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Joint, custodial, trust and entity accounts

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The title on the account tells you who owns it. The document tells you who may act.

The ruleJTWROS passes to the survivor; TIC to the estate. UTMA: custodian manages, minor owns. Trusts and entities act through their documents.

Title says who owns; document says who acts

A joint account has two or more adult owners. Under joint tenants with right of survivorship (JTWROS), each owner holds an undivided interest in the whole; when one dies, the survivor takes everything, outside probate. Under tenants in common (TIC), each owner holds a stated fraction; a deceased owner’s fraction goes to that owner’s estate, not to the co-owner. An individual account can instead carry a transfer-on-death registration naming beneficiaries: when the owner dies, ownership passes to them, and the registration generally keeps the account out of probate.

Keep reading: 5 more paragraphs (about 2 min)

A custodial account under UTMA or UGMA is opened by an adult custodian for a minor. A gift into it cannot be taken back: the assets belong to the minor from the moment they arrive. The custodian manages them in the minor’s interest and must hand them over when the minor reaches the age of majority. The structure exists because a minor cannot contract.

A trust account is run by the trustee, and the trust document (or a certification of trust) says what the trustee may do. Beneficiaries benefit from the trust; they do not direct it. A corporation acts through a corporate resolution naming who may trade; a partnership acts through its partnership agreement. Before accepting an order from an entity, the firm needs that document, because an entity cannot pick up the phone.

The exam’s pattern is always the same: find the owner from the title, find the person with authority from the document, and if a death is mentioned, apply the death rule for that registration.

Behind the registration sits a record the firm has to keep. For each account a member must maintain the customer’s name and residence, whether the customer is of legal age, and the names of the associated persons responsible for the account, together with the signature of the partner, officer or manager denoting that the account has been accepted in accordance with the firm’s policies and procedures. It is a different act from the written acceptance the discretionary rule requires before anyone may exercise discretion in the account. The record of the last update must be preserved for at least six years after the account is closed — a retention period measured from closing, not from opening.

A partnership account follows the same pattern as other entity accounts. The partnership is the customer, and its partnership agreement decides who may act for it. For any account of a corporation, partnership or other legal entity, the firm must record the names of the persons authorized to transact business on the entity’s behalf. An order from a partner who is not on that list is not authorized just because the person is a partner.

Exam terms (6)
JTWROS
Joint tenants with right of survivorship: a deceased owner’s interest passes to the survivor automatically.
Tenants in common
Each owner holds a fraction; a deceased owner’s fraction passes to that owner’s estate.
UTMA / UGMA custodian
The adult who manages a minor’s account. Has authority, never ownership.
Trustee
The person who acts for a trust within the powers the trust document grants.
Corporate resolution
A document from a corporation naming the officers authorized to trade its account.
Probate
The court process that passes a deceased person’s estate. JTWROS assets bypass it.

Three registrations, three answers

JTWROSTenants in commonUTMA
Who ownsAll owners, the wholeEach owner, a fractionThe minor
Who may actThe ownersThe ownersCustodian only
On a deathSurvivor takes allFraction to the estateIf the custodian dies, the minor still owns the assets
Ownership, authority and the death rule for each title.

Try it: Take three titles: “A and B, JTWROS”; “A and B, tenants in common, 60/40”; “A as custodian for C under UTMA”. For each, say aloud who owns, who may give an order, and what happens to the assets if A dies. Then check yourself against the diagram.

Check yourself

Try a question, then read the explanation to review the rule.

Opening your study record…

Worked example

Two sisters hold an account titled tenants in common, 70% and 30%. The elder sister, who holds the 70%, dies leaving a will that gives everything to her son.

  1. Identify the registration: tenants in common, so each sister owned a separate fractional interest.
  2. Apply the death rule: the 70% interest passes to the elder sister’s estate and then to her son under the will. It does not go to the surviving sister.
  3. Contrast with JTWROS: had the title carried right of survivorship, the surviving sister would have taken 100% automatically and the will would never have reached the account.
  4. Note the practical result: the deceased sister’s share is dealt with through her estate, not by the surviving sister.

Same rule, new context

Opening your study record…

The closest contrast

Custodian: controls.

Minor: owns.

A question that mentions a custodian is testing whether you know the assets were an irrevocable gift to the minor. The custodian’s power to act never becomes ownership.

Summary

  • JTWROS: survivor takes all. TIC: the deceased owner’s fraction goes to the estate. Transfer on death: the named beneficiary takes the account.
  • UTMA: the custodian manages, the minor owns, and the gift cannot be taken back.
  • Trusts act through the trustee; corporations through a resolution; partnerships through the agreement.
  • Title gives the owner, document gives the actor, registration gives the death rule.

Related practice

Sources

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