As a young investor who has started out in her investing journey, it is not very easy to think about the transition aspects. However, the pandemic has taught us an important lesson that life can be really unpredictable. There have been many recent cases wherein the wife could not access emergency funds due to the husband’s death or severe illness. This article explains the benefits of having joint accounts and the things you should keep in mind while opening and maintaining joint accounts.

Joint mode vs “Either or Survivor” mode:

Suppose you want to operate the account jointly with any other person. In that case, you will find two options in the application form – a) joint, and b) either or survivor. You need to understand the difference between both modes of operation. In joint mode, you will need the signature of all the joint holders to do any transaction. On the contrary, in the “either-or survivor” mode, any single holder’s signature is acceptable for the transaction to pass through. While joint mode will be a good choice if the transaction is such that it should need the consent of all account holders, the “either-or survivor” mode is much better if the aim is to only facilitate the transition and there is one accountholder only who calls the shots concerning investment decisions.

Further, the joint mode of operation can prove to be a real pain if anyone accountholder relocates to a different city. Also, all joint account holders need to be KYC compliant. If the holding is not specified as “either-or survivor”, financial institutions generally assess the mode as “joint” by default.

Succession aspects in case of joint ownership of investments:

Joint ownership helps the second holder get access to operate the account after the death of the first holder. However, it does not replace the directions given by the deceased account holder in a will. The rules and documentation requirements for allowing the second owner to operate the account after the death of the first holder vary from institution to institution. Some institutions may allow the same, while others may insist on a probated copy of the will or any other appropriate documentation like a succession certificate.

Joint ownership vs nominee:

A nominee is basically a trustee of the investments of a deceased person who takes care of the investment till it is distributed to the rightful legal heirs as per will. So, joint ownership does not mean that nomination is not needed. In case of death of both the joint owners, the nominee can hold assets in trust until the determination of legal heirs is completed. In specific cases like shares and insurance policies, there are different rules on the rights of nominees.

Taxation aspects in case of joint ownership:

In joint ownership, if the share of ownership is not specified, then for all practical purposes, the ownership is considered equally distributed between all joint owners. However, from the taxation perspective, the source of income is relevant. Ideally, the person who has earned money to make the investment should pay the tax on it. Hence, the understanding regarding the ownership of funds should be clear between all joint owners. It should also preferably be documented. In case of tax scrutiny, the income tax department can question all the joint owners regarding their share of tax liability on the investment. A documentation/agreement/understanding of the source of funds can come in handy in such a case.

Other aspects of joint ownership:

Following are some helpful points that you can keep in mind regarding joint ownership of investments:

  • In the case of husband-wife joint investments, practical issues can arise in case of divorce /separation. The couple should document their respective ownership shares and sources of funds to avoid difficulties in the division of assets at a later date.
  • In the case of joint property ownership, banks may generally insist that all the joint owners should act as co-applicants to the home loan. In such a case, a clear trail of fund movement in the ratio of ownership by all co-owners towards payment of EMI can help in tax scrutiny.
  • In case of a change from joint to “either-or survivor” mode, all the joint holders may need to furnish a signed application to the bank or financial institution for it to take effect.

Our view on joint ownership in investments

Joint ownership is one good way to maintain the transition and continuity of your financial life in case something happens to you. You can have a joint mode of operation for each investment in the “either-or survivor” mode. You should prefer a joint mode of operation only for those investments where you want all joint owners to have a say in the decision regarding the investment. However, as you build a decent investment base, your first priority should be to draft a simple will that clearly outlines your investments’ distribution pattern.
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