I’m all for starting slowly.
Get started with something comfortably, and then gradually make things a bit more difficult.
Unfortunately, brokerage firms, RIAs, and discount brokerages don’t take this same approach.
Let’s say you get up the courage to start investing. You’ve gone through this book, and you feel you are money smart. You are excited about putting your money to work. You navigate to Charles Schwab or Fidelity and download a new account application. You’ve made it! Your troubles are behind you. It’s nothing but sunshine and smiles from here.
And then you get to question number one on the application. WTF?! Before they even ask for your name or phone number, they hit you with some question about account ownership. They give you a bunch of options and tell you in big bold black letters, “Please check only one box.”
It’s like going to See’s Candies and being told, “Just choose one.” That’s too much pressure! Do you get the fudge or the caramel?! I don’t know!
And although I’m in no way trying to undermine the significance of chocolate, the investment application and your financial future are both pretty important as well.
Here are the options you will most likely see:
- Joint Tenants with Right of Survivorship
- Tenants in Common
- Community Property
- Community Property with Right of Survivorship
- Tenants by the Entirety
If you thought choosing between the dark almond or the butterscotch square was tough, then this is absurd.
But what do all of these choices mean?
Tenants by the Entirety? Really?
I’m really hesitating to go through each of these. There’s no way you’re going to remember, and frankly, why would you? I’d guess that 95% of advisors couldn’t accurately tell you what each of these mean. Seriously.
I think the better lesson is to understand generally what this question about account ownership is all about. Because it’s actually very, very, very important.
Account ownership is what it sounds like. It is who owns this account. I’d say that is fairly important.
Since we’re on a dessert kick with this lesson, let’s continue it.
Imagine you love ice cream. Yes, hard to imagine. I know.
If you lived alone, all the ice cream cartons in your freezer would be yours. Nobody else’s. Just yours. Well, that’s an individual account. All the money, assets, and decisions are yours and yours alone.
But let’s say you lived with your girlfriend or your spouse. Now, all that delicious ice cream may not be yours entirely. You may have to share it. That’s what the other account ownership types are all about.
Not only do the different account ownership types affect who has access to the money and who owns it while you are alive, but they also say what happens if you pass away.
Does your ice cream automatically go to your girlfriend, or does it instead go to your brother who lives down the street?
Selecting the correct account ownership is super important. It’s good to know what this means, but definitely get some help in checking the right bubble.
But is there another way to build and protect wealth? This next lesson is huge. It can make or break how you do as an investor. Seriously.
The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.
About the Independent Financial Advisor
Robert Pagliarini, PhD, CFP®, EA has helped clients across the United States manage, grow, and preserve their wealth for the past 25 years. His goal is to provide comprehensive financial, investment, and tax advice in a way that was honest and ethical. In addition, he is a CFP® Board Ambassador, one of only 50 in the country, and a real fiduciary. In his spare time, he writes personal finance books, finance articles for Forbes and develops email and video financial courses to help educate others. With decades of experience as a financial advisor, the media often calls on him for his expertise. Contact Robert today to learn more about his financial planning services.