Section 9.1 – Types of Accounts

  • Individual Accounts

  • Joint Accounts

  • Transfer on Death (TOD) Designation

1. Individual Accounts:

  • Definition: An account owned by one person only.

  • Control: Only the owner can make investment decisions and place trades.

  • Adding Others:

    • The owner (or a court) may authorize others to enter trades, but ownership remains with one person.

  • Upon Death:

    • Account assets are distributed through the owner’s estate, unless other arrangements exist (e.g., TOD designation).

2. Joint Accounts:

  • Definition: Two or more adults share ownership of an account.

  • Control: Each owner (tenant) has equal authority to buy/sell securities.

  • Account Form Requirements:

    • All tenants must sign the account agreement.

    • Checks must be made payable to all names on the account and endorsed by all tenants.

    • Mail can go to a single address.

  • Types of Joint Accounts:

    1. Tenants in Common (TIC)

      • Each tenant owns a specific percentage of the account (equal if not stated).

      • If one tenant dies → that portion goes to their estate (not to the other tenant).

      • Account is frozen until the deceased tenant’s share is identified and transferred.

    2. Joint Tenants with Right of Survivorship (JTWROS)

      • All tenants have an undivided interest in the entire account.

      • When one tenant dies → ownership passes directly to the surviving tenant(s).

      • Common for married couples.

3. Transfer on Death (TOD) Designation:

  • Definition: A feature that allows account assets to transfer directly to named beneficiaries upon the owner’s death.

  • Purpose:

    • Avoids probate (court process of settling an estate).

    • Does not avoid estate taxes.

  • Eligible Accounts:

    • Can be added to individual or JTWROS accounts.

    • For a joint account, the TOD takes effect after the last surviving tenant dies.

Examples:

  • Uncle Davis (Individual TOD Account)

    • Has an individual account and wants it to go to his niece after his death.

    • Adds TOD instructions → niece receives assets directly, but only after his death.

  • Jason and Erica Heisman (Joint TOD Account)

    • Married couple with a JTWROS account.

    • Add TOD instructions naming their nephew as beneficiary.

    • The assets transfer to the nephew after both Jason and Erica pass away.

Next Section

Accounts

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Accounts 〰️

✺ Review questions ✺

  • A. The firm holding the account
    B. The account owner only
    C. Any authorized trader
    D. The beneficiary

    ✅ Answer: B – Only the account owner controls the investments.

  • A. Equal trading authority
    B. Separate accounts
    C. Only one tenant can make trades
    D. Ownership of different securities

    ✅ Answer: A – Each tenant can trade on behalf of the account.

  • A. It automatically goes to the surviving tenant
    B. It is transferred to the deceased tenant’s estate
    C. It is donated to charity
    D. It remains with the firm

    ✅ Answer: B – The portion is owned by the deceased’s estate.

  • A. The account is liquidated
    B. The deceased’s share goes to their estate
    C. Ownership passes to surviving tenant(s)
    D. The account is frozen

    ✅ Answer: C – Ownership transfers to the surviving tenant(s).

  • A. Avoiding estate taxes
    B. Avoiding probate
    C. Avoiding capital gains taxes
    D. Avoiding account freezes

    ✅ Answer: B – TOD avoids probate but not estate taxes.