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Should all investments be owned jointly

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  • Should all investments be owned jointly

    I am a firm believer that all monies in a marriage should be jointly held although I have heard otherwise

  • #2
    Agreed. But as stated in the thread about engagement monies, that's "traditionalist". Seems to me everything would be twice as complicated if everything was separate. I wish I could somehow combine our retirement savings, but unfortunately, have to manage those separately and coordinate asset allocation between them..

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    • #3
      Well your IRA cannot be.

      :roll:

       

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      • #4
        Obviously Joseph is correct: IRA's and retirement accounts can't be jointly owned. I'm relatively young (31) and I hold all my non-retirement accounts jointly with my wife. But I will say, a majority of my same-age friends who have gotten married recently have separate checking/savings accounts from their spouses.

         

        The traditional view of sharing accounts may stem from the "traditional" household of a breadwinner and a stay at home parent. It's tough to have separate accounts when one of the people in the relationship is not earning cash. (Note: I'm not saying those people don't provide a huge benefit to the household, namely child rearing, but the cold hard fact is that they don't earn real world money). I for one got married just before medical school, so it only made sense to share accounts with my wife since she was the only one making money at the time. Conversely, I can see the argument for separate accounts when two people coming into a relationship/marriage already have established net worths. Many of my friends have a smaller joint account to pay bills and rent/mortgage but keep the rest of their finances separate.

         

        To each their own I guess...

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        • #5
          Joint as much as possible for simplicity's sake. The least accounts to follow the better. Near zero sum budgeting/planning is much less complicated with 1 bank account and 1 taxable account. Simple well thought finances is the smart way to go in my opinion.

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          • #6
            The best reason I can give for joint checking (other than a moral argument) is accountability. Younger clients do seem to keep assets separate more often these days but those couples that do have more spending problems. And they don't usually have a good reason for separate accounts other than that's what their friends do or they just "felt" they should. I always recommend a main joint account and separate individual accounts that each spouse can spend without having to get "permission". These separate accounts are included in the budget and are replenished monthly. The spouse can save or spend and

            If long-term investment accounts are held jointly, the ability for a step-up in basis for the surviving spouse evaporates for 1/2 of the account at the first death. This could be very costly.

            And, of course, if it's not your first marriage, there may be other reasons to keep accounts separate, particularly if either or both have children from a prior marriage.
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7
              Could you explain this further, "If long-term investment accounts are held jointly, the ability for a step-up in basis for the surviving spouse evaporates for 1/2 of the account at the first death."

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              • #8
                Inherited property gets a step-up in basis at death. This means that the "basis" (i.e. cost for determining gain or loss) is re-set to the value at date of death for the person who inherits property. So if you own the account jointly, the survivor inherits 1/2 from the deceased. For investment property that has been held for many years and has a huge gain, this can mean a huge tax savings.

                In other words, if a couple has invested $500k jointly over a period of time and the account is worth $2M at the death of one spouse, the surviving spouse inherits $1M from the deceased. The survivor would have a basis of $1M in the 1/2 of the portfolio inherited, but a basis of only $250k in the other half of the portfolio. If the survivor liquidated the full portfolio after the first death, the survivor would pay taxes on $750k of gain. Had the survivor inherited the full portfolio from the deceased, there would be no gain because the full portfolio would get a step-up in basis.

                Of course, this rule doesn't just apply to investment portfolios, but to most inherited assets.

                Here is an easy explanation on bogleheads if I confused you! Hope this helps.
                Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                • #9
                  But




                  Inherited property gets a step-up in basis at death. This means that the “basis” (i.e. cost for determining gain or loss) is re-set to the value at date of death for the person who inherits property. So if you own the account jointly, the survivor inherits 1/2 from the deceased. For investment property that has been held for many years and has a huge gain, this can mean a huge tax savings.

                  In other words, if a couple has invested $500k jointly over a period of time and the account is worth $2M at the death of one spouse, the surviving spouse inherits $1M from the deceased. The survivor would have a basis of $1M in the 1/2 of the portfolio inherited, but a basis of only $250k in the other half of the portfolio. If the survivor liquidated the full portfolio after the first death, the survivor would pay taxes on $750k of gain. Had the survivor inherited the full portfolio from the deceased, there would be no gain because the full portfolio would get a step-up in basis.

                  Of course, this rule doesn’t just apply to investment portfolios, but to most inherited assets.

                  Here is an easy explanation on bogleheads if I confused you! Hope this helps.
                  Click to expand...


                  I am a novice here, but how do people use this in their financial planning?  Most couples do not know who will die first.

                  Option 1 would be to have two separate $250,000 invested (total $500,000) each held separately.  They each grow to $1M (total $2M). When Spouse A dies then the step up is $1M for the one account.  They still have $750,000 gain in their own account.

                  Option 2 is the scenario you describe above. Couple jointly invests $500,000.  The account grows to $2M. Spouse A dies and Spouse B inherits 1/2 of the $2M portfolio.  Spouse B would have a basis of $1M in the 1/2 of the portfolio inherited, but a basis of only $250k in the other half of the portfolio.

                  Option 1 and 2 ultimately appear to have the same outcome - that is having $750,000 of taxable gain.  So how do people use this in their financial planning?

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