if something happens to the other.
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Legal Vs Beneficial Ownership
Before we explore the ins and outs of joint accounts, it’s important to clarify what we mean by “ownership”. Many people don’t realize that assets may have different “legal owners” than “beneficial owners”. Simply because someone’s name appears on an account, doesn’t necessarily mean they also have the right to use, enjoy, or personally benefit from the investments in the account. They may be a “legal owner” but not have a beneficial interest in the account’s assets.
This is a critical point to understand when we think about joint accounts. It may help to think of the concept using a more familiar example, like trusts. With a trust, the Trustee holds the trust assets for the benefit of the beneficiaries . The Trustee has the right to sign documents and make decisions about the property, but unless they are also a beneficiary, they would not have any right to use the property for their own benefit. Similarly, while the beneficiary of a trust may have a right to use and enjoy the trust assets, they may not have the right to make decisions about the trust property or sign a contract on behalf of the trust. The separation of legal and beneficial ownership is well understood when it comes to trusts. Unfortunately, many people don’t realize this concept of legal and beneficial ownership may also apply to other property, like investment assets or real estate.
Advantages Of Having A Joint Bank Account
A joint bank account can be the simplest and easiest way to help parents pay bills and monitor and track their funds, says Lauren Klein, a Certified Financial Planner and president of Klein Financial Advisors in Newport Beach, Calif. Theres a certain amount of comfort that comes from knowing that your parents bills are being paid on time. You can use a parents account to make everyday purchases like groceries for him or her as well as to pay for bigger expenses, keeping these separate from your personal accounts.
And with your eyes on their account, its easier for you to spot potential fraud. It allows the adult child to check for unauthorized purchases or other problems with the account such as late fees or overdrafts, points out Linda Sherry, director of national priorities for Consumer Action, a consumer advocacy organization in Washington, D.C.
Another benefit is that in case of your parents death, youll have immediate access to his or her funds, without having to go through probate. This may be especially helpful for paying funeral and other final expenses.
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Joint Tenant With Right Of Survivorship
With a JTWROS account, each person named on the account is a legal owner. The owners can require that decisions must be made unanimously or by majority but unless otherwise specified, each named individual will generally have the authority to give instructions or transact on the account. On the death of a joint tenant, his or her legal ownership ceases and the remaining account holder continues to have legal authority to deal with the account. Does that mean the surviving account holder also becomes the beneficial owner of the assets in the account? Not necessarily.
A beneficial right of survivorship generally exists where the joint owners are spouses or common- law partners. In that case, when one of the owners dies, the surviving owner typically becomes the sole legal and beneficial owner of the assets in the account by operation of law without any of the assets passing through the deceased owners estate.
Choose The Right Broker
No matter which type of brokerage account you decide to open for your kids, you’ll need to start by finding a broker. The best investment accounts for kids charge no account fees and have no minimum initial deposit. This gives your kids the chance to start investing with a small amount of money.
Look for an online broker with no account fees or investment minimum.
Consider, too, the costs associated with the investments your child plans to choose. For example, for kids who want to practice trading stocks, you should ensure the broker charges low or no trade commissions. If your kids just want their money to grow in a hands-off way, look for brokers with a large selection of low-cost index funds.
If youre looking for a brokerage account to teach your kids about investing, know that many brokers offer educational content, including online investing tutorials and even practice trading accounts.
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What To Do Instead Of A Joint Bank Account
After looking through the pros and cons listed above you may have decided the the cons outweigh the pros. If this is the case then what is a better option for you and your family?
There are actually a few options to consider.
- If you are concerned that your elderly parent is not paying their bills on time or that they may get scammed then speak to your parent and their bank about options to simply have view only access or alerts sent to your phone.
- You can also consider being an authorized signer on the account instead of a joint account holder. This allows you to make transactions for your parent. Check with the bank about any limitations with this option.
- Another option to discuss with your financial institution is a convenience account. This allows you to pay bills on behalf of your parent but there can be some legal risks after your parent passes away.
- Financial power of attorney is the safest and best option but you will need to use an elder law attorney to draw up the legal document. This type of power attorney gives you access to ALL of your parents financial accounts, including the bank account and investment accounts. Know that with this option, you are required to be their fiduciary which basically means that you are responsible for managing your parents money for THEIR best interests. This helps to protect elderly parents from being scammed by their adult children.
How Do Joint Investment Accounts Work
Joint investment accounts allow two or more people to invest together. You can invest in just about anything with a partner, including stocks, bonds and funds property or real estate.
Combined ownership in financial assets is referred to as joint tenancy. There are two main types of joint tenant accounts: joint tenants with rights of survivorship and joint tenants in common. The main difference is how the shares are divided should one owner pass away. Each has benefits and drawbacks, depending on your needs.
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The Pros And Cons Of A Joint Account With Your Child
Q: Im considering adding my oldest daughters name to my checking account. With a joint account, she could pay my bills if necessary. Are there any other advantages of doing this? Are there any drawbacks? ER via email
A: There are both advantages and drawbacks to adding an adult child to your bank account.
On the plus side, a joint account can serve as both a current convenience and a long-range estate plan. Your child can do your financial paperwork while you’re alive. And as the surviving joint owner she’ll inherit the account without going through probate — the legal process in which a court validates your will.
The downside is that joint accounts have hidden pitfalls. When they don’t work as you planned, the result can be disastrous for you and for your survivors.
Let’s take it for granted that your child is totally trustworthy and will never use the account except for your benefit. The main potential problem during your lifetime is that joint accounts are subject to partition. This is a fancy legal way of saying that once your daughters name is on the account, her creditors can claim half of it. As a result, if she gets divorced, or becomes the defendant in a lawsuit, your money could be at risk.
The potential problem for your survivors is that a joint account could inadvertently disinherit some of them. A hypothetical example:
In addition to unintentionally disinheriting two of your children, this may precipitate a permanent rift in the family.
Should You Use A Joint Brokerage Account
Joint brokerage accounts work best in situations in which both accountholders contribute roughly equal amounts of money to the account. If both accountholders have similar investment goals and the desire to reach those goals together, then a common pot of investable assets can be the best way to chart your progress.
On the other hand, if you have any misgivings about whether a potential joint accountholder is trustworthy, then you should look into other options. You can find plenty of ways to protect your money while still ensuring that it’ll be available to you when you need it, including things like trust accounts, durable powers of attorney, or account titles that provide for the payment of remaining assets to a named beneficiary on your death.
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Your Brokerage Account: Tax Implications Of Joint Tenancy
Created by FindLaw’s team of legal writers and editors
Thousands of new brokerage accounts are opened each year and people routinely title them in joint tenancy . This form of ownership can be great for a close-knit married couple — what’s yours is mine and what’s mine is yours. Both spouses own equal shares of the joint tenancy property.
Upon the death of the first spouse, the joint tenancy property passes “automatically” without a will to the surviving spouse. However, joint tenancy can have its drawbacks, especially when it comes to taxes. Let’s take a look at the basic tax rules for brokerage accounts held in joint tenancy and some of the most frequently asked questions.
Joint Tenancy With Non
What are the gift tax implications of opening a joint tenancy brokerage account with someone other than my spouse?
Creating a joint tenancy with someone other than your spouse can result in a taxable gift, if you cannot remove funds from the account without the consent of the other joint tenant. The amount of the gift depends upon state law, but when a child is the joint tenant, the taxable gift is generally no less than one-half of the value of the property in the account. The annual gift tax exclusion may not apply to this gift. However, the lifetime estate and gift tax exemption may apply. It is rare, however, that someone would want to use any of this lifetime exemption in a transaction involving a joint tenancy with a person other than a spouse. Tread carefully when opening a joint tenancy brokerage account with someone other than your spouse.
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