The way in which you hold your assets can affect your financial and estate planning.

* Sole ownership. Holding assets in your own name is simple, cheap, and flexible. You can leave those assets to anyone you’d like, in your estate plan.

For instance, assets held this way can be left to your children. That will use up your federal estate tax exemption, which covers $2 million of assets this year.

On the downside, solely-held assets may be exposed to your creditors during your lifetime. Assets you hold on your own might be mismanaged if you become incapacitated because there is no obvious successor to take over. At your death, most types of solely-held assets will have to go through probate, which can be expensive and time-consuming.

* Joint ownership. Joint ownership is usually joint tenants with right of survivorship (JTWROS). At your death these assets will automatically pass to the surviving co-owner or co-owners.

Putting assets in this type of joint ownership also is simple and inexpensive. Incapacity may not be a problem – if you can’t pay your bills, for example, your co-owner can write checks for you. Moreover, assets will pass to your co-owner without going through probate at your death.

However, when you put assets in JTWROS, the joint owner you name will inherit the asset, no matter what it says in your will. Other potential heirs will be shut out. Therefore, you should go over the pros and cons in order to make reasoned choices for your key assets.

Using joint ownership may result in the payment of unnecessary estate tax. Suppose John Smith dies in 2008 with all of his assets held as joint tenants with right of survivorship (JTWROS) with his wife Mary, so she inherits everything.

If Mary dies later this year with a $4 million estate, her estate will be $2 million over the $2 million federal estate tax exemption in effect for 2008. Her heirs will owe $900,000 to the IRS, at a 45 percent estate tax rate.

If John had owned assets in his own name, they could have been left to their children, to use his $2 million estate tax exemption. It might have been possible to avoid estate tax altogether on $4 million worth of assets.

Generally, married couples who are concerned about estate tax should hold some assets in each spouse’s individual name. No matter which spouse dies first, assets can be left to other heirs and thus take advantage of the federal estate tax exemption.