Joint Ownership: When It Makes Sense
By Dean G. Campbell

On the death of one owner, full possession automatically goes to the other joint owner. No probate procedure is involved, and nothing said in a will can contradict that inheritance. Remember that jointly owned property really belongs to each of you. It may be a help that a daughter can write checks on your bank account to pay bills when you are on an extended vacation, but she can also tap those funds for her own needs. Absolute trust is an essential ingredient of any joint-ownership arrangement.

Consider, too, the gift-tax implications. If you buy stock and list a child as joint owner, that's a gift of half of the value of the purchase. If that half is worth more than $11,000, you may be liable for federal gift taxes. Things may go easier if the two owners live near each other -- dividends and interest paid on jointly held securities will need both endorsements to be deposited. While banks seldom balk when one person signs both names, you may not want to do that.

Even though the jointly held property will automatically become the sole property of the other surviving owner, the full value will be figured as part of your estate for tax purposes. But there are exceptions to that rule. It doesn't apply to property jointly held by husband and wife, or to inherited property, or to property that you and the other owner jointly paid for, as long as your estate has evidence of that cost-sharing.

Joint ownership is not always a plus. If you and your spouse own substantial assets, the first $1.5 million (in tax year 2005) in each of your estates is not taxed. But if most of those assets are jointly held, they will pass immediately to the survivor, losing the advantage of the exemption that could have passed tax-free to a child or some other heir.

Joint ownership of titled property -- securities, real estate, automobiles, boats, bank accounts -- is a great convenience, but not always a wise choice. Many married couples simply get in the habit of putting everything in both persons' names, and when one of them passes away the survivor often asks a child or other close relative to be co-owner of the property.

Another scenario to consider: A husband and wife jointly hold stock bought at $25 a share. It’s worth $80 when the husband dies, and the wife decides to sell the investment. Capital gains will be due on the difference between $25 and $80 on one half of the holdings. Had the stock been in the husband's name alone, the basis from which a capital gain is figured would have been “stepped up” to $80, and there would have been no taxable gain on the transaction.

No one can be sure, of course, which of two joint owners is going to die first. But it is important to weigh the pros and cons of joint ownership. You should not simply title everything in two names without thinking it through with your financial advisor.

Securities offered through Sigma Financial Corporation, Member NASD/SIPC. Campbell Retirement Planning Centers does not render legal, accounting or tax advice. Please consult your CPA or attorney on such matters. The accuracy and completeness of this material are not guaranteed. The material is distributed solely for information purposes and is not a solicitation of an offer to buy any security or instrument or to participate in any trading strategy. Provided by courtesy of Dean G. Campbell, President of Campbell Retirement Planning Centers in Waterford, MI. http://www.campbellretirement.com.