Individual & Joint Accounts

Registered representatives meet with prospects and customers and help them invest through the broker-dealer they represent. Much of the documents and procedures required to open and maintain the accounts are handled by back-office professionals.

Types of Accounts
Some accounts are taxable, some are tax-deferred. Some accounts are owned by individuals, some by entities including estates, trusts, and corporations.

Individual Account
When the account is owned by an individual, a registered representative may only discuss the account with and take orders from the individual owner. For an indi¬vidual account, the only way a registered representative could take orders from another party is if the individual account owner grants power of attorney or trading authorization to him, and the firm keeps the signed authorization on file. Both the customer and the person who will enter transactions on his behalf must sign the form.

A transfer on death or pay-on-death account provides a way to transfer assets without the hassle and cost of probate. If an investor sets up an account this way, the executor or administrator of the estate will not have to take any action to ensure that the securities transfer to the designated beneficiaries when the account owner passes away. With TOD registration, the investor maintains complete control of the assets during his lifetime. The named beneficiaries have no access to or control over the assets while the account owner is alive.

A "POD" or "payable on death" account is the same idea applied to a bank or credit union account. A pay-on-death bank account can also be referred to as a "Totten trust."

A related idea is the durable power of attorney that an individual can grant to someone else. A durable power of attorney stays in force even after the individual is declared mentally incompetent. The person granted this durable power of attorney can make healthcare, financial, and legal decisions for someone who is incapacitated.

So, if a customer were in a coma, an agent could accept orders from the person granted a durable power of attorney, after verifying that the person has been granted that power by the customer.
The durable power of attorney goes into effect if the individual becomes incapaci¬tated. The power ends when the individual dies.

Joint Accounts
When two or more individuals jointly own the assets in the account, we call it a joint account. All the owners sign a joint account agreement. We can accept orders from any of the parties, and we can send mail to any of the parties. But, when we cut a check or distribute securities, they must be made out of all names on the account.

If the account is entitled Barbara Williams and JoAnne Stevens, Joint Tenants in Common, do not cut the check to Barbara and tell her to settle with JoAnne next time they have lunch. Cut the check to "Barbara Williams and JoAnne Stevens, as Joint Tenants in Common."

A Joint Tenants with Rights of Survivorship (JTWROS or JTROS) account gives the survivor rights to all the assets. When one account owner dies, the assets pass directly and equally to the surviving owner(s).

However, if the account is a Joint Tenants in Common (JTIC) account, when one party dies, part of the assets go to that person's estate. For JTIC accounts, the account owners indicate what °A each party owns in the account agreement. For JTWROS, that wouldn't matter, as all assets go to the survivor.

Married couples often use either joint tenants in common or joint tenants with rights of survivorship accounts. However, such accounts also do not require the account owners to be married and may have more than two owners. On the other hand, a tenancy in the entirety account can only be established by a married couple. What separates these accounts from the other two is that while they are alive neither spouse can sell or give away his interest in the property without the consent of the other spouse, and creditors of either spouse cannot attach and sell one debtor spouse's interest in the property--only creditors of the married couple can do that.
If a customer has an individual account at your firm and is now deceased, know that in a "common law" state, his wife only has a claim on half the assets if she is listed as an account owner. On the other hand, if we're in a "community property" state, the wife owns half of whatever the customer earned while they were married, whether he thought to name her on the account or not. In a transfer-on-death account, the deceased customer would have named a beneficiary, but that is subject to challenge, especially in "community property" states. Assets the now deceased husband had be¬fore the marriage would generally not be subject to a claim by the wife.


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