Types of Customer Accounts

Understanding the various types of customer accounts is essential for the Series 6 exam. Each account type has specific ownership structures, tax implications, and documentation requirements.

Individual Accounts

The simplest account type with a single owner:

• One person has complete control
• Assets belong solely to the account holder
• Account becomes part of estate upon death
• Subject to probate unless beneficiary designated

Joint Accounts

Joint accounts have two or more owners. The type of joint ownership determines what happens when one owner dies:

Joint Tenants with Rights of Survivorship (JTWROS)

The most common joint account type:

Key Point: JTWROS accounts make up about 60% of joint brokerage accounts. When one owner dies, the surviving owner(s) automatically inherit the deceased's share.

Tenants in Common (TIC)

Example: If Partner A contributes 70% and Partner B contributes 30%, they own 70/30 respectively. If A dies, their 70% goes through probate to their heirs, not to B.

Community Property

Available only in 9 community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin):

• Only for married couples
• Assets acquired during marriage owned 50/50
• Each spouse's half goes to their estate at death
• Tax advantage: Full step-up in basis on both halves at first death

Tenancy by the Entirety (TBE)

• Only for married couples (in states that recognize it)
• Full joint ownership with survivorship rights
• Key difference: Requires BOTH spouses' consent for any transaction
• Strong creditor protection

Comparison of Joint Account Types

Custodial Accounts (UGMA/UTMA)

Accounts for minors managed by an adult custodian:

UGMA (Uniform Gifts to Minors Act)

• Holds financial assets only (cash, securities)
• Assets transfer at age of majority (typically 18)
• Available in all 50 states

UTMA (Uniform Transfers to Minors Act)

• Can hold broader range of assets (real estate, art, patents)
• Transfer age can be extended (18-25 depending on state)
• Not available in South Carolina

Key UGMA/UTMA Rules

Kiddie Tax (2025)

For minors under 19 (or under 24 if full-time student):

• First $1,350 of unearned income: Tax-free
• Next $1,350: Taxed at child's rate
• Above $2,700: Taxed at parent's rate

Exam Tip: When a minor reaches age of majority, the custodian MUST transfer assets. FINRA has cited firms for allowing custodians to continue transacting after the beneficiary reaches majority age.

Trust Accounts

Trusts separate legal ownership from beneficial ownership:

Types of Trusts

• Revocable Trust: Grantor can modify or terminate; assets in grantor's estate
• Irrevocable Trust: Cannot be changed; assets removed from grantor's estate
• Testamentary Trust: Created by will, takes effect at death

Business Accounts

Corporate Accounts

• Separate legal entity from owners
• Requires corporate resolution authorizing trading
• Officers designated to act on behalf of corporation
• Documents needed: Articles of incorporation, corporate resolution, bylaws

Partnership Accounts

• Partnership agreement required
• Specifies which partners can trade
• General partners have authority; limited partners typically don't

Estate Accounts

Opened after account holder's death:

• Executor/administrator named by court manages account
• Letters testamentary or letters of administration required
• Death certificate needed
• Used to manage assets during probate

Fiduciary Accounts

Accounts managed by someone other than the owner:

• Trustees, executors, guardians, custodians
• Fiduciary has legal obligation to act in beneficiary's best interest
• "Prudent investor" standard applies

Key Exam Points

1. JTWROS - Survivorship, equal ownership, avoids probate
2. TIC - Unequal ownership allowed, NO survivorship, requires probate
3. UGMA/UTMA - Irrevocable gifts to minors, one custodian, one beneficiary
4. Kiddie tax - Unearned income above $2,700 taxed at parent's rate
5. Corporate accounts - Need corporate resolution
6. Fiduciary duty - Act in beneficiary's best interest