Account Types

Understanding different types of customer accounts is fundamental to the Series 7 exam and your role as a General Securities Representative. Each account type has specific ownership structures, documentation requirements, and operational rules.

Individual Accounts

An individual account is owned by a single person who has complete control over the account and is solely responsible for all activity. The account holder:

• Makes all investment decisions (unless discretionary authority is granted)
• Bears all tax liability on gains and income
• Can designate beneficiaries through Transfer on Death (TOD) provisions
• Has sole authority to request distributions

Transfer on Death (TOD): Individual accounts can include TOD designations that transfer assets directly to named beneficiaries upon the account holder's death, bypassing probate.

Joint Accounts

Joint accounts are owned by two or more individuals. The two primary types differ significantly in how ownership transfers upon death.

Joint Tenants with Rights of Survivorship (JTWROS)

JTWROS is the most common joint account structure, especially for married couples.

Key Point: In JTWROS, when one owner dies, the entire account passes directly to the surviving owner(s) without going through probate or the deceased's estate.

Tenants in Common (TIC)

TIC accounts allow owners to hold different ownership percentages.

Key Point: Unlike JTWROS, there is no automatic survivorship in TIC accounts. A deceased owner's share becomes part of their estate and passes according to their will.

Joint Account Rules

Both joint account types share certain rules:

• Both signatures required to open the account
• Either party can typically transact without the other's approval
• Both parties receive statements and confirmations
• Both are jointly and severally liable for margin debts

Corporate and Partnership Accounts

Corporate Accounts

Corporate accounts are opened in the name of a corporation and require specific documentation:

The corporate resolution specifies which individuals are authorized to trade on behalf of the corporation and any limitations on their authority.

Partnership Accounts

Partnership accounts require a partnership agreement that identifies:

• General partners (unlimited liability, management authority)
• Limited partners (liability limited to investment)
• Who is authorized to make investment decisions
• Allocation of profits and losses

General partners can bind the partnership in transactions. Limited partners cannot make trading decisions without becoming general partners and losing their liability protection.

Trust Accounts

A trust account holds assets managed by a trustee for the benefit of beneficiaries according to the trust document.

Key Trust Components

Trustee Authority

The trustee's investment authority is defined by the trust document and applicable state law. Common restrictions include:

• Prohibition on speculative investments
• Requirement to diversify holdings
• Income vs. growth allocation rules
• Limits on margin or options trading

Important: Trustees have a fiduciary duty to act in the best interests of beneficiaries, not themselves.

Estate Accounts

Estate accounts are opened after someone dies to manage their assets during the probate process. The executor (named in will) or administrator (appointed by court) manages the account.

Required documentation includes:

• Letters Testamentary (for executors) or Letters of Administration (for administrators)
• Death certificate
• Tax identification number for the estate

Estate accounts are temporary—assets are distributed to heirs once the estate is settled.

Custodial Accounts (UGMA/UTMA)

Custodial accounts allow adults to manage assets for the benefit of minors under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA).

UGMA vs. UTMA Comparison

Custodial Account Rules

Critical Rules for the Exam:

1. One custodian, one minor per account — Cannot have joint custodians or multiple minors
2. Irrevocable gift — Once deposited, funds belong to the minor; custodian cannot take them back
3. Fiduciary standard — Custodian must manage for minor's benefit
4. No margin trading — Custodial accounts cannot use margin or sell short
5. Minor's SSN — Account uses the minor's Social Security number for tax reporting
6. Termination — Assets transfer to the minor at the age of majority

Kiddie Tax: Unearned income in custodial accounts above certain thresholds ($2,500 in 2025) is taxed at the parent's marginal rate for children under 19 (or under 24 if full-time students).

On the Exam

The Series 7 exam frequently tests:

• Distinguishing JTWROS from TIC, especially regarding survivorship rights
• Identifying required documents for corporate accounts (corporate resolution)
• Understanding custodial account restrictions (no margin, irrevocable gifts)
• Recognizing fiduciary relationships (trustees, custodians)