Who Should Be Able to Sign on Your Account?

What's a signature worth? If you are world-famous, say, a sports celebrity, your John Hancock could command thousands of dollars at trade conventions.

But what's a signature worth if you're not a celebrity? In the case of registration forms for mutual funds and other investments, what you sign, or don't sign, may mean the difference between getting your money back with interest or getting nothing back at all.

The signature on financial documents is the bottom line, in terms of establishing ownership of an account, says Maria Crawford Scott, editor of the AAII Journal, a monthly review published by the American Association of Individual Investors, a small-investors group in Chicago. An investor's objective in establishing an account, she says, "will determine how you sign as well as who signs."

Ostensibly, there is little confusion about opening mutual fund accounts. Most prospectuses require that the account holder sign at the bottom of the registration form, usually also listing a Social Security number. But should your spouse sign too and be a registered owner? What about children, or other relatives? When should they be listed?

In dealing with ownership of accounts, it is best to check with your attorney or financial adviser. Still, retirement experts note several basic rules about signatures:

Taxable accounts. Usually both spouses should be listed as co-owners. In the event of death of either party, the account automatically transfers to the surviving spouse, thus avoiding probate.

Tax-deferred retirement accounts. Only one party can usually establish the account, so only one signature is required. But the party can establish a right of survivorship (a beneficiary), such as a spouse. The account then automatically transfers over, again avoiding probate.

Anticipating legal problems. If you have any concern about impending legal difficulties, you might want to establish an account separate from your spouse, experts say.

Example: You might wish to make it harder for a creditor to attach your account because of lawsuits brought against your spouse, or if you might divorce. Having a separate account will not prevent any subsequent suit against you, or your account; but it might make it harder for such a lawsuit to be brought.

It can "buy you some time," in terms of gaining access to the account, says one financial adviser.

If an account is registered solely in your name, you will be responsible for all taxes on dividends and capital gains.

Partnerships. If one spouse is a member of a business partnership, the funds are usually registered in the name of the non-partnership spouse. In partnerships, lawsuits often can be brought against the personal assets of all partners.

Holding down tax liabilities. You might also want to consider separate accounts if you plan to file income-tax returns separately to lower total family taxes. This may occur if one spouse earns much more than the other. Check with an accountant or tax planner.

Listing relatives. Sometimes listing relatives can make sense, such as if the primary owner is older and could become incapacitated. Having an adult child or other relative also sign provides immediate access to the account by the other adult. But you have any doubts, it might be better to keep relatives' names off the account, and instead have your lawyer draft a power of attorney, giving them strictly defined legal rights over your finances in event of your disability.

A person can also establish a custodial account for younger children, say to fund a child's college education. Gains are typically taxed at the child's tax rate, which is usually lower than for an adult. But, remember, most custodial accounts are considered irrevocable gifts. Thus, when the child reaches maturity, he or she may use the money for a purpose you had never intended. And if the goal is to save for college, be warned that the account could make it harder to get financial aid.

If your account has check-writing privileges, remember to fill out a signature card for all parties whose names appear on the check.

Finally, there is a special tax advantage for having the account in a single name, notes Porter Pierpont Morgan, an investment strategist at Liberty Financial Companies, Boston. The full value of your holdings can pass to heirs without capital-gains tax on the appreciation. This is called the stepped-up cost basis. (There could still be an estate tax on your estate, however.)

If you held a mutual fund in a joint account with your wife and died, your wife - while quickly gaining control of the entire account - would still only have the stepped-up cost basis applied to your half of the estate. If she were to redeem or sell the account prior to her death, she would generally have to pay capital-gains taxes on profits from her half of the estate.