A joint brokerage account can seem like a convenient way to manage investments together, but is it the right choice for you?
Whether you're thinking about opening one with a spouse, a family member, or even a business partner, it's important to weigh the pros and cons. Sharing an account, of course, comes with benefits, like easier access and shared control, but it also requires careful consideration.
So, in this article, we’ll walk you through everything you need to know about joint brokerage accounts to help you decide if it’s the right move for your financial future.
What is a Joint Brokerage Account?
So, let’s start off with showing you what a joint brokerage account is in the first place.
As the name suggests, this is an investment account shared by two or more people, allowing all account holders to manage and access the investments.
A joint brokerage account works similarly to an individual brokerage account, except that every person listed on the account has equal rights to the assets. This means each account holder can buy and sell stocks, bonds, and other securities, as well as withdraw funds without needing the other person’s approval.
Typically, joint brokerage accounts are opened between spouses or family members, but they can also be shared with business partners. These accounts offer convenience and flexibility, but they also require mutual trust and clear communication between all parties involved.
Different Types of Joint Brokerage Accounts
When it comes to joint brokerage accounts, there isn’t a one-size-fits-all option. Different types of accounts exist to suit various needs.
So, if you are going to be considering this as an option, then you should know the different types that exist. That way, you can choose the right one based on your investment goals and financial planning strategy.
The most common types are joint tenants with rights of survivorship (JTWROS) and tenants in common (TIC).
In a JTWROS account, if one account holder passes away, the surviving person automatically inherits the entire account. This can be a useful setup for spouses or close family members who want to ensure a smooth transfer of assets.
On the other hand, a tenants in common (TIC) account allows each owner to have a defined share of the investment. In this case, if one person passes away, their share doesn’t automatically go to the other account holder but is instead passed to their estate. This type of account might be a better fit for business partners or others who want more control over how their portion of the account is handled in estate planning.
Pros of Running a Joint Brokerage Account
Now that you understand the major types of joint brokerage accounts that are, let’s help you decide whether this is your thing or not. Let’s start by showing you some of the key benefits of having a joint brokerage account.
- Simplified financial management: Managing investments together can make financial planning easier for couples or business partners by combining assets in one place.
- Easy access to funds: All account holders can buy, sell, or withdraw money whenever needed, without requiring approval from the others.
- Shared responsibility: It allows both parties to contribute to the investment decisions, which can foster a sense of teamwork and joint financial responsibility.
- Seamless transfer of assets: In some account types, such as JTWROS, assets automatically transfer to the surviving account holder, avoiding probate and simplifying estate planning.
- Combined investment power: Pooling funds together may allow for larger investments or diversification, which could lead to better returns.
Some Downsides to Consider
While there are pros to owning a joint brokerage account, there are also some potential drawbacks to consider. Some of them include:
- Loss of individual control: Each account holder has equal access to the funds, meaning one person can make decisions without the other’s consent, which could lead to disagreements.
- Shared liability: If one account holder makes poor investment decisions or withdraws a significant amount, both parties are affected, potentially damaging the financial security of the other.
- Complicated in case of disputes: In the event of a relationship breakdown or business conflict, splitting the assets can be challenging and may require legal intervention.
- Tax implications: All account holders share responsibility for any taxes owed on gains, which could create issues if one person withdraws funds and doesn’t account for taxes.
Should You Have a Joint Brokerage Account?
Deciding whether a joint brokerage account is right for you depends on your personal situation and financial planning goals.
If you share common investment objectives with someone you trust, a joint account can simplify managing your finances together.
However, it’s important to consider the potential risks, such as shared liability and loss of individual control. Careful planning and open communication are key to making sure a joint brokerage account aligns with your long-term financial strategy.