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Difficulty: MediumCustomer Account Types and Ownership Structures

An investor holds an individual cash brokerage account with a valid Transfer on Death (TOD) designation naming their adult child as the sole beneficiary. The investor subsequently passes away, leaving a last will and testament that instructs the executor to distribute all financial assets to a local charity. Which of the following statements correctly describes how the broker-dealer must process the transfer of the account assets upon receiving proof of death?

  1. The assets pass directly to the named TOD beneficiary outside of probate, taking precedence over the instructions in the investor's will.Answer
  2. B
    The assets must be transferred to the deceased investor's estate so the executor can distribute them under probate in accordance with the will.
  3. C
    The TOD designation is automatically invalidated by a conflicting will, requiring an equal split between the beneficiary and the charity.
  4. D
    The account automatically converts into a Tenants in Common (TIC) registration held jointly by the beneficiary and the estate executor.

Answer

The assets pass directly to the named TOD beneficiary outside of probate, taking precedence over the instructions in the investor's will.
A Transfer on Death (TOD) account designation is a contractual arrangement with the broker-dealer that transfers ownership of the securities directly to the designated beneficiary upon presentation of a certified death certificate and proper identification. Because the transfer occurs operationally outside of the estate, the assets bypass probate court and are not subject to the distribution terms specified in the deceased investor's will.

Step-by-Step Solution

1
Identify the account registration type and legal transfer mechanism upon death.
The account is an individual account with a Transfer on Death (TOD) designation.
TOD accounts allow account owners to designate beneficiaries who receive the assets upon the owner's death.
2
Analyze how TOD designations interact with probate law and last wills.
TOD beneficiary agreements are non-probate contracts executed directly between the account holder and the broker-dealer.
Contractual beneficiary designations bypass the estate probate process entirely and supersede conflicting instructions provided in a will.
3
Determine the proper operational procedure for the broker-dealer.
Upon receipt of a certified death certificate and required beneficiary verification forms, the broker-dealer transfers the assets directly to the beneficiary's account.
The executor of the estate has no claim or authority over assets passing via valid TOD contracts.

Key Concept

Transfer on Death (TOD) Registration and Probate Bypass
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Topics

Customer Account Types and Ownership Structures