Joint brokerage and managed investment accounts: What are they and should you have one?
Editorial staff, J.P. Morgan Wealth Management
- Joint brokerage and managed investment accounts are owned by more than one person.
- The three types of joint accounts typically are joint tenants with right of survivorship, tenants by the entirety and tenants in common.
- There are pros and cons to owning a joint account. When considering one, you’ll need to identify your goals and weigh the risks.
If you and a family member or partner are looking to manage investments together, opening a joint brokerage or managed investment account could be a smart move. These joint investment accounts offer flexibility and convenience to help you meet financial goals, manage your portfolio and possibly simplify certain aspects of estate planning.
Before you decide if a joint account is right for you, though, it’s important to understand how such an account works, what types are available and how to set one up.
Given the potential legal issues associated with joint accounts, including ownership rights and taxes, you should consider speaking with an attorney about what’s right for your situation.
What is a joint investment account?
A joint brokerage or managed investment account is owned by more than one person. These accounts tend to be held by family members – such as spouses, siblings or parents and their adult children – or, in some cases, by partners who choose to co-own an account. When ownership is shared, all account holders can make transactions and otherwise control the account.
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Types of joint investment accounts
There are different types of joint investment accounts, and the rules governing shared ownership vary depending on the state and financial institution where the account is established. Before opening a joint investment account, you’ll need to confirm the details relevant to your specific circumstances.
Those who are thinking about opening a joint account should consider several factors, including the relationship between the co-owners and how percentage ownership is recognized among them. You’ll also need to understand inheritance rules, along with asset titling – how you own your shared assets – before you decide to open a joint account.
The three most common joint account types are:
- Joint tenants with right of survivorship: These accounts may be owned by two or more people, each with an undivided interest in the whole account. If one account holder dies, the remaining owner or owners inherit the whole account.
- Tenants by the entirety: These accounts follow similar rules to joint tenants with right of survivorship accounts but are available only to married couples. Not every state recognizes this ownership interest.
- Tenants in common: These accounts allow owners to specify ownership, whether 50-50 or something else. For example, one individual may own a 20% share of the account, while the co-owner owns the remaining 80%. When one owner dies, the remaining account owner or owners won’t automatically assume ownership of the co-owner's portion. Rather, the co-owner's portion is included in their estate and may be bequeathed to any named beneficiary.
Why consider a joint investment account?
People may choose to set up a joint investment account for a variety of reasons. Some of the most common include the following:
Invest together with simpler account management
For some, the goal is to simplify their finances by having fewer accounts to manage. Others may choose a joint account to take advantage of lower costs, as some firms reduce fees for larger accounts. There’s also the possibility of paying fewer fees by having fewer accounts.
Streamline estate planning
An individual might choose to open a joint account with right of survivorship with their spouse, for example, or older parents might open an account with their adult children. In addition, all owners have access and can transact in the account. If one owner dies, surviving owners may gain sole ownership, meaning assets pass outside the deceased owner’s estate. This can simplify estate planning.
Potential drawbacks of a joint investment account
Now that you understand why someone might consider opening a joint investment account, it’s important to consider the possible downsides of this kind of investment vehicle.
Possible misunderstandings between co-owners
An account co-owner may not always respect the intended use of the account, which can lead to misunderstandings – or even misuse of funds. If potential joint owners are deemed too risky, you may want to consider careful estate planning instead to reap some of the same benefits.
Creditor risk
Opening a joint account can expose co-owners to creditor risk. If an account owner is subject to claims by creditors, some – or potentially all – of the assets in the account may be at risk, depending on state law and the account structure. Essentially, the financial decisions of one account holder – including those you might not agree with – affect all the account holders. This can be especially relevant for joint tenants with right of survivorship accounts.
Risks during divorce or other relationship changes
In the case of divorce, a joint account holder’s ex-spouse may seek a portion of the account. Even if the divorce is amicable, you should still know what you’re entitled to and be on the same page as your ex-spouse. If you’re not, you may need to contact the brokerage where you hold the account to discuss next steps.
Beyond divorce, other relationship or partnership changes between account holders may pose risks, including possible tax implications. You may want to discuss options with a tax professional or an attorney.
How to open a joint investment account
Let’s say you’ve identified your goals, weighed the risks and determined your prospective co-owners are trustworthy and financially responsible. If you decide to move forward with a joint account, the process to open one is fairly straightforward. Every financial institution does things slightly differently, but here are the major steps you’ll need to take.
- Choose a financial institution: Selecting a financial institution will be your first step. Consider possible fees, level of customer service, variety of investment options and your own familiarity with the firm, among other factors. You’ll also want to confirm that all parties who plan to share the account agree on the firm before committing.
- Determine the account type: Decide on the type of joint account you want – joint tenants with right of survivorship, tenants by the entirety or tenants in common. Each type has different implications for ownership and inheritance.
- Collect required information: Make sure you have all the required information, including your Social Security number, government identification (like a passport or driver’s license) and personal contact info. You’ll likely need to provide financial details like annual income, net worth and information about other investments. All joint account holders will likely need to provide this information.
- Submit necessary paperwork: All account holders will need to fill out paperwork and sign documents. Confirm with the financial institution you’re choosing if signatures can be collected online or in person. If one of the account holders is of diminished capacity, you may need to ensure someone has been assigned power of attorney to act on their behalf.
- Fund the account: Once the application is approved, you’ll need to transfer funds from an existing bank or brokerage account to fund the new joint account.
The bottom line
Joint accounts may work for some individuals – especially those looking to streamline their investment accounts or those who want to simplify the estate planning process for their family. Joint accounts do have their risks, however; if you decide to open one, make sure you trust the other account holders and prioritize regular and open communication about your shared investment strategy.
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