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Question

Difficulty: HardCustomer Account Types and Ownership Structures

Three business associates open a Tenants in Common (TIC) brokerage account with designated ownership interests of 50%, 25%, and 25%. A few months later, one of the 25% minority owners unexpectedly passes away. The majority owner (holding the 50% interest) immediately contacts the registered representative and submits an urgent order to liquidate all securities in the account to protect against impending market volatility. How should the registered representative handle this request?

  1. Refuse the trade request, cancel any open orders, and freeze trading in the account until proper legal documentation is received from the deceased owner's estate executor.Answer
  2. B
    Execute the trade order for 75% of the portfolio value representing the surviving owners' combined shares, while holding the remaining 25% in cash.
  3. C
    Execute the full liquidation order because any named account owner retains full trading authority over joint account assets regardless of ownership percentages.
  4. D
    Automatically redistribute the deceased owner's 25% share equally to the surviving owners and execute the trade as requested.

Answer

The registered representative must refuse the trade request, cancel open orders, and freeze trading until legal documents are provided by the deceased tenant's estate.
When a tenant in a Tenants in Common (TIC) account dies, their interest in the account does not transfer to the surviving tenants; instead, it passes to the decedent's estate. To protect the deceased owner's estate, the broker-dealer must immediately mark the account as deceased, cancel all open orders, and freeze trading until proper legal documentation (such as a death certificate, tax waiver, and letters testamentary) is provided by the court-appointed executor or administrator.

Step-by-Step Solution

1
Identify the account ownership structure and event
The account is a Tenants in Common (TIC) account, and one of the joint account owners has died.
Ownership structure dictates the legal handling of account assets and trading authority following the death of an owner.
2
Apply FINRA and industry rules regarding tenant death in a TIC account
Upon notification of death, open orders are cancelled, and trading activity is frozen.
The decedent's proportional share belongs to their estate, not the surviving tenants. Firm procedures require freezing the account to protect estate assets.
3
Determine the proper operational procedure for trade execution requests
No trades can be executed by surviving tenants until legal authority (letters testamentary/court appointment) is established for the estate representative.
Surviving owners cannot unilaterally trade or liquidate account assets once an owner has passed away until the estate executor provides instructions.

Key Concept

Tenants in Common (TIC) Death Procedures and Asset Transfer
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Topics

Customer Account Types and Ownership Structures