Holding assets in your own name is simple, cheap, and flexible. Image: karen roach/Shutterstock.com
By: FEDweek StaffJoint ownership is the simplest and least expensive form of incapacity protection. Your elderly uncle who is becoming forgetful, for example, might put his bank and brokerage accounts in joint name with your sister Gwen, who lives nearby. Then, if your uncle no longer can handle his own finances, Gwen can write checks, reinvest bond interest, and so on.
The catch? Such joint accounts typically are titled “with right of survivorship.” When your uncle dies, Gwen will become the owner of those bank and brokerage accounts. No matter what your uncle put in his will, you and other relatives will be shut out.
Therefore, you shouldn’t encourage elderly loved ones to rely too heavily on joint ownership. They might keep a small amount in a joint checking account for paying bills. Beyond that, they can transfer assets into a trust and give someone a power of attorney for assets not held in trust–these tactics will provide incapacity protection without disrupting an estate plan.
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. Therefore, you should go over the pros and cons in order to make reasoned choices for your key 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.
On the downside, one co-owner will always inherit from the other. Therefore, joint ownership won’t be a good idea for assets you wish to leave to someone besides your co-owner.
Joint ownership comes in three varieties:
1. Joint tenancy with the right of survivorship. As the name suggests, if one co-owner dies, the survivor becomes the sole owner.
2. Tenancy by the entirety. Offered in some states, this type of ownership is generally available for real estate owned by a married couple. Again, the survivor automatically inherits. If property is titled this way, it’s out of the reach of creditors of either spouse, as long as both spouses are alive.
3. Tenancy in common. Here, each co-owner holds a share of the property outright. That portion can be transferred to anyone by sale, gift, or bequest.
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 easily be left to your designated survivors.
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, solely-held assets may have to go through probate, which can be expensive and time-consuming.
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