Until Death Do You Part: Ownership of Taxable Online Investment Accounts
When you set up an online brokerage account, you’ll be asked whose name it should be put in. This seemingly mundane question can have serious tax consequences. Sorry to be morbid here, but death is the event that makes the way you possess an account very important.
The following are the main types of accounts and describes how each affects your tax situation in the event of your (timely or untimely) demise:
Individual accounts are the common standard account. You are named the owner, and on your death, the assets go to your estate.
Joint tenants with rights of survivorship accounts give each owner an entire stake. That means if one owner dies, the assets transfer directly to the other owners.
Tenants in common accounts let you slice up an account, by percentage, among different owners. When you die, your percentage of ownership passes to your estate.
Community property accounts are a method of ownership available only in states that allow them. This allows a married couple to equally own assets. The Internal Revenue Service recognizes nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska residents can choose to have community property treatment, but it requires taxpayers to take an election, as you can read in section 18.104.22.168.2.