By Sarah Morgan
Question: When a married couple decides to purchase stock, it can either be “Joint Tenants with Rights of Survivorship” or “Joint Tenants in Common.” Which would be the better choice?
– Bob Colangelo, Canton, Mich.
Answer: The difference between these two options is one of inheritance. According to Eleanor Blayney, consumer advocate for the CFP Board, the body that sets standards for and certifies financial planners, most couples opt for joint tenants with rights of survivorship (JTWROS), whereby any assets held JTWROS pass automatically pass to the surviving spouse when the other spouse dies.
When holding stock (or any other asset) as joint tenants in common (JTIC), each person can choose who inherits his or her portion – spouse, children, charity or more. That share goes to the recipient designated by a will. (This arrangement for owning assets jointly is not limited to married couples, and the split doesn’t necessarily have to be 50-50.) There are a few reasons to set up ownership this way, Blayney says. If one partner has outstanding debts, holding assets as joint tenants with rights of survivorship would leave the assets more vulnerable to creditors, she says. The joint tenants in common arrangement also offers more estate planning flexibility. But that’s really only going to matter to married couples subject to estate taxes.
Blayney says she is seeing more married people today who would prefer that their spouses not automatically inherit all their assets. For example, if both partners have children from previous marriages, they may each want to pass on their share of some joint assets to their own kids. If you’ve got specific plans for dividing up your estate, she recommends holding assets as joint tenants in common so you can specify who inherits them in your will.
Of course, you could also just keep separate accounts — but in the case of a brokerage account, it may be cheaper to put all your assets in one account (fewer management and transaction fees). Plus, “over time those accounts are going to look very different” if you’ve chosen different investments, says Blayney. That could make funding a joint retirement more complicated.