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Difficulty: MediumCustomer Account Types and Ownership Structures

A broker-dealer is notified that one of two account holders in a Tenants in Common (TIC) brokerage account has passed away. The deceased tenant held a 60% ownership interest, while the surviving tenant holds the remaining 40%. Shortly after the notification, the surviving tenant contacts the firm and requests to immediately sell all positions in the account and disburse their 40% share in cash. What action must the firm take regarding this request?

  1. Freeze the account to prevent trading and disbursements until legal documents from the deceased tenant's estate are presented and verified.Answer
  2. B
    Execute the liquidation order and disburse 40% of the proceeds to the surviving tenant while retaining the remaining 60% for probate.
  3. C
    Transfer 100% of the account assets directly into an individual account in the name of the surviving tenant under rights of survivorship.
  4. D
    Liquidate 40% of each security position held in the account while transferring the remaining 60% of the securities into an account for the deceased tenant's estate.

Answer

The firm must freeze the account to prevent trading and disbursements until legal documents from the deceased tenant's estate are presented and verified.
In a Tenants in Common (TIC) account, each tenant owns a specific fractional interest in the account assets, and there is no right of survivorship. Upon notification of the death of one tenant, the firm must place a temporary hold/freeze on the account to prevent trading and fund disbursements until legal documentation (such as a certified death certificate and letters testamentary) is provided by the legal representative of the decedent's estate.

Step-by-Step Solution

1
Identify the ownership structure of the account
The account is designated as Tenants in Common (TIC), meaning each owner holds a specific percentage of undivided interest, and there are no rights of survivorship.
Ownership structure dictates how assets are handled upon the death of one of the account holders.
2
Determine the legal status of the account upon notification of a tenant's death
Upon receiving notice of death in a TIC account, the broker-dealer must immediately cancel all open orders and freeze the account to prevent further trading or withdrawals.
The deceased owner's interest passes to their estate, not to the surviving tenant, requiring authorization from the legal representative of the estate before any transactions can occur.
3
Evaluate the surviving tenant's request
The surviving tenant cannot unilaterally liquidate positions or request cash disbursements from the account.
Both the surviving owner and the estate representative must agree on instructions, or legal documents must establish new account registration before assets can be moved or sold.

Key Concept

Tenants in Common (TIC) Account Handling Upon Death
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Topics

Customer Account Types and Ownership Structures