Joint Tenants vs. Transfer on Death

[Ted_Shepherd]

An article online today has this: "Another way to seamlessly transfer wealth is to designate loved ones such as adult children as co-owners on investment accounts. Through an arrangement known as a transfer on death agreement, ownership will automatically transfer to your loved one when you die."

The author has confused TWO distinct ways of transferring wealth seamlessly at death. I am not a lawyer and not an accountant. Here is my layman's understanding of the issues. If a brokerage account is held as JTWROS (joint tenant with right of survival), neither party has the right to designate an heir for that account or any part of it. Rather, the surviving owner of the JTWROS become the sole owner automatically, without probate. That's what "with right of survivorship" means.

The other idea is "transfer on death", TOD. (German for death IS Tod. Odd) TOD means this: in an account that someone owns individually, he can designate a beneficiary; that person receives ownership of the account when the original owner dies. This does not avoid inheritance tax, but does avoid probate. No probate court needs to determine the intent of the deceased. His TOD designation settles the matter, regardless of what any "last will and testament" may say.

Here's the beef: if the adult children are co-owners in a JTWROS account, the transfer is NOT TOD. The author has confused these two methods of passing assets to an heir without probate. (I would have written this as a comment on the original article, but that site does not permit reader comments. Too bad, because the author's confusion is getting no direct correction.) Further, transferring assets you own individually to a JTWROS account MAY incur gift taxes.

From the net: "Joint tenants with right of survivorship (JTWROS) is a type of ownership in which all joint owners have equal portions of ownership that are immediately allocated to remaining owners if one owner dies." . . . "On a nonretirement account, designating a beneficiary or beneficiaries establishes a transfer on death (TOD) registration for the account. For an individual account, a TOD registration generally allows ownership of the account to be transferred to the designated beneficiary upon your death."

 

[Luck_Club]

(I would have written this as a comment on the original article, but that site does not permit reader comments. Too bad, because the author's confusion is getting no direct correction.)

MSN?

 

[Richard4444]

At first glance (I'm not a lawyer or accountant either) it seems that in a joint tenant situation with your money, the other person could take it all and in a TOD it is all yours until you pass.

Rich

 

[Winemaker]

Not to mention, lawsuits, when using JTWROS.

 

[kaneohe]

And reduction in stepped up basis Danger: Jointly-Owned Property With a Non-Spouse - Inside INdiana Business

 

[upset264]

The major drawbacks of a joint account are that either owner has complete access to the funds at anytime. Also the account is vulnerable to any judgements or claims against any owner.

Furthermore, typically one party funds an account and adds a joint owner to allow access and to ensure the account passes on death, but if things change as they sometimes do, an owner cannot remove another owner. Either owner can however withdraw all the funds and put them in an account in his name only.

With a TOD the owner can change the beneficiary at any time as circumstances change.

I believe the best thing is to put money for short term needs such as checking accounts in joint ownership so that if one party is unable the other can pay the bills, and put longer term assets such as investments on TOD registration. What seems like a great idea today can prove problematical before long.

 

[pb4uski]

+1 with what upset wrote. Spot on.

However, joint accounts worked out well in one situation.... I was added as a joint owner to auntie's account so I could pay her bills for her. She later died and at the time of her death, all of her other assets had been sold and the proceeds in the joint account in anticipation of future nursing home bills.

The only will that we could find was a really old one. There was a newer version that I had an unsigned copy of and we knew auntie had signed but could not find the newer signed will. The newer version was quite different and excluded certain relatives who had slighted her over the years.

Since the assets were in the joint account that I controlled on her death, I was able to avoid probate and distribute those assets in accordance with her wishes as shown in the newer will that we could not find the signed copy of and ignore the older signed will so her assets were distributed in accordance with her wishes. If the bank account had not been joint then we would have been compelled to go through probate and distribute the assets in accordance with the older will and some people who she wished to exclude from her estate would have received some of her assets.

 

[Dash man]

An article online today has this: "Another way to seamlessly transfer wealth is to designate loved ones such as adult children as co-owners on investment accounts. Through an arrangement known as a transfer on death agreement, ownership will automatically transfer to your loved one when you die."

The author has confused TWO distinct ways of transferring wealth seamlessly at death. I am not a lawyer and not an accountant. Here is my layman's understanding of the issues. If a brokerage account is held as JTWROS (joint tenant with right of survival), neither party has the right to designate an heir for that account or any part of it. Rather, the surviving owner of the JTWROS become the sole owner automatically, without probate. That's what "with right of survivorship" means.

The other idea is "transfer on death", TOD. (German for death IS Tod. Odd) TOD means this: in an account that someone owns individually, he can designate a beneficiary; that person receives ownership of the account when the original owner dies. This does not avoid inheritance tax, but does avoid probate. No probate court needs to determine the intent of the deceased. His TOD designation settles the matter, regardless of what any "last will and testament" may say.

Here's the beef: if the adult children are co-owners in a JTWROS account, the transfer is NOT TOD. The author has confused these two methods of passing assets to an heir without probate. (I would have written this as a comment on the original article, but that site does not permit reader comments. Too bad, because the author's confusion is getting no direct correction.) Further, transferring assets you own individually to a JTWROS account MAY incur gift taxes.

From the net: "Joint tenants with right of survivorship (JTWROS) is a type of ownership in which all joint owners have equal portions of ownership that are immediately allocated to remaining owners if one owner dies." . . . "On a nonretirement account, designating a beneficiary or beneficiaries establishes a transfer on death (TOD) registration for the account. For an individual account, a TOD registration generally allows ownership of the account to be transferred to the designated beneficiary upon your death."

Beneficiaries can be named with a JTWROS, but they don't receive anything unless both joint owners have passed. If the JTWROS is with a spouse there are no tax consequences, but for anyone else there will be if the estate is large enough or the state had an inheritance tax.

 

[Ted_Shepherd]

Yes, MSN, May Their Tribe Diminish

MSN?

Yes, you recognize the reader-hostile style of that site. The article has this title: "The American Greed Report: How to control your money, even after you die"

 

[Ted_Shepherd]

JTROS accounts just for my short term needs: gifts

The major drawbacks of a joint account are that either owner has complete access to the funds at anytime. Also the account is vulnerable to any judgements or claims against any owner.

Furthermore, typically one party funds an account and adds a joint owner to allow access and to ensure the account passes on death, but if things change as they sometimes do, an owner cannot remove another owner. Either owner can however withdraw all the funds and put them in an account in his name only.

With a TOD the owner can change the beneficiary at any time as circumstances change.

I believe the best thing is to put money for short term needs such as checking accounts in joint ownership so that if one party is unable the other can pay the bills, and put longer term assets such as investments on TOD registration. What seems like a great idea today can prove problematical before long.

I agree with you. I use my three JTROS accounts just for the short-term pupose of convenient transfer of funds as current gifts. I fully expect the co-owners to drain the accounts to zero each month. This allows me to get funds to these three men I trust without the trouble of me writing a check and mailing it. Schwab online takes care it for me and for them in a minute or two at the keyboard monthly. It wouldn't make sense for them to alienate me by mismanaging the JTROS accounts since they are my heirs in TOD accounts. As you said, I can change the TOD designations at any time.

 

[ExFlyBoy5]

If the bank account had not been joint then we would have been compelled to go through probate and distribute the assets in accordance with the older will and some people who she wished to exclude from her estate would have received some of her assets.

However, if the accounts were set up with a TOD/POD, then they would not have been subject to probate, either. As far as I am concerned, a will should be used only to cover assets that can't be "assigned" at death (such as household items and such). Houses, bank accounts, brokerage accounts and even cars (in some states) can all be kept out of probate if set up correctly.

 

[pb4uski]

I agree with you that it is best to use beneficiary designations and TOD/POD as much as possible to minimize assets that have to go through probate.

The situation that I was describing was a fairly unique situation regarding my great aunt... but nonetheless a situation where joint ownership worked out well given that we could not find the newer will that we knew that she had signed.

 

[FIRE'd@51]

However, joint accounts worked out well in one situation.... I was added as a joint owner to auntie's account so I could pay her bills for her. She later died and at the time of her death, all of her other assets had been sold and the proceeds in the joint account in anticipation of future nursing home bills.

The only will that we could find was a really old one. There was a newer version that I had an unsigned copy of and we knew auntie had signed but could not find the newer signed will. The newer version was quite different and excluded certain relatives who had slighted her over the years.

Since the assets were in the joint account that I controlled on her death, I was able to avoid probate and distribute those assets in accordance with her wishes as shown in the newer will that we could not find the signed copy of and ignore the older signed will so her assets were distributed in accordance with her wishes. If the bank account had not been joint then we would have been compelled to go through probate and distribute the assets in accordance with the older will and some people who she wished to exclude from her estate would have received some of her assets.

Couldn't the same thing be accomplished by her designating you as a full custodial agent for her account with you designated as the TOD beneficiary? She would still be the single owner so TOD would be allowed, and thus, no probate. As a full agent, you would be able to buy and sell assets, write checks, etc. and even change TOD designations.

 

[pb4uski]

Mind you, we didn't try to do this intentionally.... it was just a fortunate byproduct of putting my name on the joint account when we set it up so I could pay her bills for her.... there was no intent at the time for me to inherit the money... as far as I was concerned it was her money that I was just managing for her... which is why I gifted the balace of the account in a manner consistent with her newer will.

 

[CaliKid]

POD is better than JT to get the full step-up in basis which is important for anybody with appreciated assets. However, POD only provides protection at death and not incapacity. You can do bank specific powers of attorney in addition to the POD so that would be a POA and a POD but that can be cumbersome if you have a lot of banks as each bank requires their own POA form. Thus a living trust is far superior for most people if set up right.

 

[pb4uski]

I dunno... I only have 5 significant brokerage/banking relationships so a entity-specific POA form doesn't sound too daunting.

 

[ExFlyBoy5]

I dunno... I only have 5 significant brokerage/banking relationships so a entity-specific POA form doesn't sound too daunting.

This. I don't see the value of having money scattered all over the place, anyway. Personally, I have a local CU for "cash" dealings, USAA for bill-pay and check writing, the TSP account and Vanguard. That's it and has made estate planning very easy.

My Dad's is similar...a local bank for cash/checks, Scottrade (with a local office) and that's it. That has made his estate planning pretty easy as well.

 

[Luck_Club]

MSN Slanted Garbage

Yes, you recognize the reader-hostile style of that site. The article has this title: "The American Greed Report: How to control your money, even after you die"

Yep I have outlook e-mail, so I have to go through their site. They write these 1 sided slanted articles often void of opposing relevant facts, and recently closed the ability to comment, because you can't have open debate of the politburo.