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Question

Difficulty: HardCustomer Account Types and Ownership Structures

Marcus and Julia maintain a brokerage account registered as Tenants in Common (TIC), with Marcus holding a 70% percentage interest and Julia holding a 30% percentage interest. Marcus unexpectedly passes away. Shortly after his death, Julia submits a request to the broker-dealer to liquidate all positions in the account and transfer 100% of the cash proceeds to her individual bank account. Which of the following statements accurately describes how the broker-dealer must handle Julia's request under FINRA and industry standard account rules?

  1. The broker-dealer must reject the transfer request for Marcus's 70% share, freeze further trading until proper legal documentation is presented, and distribute Marcus's interest according to the instructions of his estate's executor or legal representative.Answer
  2. B
    The broker-dealer must execute the full liquidation and transfer 100% of the proceeds to Julia, because surviving joint account owners automatically inherit full rights of survivorship regardless of designated percentage ownership.
  3. C
    The broker-dealer must immediately forfeit Marcus's 70% share to the state treasury under state escheatment laws while releasing Julia's 30% share directly to her individual bank account.
  4. D
    The broker-dealer must grant Julia temporary full power of attorney over Marcus's 70% share for 90 days to allow orderly liquidation and distribution without requiring probate court documents.

Answer

The broker-dealer must reject the transfer request for Marcus's 70% share, freeze further trading until proper legal documentation is presented, and distribute Marcus's interest according to the instructions of his estate's executor or legal representative.
In a Tenants in Common (TIC) account structure, each owner holds a specified percentage interest that passes to their estate upon death rather than to the surviving account owner. Upon notice of Marcus's death, the firm must place a hold on the account, request a certified copy of the death certificate along with letters testamentary, and await instructions from the executor or administrator of Marcus's estate regarding his 70% share.

Step-by-Step Solution

1
Identify the account registration type and ownership structure.
The account is registered as Tenants in Common (TIC) with unequal shares (70% Marcus / 30% Julia).
Ownership structure dictates what happens to assets upon the death of one of the owners.
2
Apply legal rules governing Tenants in Common (TIC) accounts upon the death of an owner.
Unlike Joint Tenants with Rights of Survivorship (JTWROS), TIC accounts do NOT pass assets automatically to surviving account holders. The deceased owner's share passes to their estate.
TIC provisions require that a decedent's percentage of tenancy becomes an asset of their estate subject to probate or trust terms.
3
Determine the proper broker-dealer operational procedure.
The broker-dealer must cancel open orders, freeze trading/disbursements affecting the deceased tenant's share, require a certified copy of the death certificate and court letters testamentary, and follow instructions from the estate's executor.
Broker-dealers must safeguard estate assets against unauthorized transfer or liquidation by surviving joint owners.

Key Concept

Tenants in Common (TIC) Account Ownership and Death Rules
Estimated Time:2m 0s
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Topics

Customer Account Types and Ownership Structures