Joint Brokerage Accounts: The Pros and Cons
by Dan Caplinger | Feb. 4, 2019
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If you want to invest for long-term growth in your portfolio, then having a brokerage account is crucial. Brokerage accounts give you access to stocks, bonds, mutual funds, exchange-traded funds, and a host of other investments that can help you meet all your financial goals, and the right broker can help make it easier for you and your family to put together a strong set of investments to get you there.
Many people use joint brokerage accounts to help them invest. From married couples looking to pool their investments to other relatives wanting to provide a contingency plan for managing investment assets, joint accounts have plenty of prospective benefits. But there are also traps for the unwary that you should know about before you use a joint brokerage account. Below, we'll look more deeply into joint brokerage accounts and their pros and cons.
What are joint brokerage accounts?
Joint brokerage accounts have two or more accountholders listed on them. These accounts allow multiple people to have control of an investment account, enabling them to do trades, make deposits and withdrawals, and take other actions related to their investments.
There are several different types of joint brokerage accounts, each of which has different implications under certain situations. The rules for each of these accounts vary from state to state, so you'll want to check with your own state laws to ensure that they work the way you want.
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A joint tenancy with rights of survivorship allows both accountholders to have full control of the account, and when one accountholder passes away, the full amount of the account goes to the surviving accountholder. A second, similar form of joint account is known as a tenancy by the entirety, and it's basically a joint tenancy that only married couples are allowed to use and that have a few extra features.
On the other hand, a brokerage account held as a tenancy in common gives both accountholders control of the account, but each accountholder retains ownership of a pro-rata share of the account. If one accountholder dies, then that person's 50% stake passes according to whatever instructions there are in the estate planning documents the accountholder has in place.
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.
What are the benefits of a joint brokerage account?
Having a joint brokerage account can come in handy. Here are some of the advantages of having a joint account set up:
- One person can be responsible for all of the transactions happening in the account. That can be especially useful when only one member of a couple has interest in managing financial affairs.
- Estate planning can be simplified. With joint tenancy or tenancy by the entirety accounts, the joint accountholder automatically takes full ownership of the account upon the other accountholder's death. That's true regardless of what the deceased person's will says.
- It can be easier to manage a single investment account held jointly than to manage multiple accounts for couples or other family members. Costs can be reduced as well, as having more assets will generally give you better access to more efficient investment options.
- Often, aging parents will set up joint accounts with a trusted child or other family member to allow someone else to take care of financial matters once the older person is no longer able to continue to manage their own money. A joint account is one of the simplest ways to allow another person to have unfettered control over financial assets.
What downsides are there to joint brokerage accounts?
As useful as joint brokerage accounts can be, there are some disadvantages and potential problems. They include the following:
- Each joint accountholder has full control of the account, so either one can sell off all the brokerage assets and withdraw the money. Even in the family context, that happens more often than you'd think, and it can be devastating not just to the two people directly involved but also to other family members.
- If you want other heirs besides the accountholder to receive your money at death, then it's important not to use a joint tenancy or tenancy by the entirety. Only a tenancy in common account can provide for your will or other estate planning documents to control its disposition.
- Joint accounts are often subject to claims from creditors of either accountholder. That can be problematic in cases involving an account in which only one accountholder really deposits money into the account, because the debts of the other can wipe out the account balance.
- Finally, there can also be unintended tax consequences for joint accountholders. If only one person deposits money into a joint brokerage account, then that can sometimes constitute a taxable gift from the depositing accountholder to the other accountholder. In some cases, simply making the deposit could be enough to be deemed a taxable gift, while in others, it would require the accountholder to withdraw money from the account before a gift would have taken place for tax purposes. Either way, though, things can get complicated in a hurry -- even if no one ever had any intention of using the account as a gift-giving mechanism.
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.
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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.
There's also no need to make joint brokerage accounts an all-or-nothing decision. By breaking your money into a couple of different chunks, you can put as much money as you're comfortable putting into a joint account while still keeping the rest in an individual account. There's no problem with having multiple brokers, and the best pros will respect your decision on that front.
Make the most of joint brokerage accounts
Joint brokerage accounts aren't for everyone, but for many, they'll meet a valuable need. Look closely to see if a joint brokerage account could help you reach your own financial goals.
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