Individual, Joint & TOD Accounts

Chapter scope

Brokerage accounts give investors access to a wide range of securities.

This chapter covers the main account registrations eligible for trading, including:

• Individual
• Joint
• Discretionary
• Custodial
• Guardianship

Toward the end of the chapter, you’ll also see common account features that can be added to these registrations.

🔑 Numbers, ages & limits

⚠️ Master table — account ownership: death treatment & control

Definitions

Additional terms defined in the chapter text:

Individual accounts

• When you open a cash or margin account at a financial firm, you must choose an account registration. The registration depends on factors such as who owns the account and how it’s taxed.
• An individual account is owned by one person.
• Individual accounts can also be registered as transfer on death (TOD) accounts, meaning the account lists a beneficiary. When a brokerage account has a beneficiary, the account avoids probate and transfers directly to the beneficiary.

Probate

• Probate court is the legal process used to distribute a person’s assets after death.
• ⚠️ If an account has no beneficiary, it becomes part of the decedent’s estate and is handled through probate.
• Whether the decedent had a will or not, the court oversees the distribution process and appoints someone to manage the estate.
• Probate can be time-consuming and complex, which is why many investors try to avoid it.
• TOD accounts generally avoid probate and typically require only a death certificate for the beneficiary to claim the account.
• If an individual account does not have a TOD designation, it is included in probate. To claim the account, the executor or administrator of the estate must provide court documents proving their authority.
• Executors and administrators are empowered by the probate court to act on behalf of the estate. They’re responsible for paying the decedent’s debts and distributing the remaining assets.
• ⚠️ Even if a person is named as executor in a will, the probate court must officially appoint them. After the executor receives the court appointment document, they submit it to the financial firm to gain control of the decedent’s account. The executor then distributes the assets according to the estate process.

Sidenote — Death of a customer

Registered representatives must follow specific protocols:

Other documents may be required depending on the account registration and beneficiary status:

• Financial firms rely on these documents to ensure they’re accepting instructions from the correct person.

Joint accounts

• Accounts with more than one owner are joint accounts. There are two primary types: with rights of survivorship and tenants in common.

Joint with rights of survivorship (WROS)

• Provide equal ownership rights to all owners.
• ⚠️ If one owner dies, the surviving owner(s) automatically own the entire account.
• Example: Parsa and Stacey own a joint WROS account. If Parsa dies, Stacey becomes the sole owner of the account.
• As long as at least one owner survives, joint WROS accounts avoid probate.
• Joint WROS accounts may also include a TOD designation. ⚠️ In a joint account, the TOD designation applies only if all owners die. If that happens, the assets transfer to the listed beneficiaries.

Tenancy by entirety (TBE)

• A form of joint ownership available to married couples.
• Like WROS, it allows the surviving spouse to avoid probate and automatically inherit the entire property.
• These joint benefits make TBE useful for married couples who want equal control and a simpler transfer at death.
• Creditor protection: creditors generally can’t force the sale of the property to satisfy the debt of only one spouse, and the property typically can’t be reached if only one spouse is sued.
• ⚠️ However, if the couple divorces, the ownership converts to tenancy in common, which removes survivorship rights.

Sidenote — Tenants by entirety & community property accounts

Tenants in common (TIC)

• TIC accounts assign specific ownership percentages to each owner.
• ⚠️ If one owner dies, that owner’s percentage becomes part of their estate and goes through probate.
• Example: Parsa owns 40% of a TIC account and Jada owns 60%. If Jada dies, her 60% becomes property of her estate and is handled in probate. Parsa keeps his 40% and moves it to an individual account in his name.

Behavior while all owners are alive

• Regardless of the type of joint account, WROS and TIC accounts function similarly while all owners are alive.
• Even if there are many owners, any one owner can:
  • submit trading instructions,
  • receive mail,
  • manage the account, and
  • request withdrawals — without permission from the other owners.
• ⚠️ However, any check issued from the account must include all owners’ names, regardless of who requested the check.

Fiduciary accounts

• A fiduciary is a third party who oversees another person’s assets. Fiduciaries must put the client’s interests ahead of their own and act in the client’s best interest. All accounts in this section share that core feature.

Uniform Prudent Investor Act (UPIA)

This section covers these fiduciary registrations:

• Discretionary
• Custodial
• Guardianship

Discretionary accounts

• A discretionary account gives a financial professional trading authority over an account.
• If you don’t have the time or knowledge to manage your own brokerage account, you can grant your broker power of attorney (POA), allowing them to make investment decisions on your behalf.
• When a firm has POA over a customer’s account, it can place trades without getting the customer’s approval for each transaction.

Suitability information

• To make suitable decisions, the firm must have the information it needs to evaluate suitability.
• ⚠️ Customers may choose not to answer certain suitability questions (such as net worth and annual income), but if those questions are left unanswered, the customer cannot receive recommendations. The same limitation applies to discretionary accounts.

Supervision

• Discretionary accounts require additional supervision because of the authority granted to the financial professional.
• Trades placed for customers must be marked as “discretionary” and reviewed more frequently by principals (supervisors).
• 🔑 All discretionary trades must be reviewed promptly after submission.

The “AAA” rule — what makes an order discretionary

• Many people remember this as the “AAA” rule. If the financial professional chooses the asset, action, or amount, the order is discretionary and requires a POA.
• ⚠️ To keep a price/time order non-discretionary, the trade must be completed within one day. If it takes longer than one day, the order becomes discretionary and requires a POA.

Wrap accounts

• Discretionary accounts are often marketed as wrap accounts. These bundle services — typically investment management and account maintenance — into a single fee.
• Instead of paying separate commissions and service charges, the customer pays one “wrapped” fee.
• Wrap account fees are usually charged as an assets under management (AUM) fee.
• 🔑 Example: a customer with a $100,000 account would pay $1,000 per year if the wrap fee is 1% of AUM.
• ⚠️ Wrap accounts are investment advisory products. Financial professionals must be properly licensed as investment adviser representatives (IAR) to sell them. Passing this exam allows you to register as an IAR.

Custodial accounts (UGMA / UTMA)

• 🔑 Custodial accounts are opened for minors under age 18.
• A custodian opens the account and manages the assets for the minor, but the assets belong to the minor.
• Custodians are often parents, but they can be anyone.
• 🔑 Each custodial account allows only one custodian and one minor.
• To open a custodial account, you generally need the minor’s Social Security number (SSN), because taxes are reported under the minor’s SSN. This can be beneficial because minors often have little or no reportable income and may owe little or no tax.

UGMA vs UTMA

Prohibited strategies

• Custodians must act in the minor’s best interest and must avoid certain aggressive strategies in UGMA and UTMA accounts.
• ⚠️ In particular, short sales, margin, and options strategies involving unlimited risk (naked options and covered puts) are prohibited due to the risk involved.

Irrevocability & withdrawals

• ⚠️ All gifts to a minor’s custodial account are irrevocable — they can’t be taken back.
• The custodian may withdraw funds only to pay for items that directly benefit the child, or the custodian may leave the assets in the account until they must be turned over at adulthood.
• ⚠️ The assets can’t be transferred to a different beneficiary. Once a contribution is made, it becomes the minor’s property.

Guardianship accounts

• If someone cannot manage their own finances, a court may appoint a guardian to oversee that person’s assets.
• These situations often involve mental incapacitation or an inability to manage money.
• Financial firms open guardianship accounts after receiving the appropriate court appointment documents.
• The account owner’s assets are placed into the guardianship account and may be managed only by the court-appointed guardian.
• ⚠️ Similar to custodial accounts, guardianship accounts must avoid risky strategies involving short sales, margin, and options strategies with unlimited risk potential.

Account features

• Investment accounts may include features such as check writing, option trading abilities, margin, and cash management.
• The main feature covered here is trading authorization. If an account owner wants to give a third party authority to act on their behalf, they can grant a power of attorney (POA).

Power of attorney comparison

• ⚠️ POA always ends when the account owner dies. At that point, control of the decedent’s assets passes to the executor or administrator of the estate.
• POA can also be revoked at any time by the account owner.

Key points

Individual accounts

• Accounts owned by one party
• Subject to probate without TOD

Transfer on death (TOD)

• Account with a listed beneficiary
• Avoids probate

Upon the death of a customer

• Cancel all open orders
• Label the account as “deceased”
• Wait for proper documentation
• Required documentation:
  • Death certificate
• Potentially required documentation:
  • Inheritance tax waiver
  • Letters testamentary
  • Letters of administration

Joint WROS accounts

• Provide equal ownership to all parties
• Surviving owner(s) inherit account
• Avoids probate

Community property accounts

• Like a WROS account, but only for married couples

Joint TIC accounts

• Provide specific ownership allotments
• Deceased owner portions go to the estate
• Subject to probate

Joint accounts

• Any joint owner can:
  • Trade
  • Receive mail
  • Manage the account
• All joint owner names must be on checks

Fiduciaries

• Act in the best interest of the account owner

Uniform Prudent Investor Act (UPIA)

• Requires fiduciaries to invest holistically
• Does not ban aggressive investments

Discretionary accounts

• Provide POA to financial professionals
• Type of fiduciary account

Discretionary trade

• Involves professional choosing one of the:
  • Asset
  • Action.
  • Amount
• Not discretionary trade (if same day):
  • Price
  • Time
• Must be reviewed promptly by the principal

Wrap accounts

• Type of discretionary account
• All fees wrapped into one
• Investment adviser product

Guardianship accounts

• Created for investors unable to manage their own assets
• Court-appointed guardian acts as fiduciary

UGMAs and UTMAs

• Custodial accounts set up for minors
• Type of fiduciary account
• One custodian per account
• One minor per account
• Taxes reported under the minor’s SSN
• Contributions are irrevocable gifts to minor

Powers of attorney

Sources

Primary/official references for the material in this chapter. Every link was fetched and returned HTTP 200 on 2026-08-15.