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Question

Difficulty: HardCustomer Account Types and Ownership Structures

Three business associates—Alex, Brenda, and Charlie—maintain a joint brokerage account designated as Tenants in Common (TIC), holding unequal ownership interests of 50%, 25%, and 25%, respectively. Alex unexpectedly passes away. Brenda and Charlie submit a written instruction to the broker-dealer requesting that Alex's 50% interest be divided equally between their personal brokerage accounts. Which of the following statements correctly describes how the broker-dealer must handle Alex's interest in the account?

  1. Alex's 50% interest must pass to Alex's estate and be distributed according to court-appointed legal representative instructions or probate, rather than transferring automatically to the surviving owners.Answer
  2. B
    Alex's 50% interest automatically transfers to Brenda and Charlie in equal proportions upon receipt of a certified death certificate.
  3. C
    The entire account automatically converts into a Joint Tenants with Rights of Survivorship (JTWROS) account, granting Brenda and Charlie immediate full ownership of all assets.
  4. D
    The broker-dealer must immediately liquidate Alex's 50% position and escheat the proceeds to the state treasury pending probate resolution.

Answer

Alex's 50% interest must pass to Alex's estate and be distributed according to court-appointed legal representative instructions or probate, rather than transferring automatically to the surviving owners.
In a Tenants in Common (TIC) account structure, each owner retains a distinct, specified percentage of ownership. When one owner dies, that owner's share does not transfer to the surviving account holders; instead, it becomes part of the decedent's legal estate and must be handled according to their will or state probate law under the direction of an authorized estate executor or administrator.

Step-by-Step Solution

1
Identify the ownership structure of the joint account
The account is registered as Tenants in Common (TIC) with specified ownership percentages (50% Alex, 25% Brenda, 25% Charlie).
Account ownership registration defines the legal disposition of assets upon the death of one of the owners.
2
Apply legal survivorship rules governing Tenants in Common accounts
Unlike Joint Tenants with Rights of Survivorship (JTWROS), assets in a TIC account do NOT bypass probate or transfer to surviving account owners upon death.
A deceased tenant's specified share retains its identity and passes to the deceased owner's estate.
3
Determine proper operational protocol for the broker-dealer
The broker-dealer must freeze trading/disbursements regarding the decedent's share until proper legal documentation (death certificate, letters testamentary, court orders) is provided by the executor of Alex's estate.
The surviving owners (Brenda and Charlie) have no legal entitlement to Alex's portion of the account balance simply by virtue of being co-owners.

Key Concept

Tenants in Common (TIC) vs. Joint Tenants with Rights of Survivorship (JTWROS)
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Topics

Customer Account Types and Ownership Structures