Account types and ownership

In a JTWROS account, the survivors get it all

Ana and Ben want to share one brokerage account. Who owns it, and what happens to it if one of them dies? An account with two or more owners is a joint account. Any owner can place orders on their own. But checks from the account are made out to all the owners.

The account's title decides what happens when an owner dies. The first title is joint tenants with right of survivorship, or JTWROS. Right of survivorship means that when one owner dies, that owner's interest passes to the surviving owners.

Say Ben dies. Ana now owns the whole account. Nothing goes to Ben's family. His interest skips his estate. The estate is everything a person leaves behind, handed out under their will. A JTWROS account isn't part of it.

A common mistake is letting the will decide. Even if Ben's will leaves everything to his son, the account still goes to Ana. Right of survivorship means a dying owner's interest passes to the surviving owners.

Tenants in common: each share goes to the owner's estate

Ana and Ben share an account again. This time they title it tenants in common. That flips what happens when one of them dies. Tenants in common means each owner owns a separate share of the account. At death, that share goes to the owner's estate.

Those shares don't have to be equal. Ana might own 60 percent, and Ben 40 percent. Say Ben dies. His 40 percent share goes to his estate. The estate is everything he leaves behind, so his will decides who gets it.

That's the flip of JTWROS. With survivorship, Ben's interest would pass to Ana. In common, it goes to his estate, and Ana keeps only her 60 percent. A common mistake is giving a tenant in common's share to the other owners. There's no right of survivorship here, so it goes to the estate.

Tenants in common means each owner's share goes to that owner's estate at death.

A custodial account holds a gift for one child

A grandmother wants to give stock to her grandson. He's eight, so he can't run an account himself. She needs a way to hold it for him. She opens a custodial account. A custodial account holds a gift for a minor, run by an adult called the custodian. A minor is a child under the legal age.

These accounts come from state laws, the Uniform Transfers to Minors Act and the Uniform Gifts to Minors Act. People call them UTMA and UGMA. Each account has one custodian and one minor. If she has two grandkids, she opens two accounts. She can be custodian on both.

The child owns what's in the account. So the child's Social Security number goes on it. The gift is irrevocable, which means it can't be taken back. The custodian can't buy on margin, which means buying with borrowed money. When the child reaches the age set by state law, the assets go to them.

A common mistake is putting two custodians, or two children, on one account. Each account gets exactly one of each. A custodial account holds a gift for one minor, run by one custodian. Once it's given, the gift belongs to the child.

Worked example: same account, two titles

1. Ana and Ben share a 120,000 dollar account. Ana's share is 60 percent and Ben's is 40 percent. Ben dies. Where does his share go?
2. Start by reading the account title. The title decides where his share goes, so we'll try it both ways.
3. Say it's JTWROS. Right of survivorship means Ben's interest passes to the surviving owner, Ana.
4. So Ana now owns the whole account, all 120,000 dollars. Ben's will has no say.
5. Now say they're tenants in common. Each owner has a separate share, so first find Ben's. It's 40 percent of 120,000 dollars.
6. 120,000 times 0.4 is 48,000 dollars.
7. That 48,000 dollars goes to Ben's estate, and his will decides who gets it. Ana keeps her own 72,000 dollars.
8. Same account, two answers. Survivorship goes to the survivors, and in common goes to the estate.

Common mistakes

survivors or the estate?

You sent the share to the wrong place. Check the account title first. With right of survivorship, the interest passes to the surviving owners. The will doesn't change that. With tenants in common, the share goes to the owner's estate. Read the title first, and it tells you where the share goes.