Switching investments from joint to individual account - what to consider?

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Topic Author
Counterpoint
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Switching investments from joint to individual account - what to consider?

Post by Counterpoint » Mon Feb 26, 2018 7:18 pm

My spouse and I are retirees who do automatic savings through a joint account into Vanguard index funds. For reasons that are too complicated to get into, we are now looking at continuing our future savings through an individual account in one of our names (instead of through the joint account).

Before doing so, I want to make sure that we have not overlooked any key factor in switching to an individual rather than joint account. Also, the following is our understanding of the factors to consider, so please correct me as needed:
Control: The obvious biggie - it’s different as to who controls the account
Step-up of Tax Basis at the time of death of one of us (we are not in a community property state): From what we've read, if it’s a joint account, 50% of the account would step up to the market value on the date of the first account holder to die, no matter who dies first; if it’s an individual account, either we would get a 100% step up (if the account holder dies first) or 0% (if the non-account holder dies first). This factor makes the individual account more attractive to us given our personal circumstances.
Successor designation: Current joint account is JTWROS. If both of us were to die simultaneously, these funds would go to our estate because (for certain family reasons) we want sufficient funds to flow through our estate. With an individual account, we would designate it as TOD/POD to the other, which would mean it would have the same effect as with our current joint account: i.e. the funds are owned by the spouse if the account holder dies, and flows to the estate if both of us were to die
Probate: In both cases, the amounts would not go through probate if one of us were to die, and would go through probate if both of us were to die (probate is not expensive in our state and the vast majority of our assets would go outside probate anyway)
In case of legal judgment against one of us (an unlikely scenario I hope): The impact on the account could vary in the two options, but it’s not a big concern given the relatively small size of the future investments compared to our other assets

Are there any other factors we should look into before making the switch? Is our understanding correct as above? Thanks for any comments.

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Artsdoctor
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Re: Switching investments from joint to individual account - what to consider?

Post by Artsdoctor » Mon Feb 26, 2018 7:36 pm

I think your understanding is reasonable.

It sounds as if you're going to keep the joint account but, going forward, you're going to have an individual account. This is easy and requires nothing more than the individual opening the account.

The control is not difficult. When you're setting up the account, you can assign the other spouse access with full control. The spouse will be able to see the account and trade on the account. It'll require a special form to be filled out and it'll have to be notarized with witnesses. You'd obviously want to make sure that the beneficiary is correctly assigned.

If the individual dies first, the cost basis is reset at the time of death. The beneficiary will have the stepped up (or stepped down) cost basis to work with going forward.

I'll defer to the lawyers in the group regarding asset protection. It doesn't sound as if you're that concerned, and I'm going to guess that this is state-dependent.

Topic Author
Counterpoint
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Re: Switching investments from joint to individual account - what to consider?

Post by Counterpoint » Mon Feb 26, 2018 11:20 pm

Artsdoctor wrote:
Mon Feb 26, 2018 7:36 pm
I think your understanding is reasonable.

It sounds as if you're going to keep the joint account but, going forward, you're going to have an individual account. This is easy and requires nothing more than the individual opening the account.

The control is not difficult. When you're setting up the account, you can assign the other spouse access with full control. The spouse will be able to see the account and trade on the account. It'll require a special form to be filled out and it'll have to be notarized with witnesses. You'd obviously want to make sure that the beneficiary is correctly assigned.

If the individual dies first, the cost basis is reset at the time of death. The beneficiary will have the stepped up (or stepped down) cost basis to work with going forward.

I'll defer to the lawyers in the group regarding asset protection. It doesn't sound as if you're that concerned, and I'm going to guess that this is state-dependent.
Thanks, Artsdoctor, and especially for the advice on how to set up the individual account so that both have full access.
Anybody with other comments?

aristotelian
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Re: Switching investments from joint to individual account - what to consider?

Post by aristotelian » Mon Feb 26, 2018 11:26 pm

The form that you would want is called "agent authorization" at Vanguard.

Topic Author
Counterpoint
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Re: Switching investments from joint to individual account - what to consider?

Post by Counterpoint » Tue Feb 27, 2018 10:26 am

aristotelian wrote:
Mon Feb 26, 2018 11:26 pm
The form that you would want is called "agent authorization" at Vanguard.
Thanks.

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