Examkin

Question

Difficulty: Very hardCustomer Account Types and Ownership Structures

A principal at a FINRA member broker-dealer is conducting an operational compliance audit of customer account documentation, transfer authorization rules, and fiduciary controls across different ownership structures. Which of the following statements regarding customer account types, survivorship rights, and trading/disbursement authority are CORRECT?

  1. In a Tenants in Common (TIC) account with multiple owners, upon the death of one tenant, the deceased owner's fractional interest passes to their estate rather than to the surviving account holders, and the broker-dealer must freeze the account against further orders until required legal estate documentation is presented.Answer
  2. B
    Assets held in a Tenants in Common (TIC) account automatically transfer directly to the surviving account owners upon the death of one tenant by operation of law, bypassing probate administration completely.
  3. A custodian managing a Uniform Transfers to Minors Act (UTMA) account holds a fiduciary obligation to the minor and is legally prohibited from commingling custodial funds with personal assets or using custodial funds to pay for expenses that constitute normal parental support obligations.Answer
  4. D
    A third party holding a Limited Power of Attorney (LPOA) over an individual cash account is authorized to place buy and sell orders as well as request cash disbursements made payable directly to the third party's personal bank account.

Answer

The correct statements are the one describing Tenants in Common (TIC) survivorship and estate freeze requirements upon an owner's death, and the one establishing UTMA fiduciary duties and prohibitions against commingling or paying standard parental support obligations.
The statement regarding Tenants in Common (TIC) accurately reflects that ownership interests pass to the deceased owner's estate (requiring an account freeze pending legal estate documents) rather than surviving owners. The statement regarding UTMA custodial accounts accurately reflects the strict fiduciary mandate prohibiting commingling of funds and prohibiting the use of custodial assets to discharge parental support duties.

Step-by-Step Solution

1
Analyze the legal and operational rules governing Tenants in Common (TIC) joint accounts.
TIC ownership does not carry survivorship rights. The decedent's share goes to their estate, requiring an account freeze until proper estate documents are received from the executor.
Contrast TIC with JTWROS, where assets pass automatically to surviving account owners without probate.
2
Evaluate custodial account rules under UGMA/UTMA framework.
Assets in an UTMA account are irrevocable gifts owned by the minor. The custodian is a fiduciary and cannot commingle funds or use them for legal parental support obligations.
Fiduciary standards mandate that custodial assets benefit only the minor and cannot satisfy the custodian's own personal legal liabilities.
3
Evaluate trading and withdrawal authority under Limited vs. Full Power of Attorney.
Limited Power of Attorney grants trading authority only, while Full Power of Attorney is required to withdraw funds or securities.
An LPOA holder cannot withdraw funds or make payments to third parties.

Key Concept

Distinction between TIC and JTWROS survivorship rights, UTMA custodial fiduciary boundaries, and Limited vs. Full Power of Attorney restrictions.
Estimated Time:2m 0s
Rate this question

Topics

Customer Account Types and Ownership Structures