Account Registrations Practice Questions for the SIE

Answer: At the investor's death, the assets pass directly to the niece without going through probate.

A transfer-on-death (TOD) designation lets an individual account pass directly to the named beneficiary at the owner's death, bypassing the probate process. It does not remove the assets from the owner's taxable estate — avoiding probate and avoiding estate tax are two different things, a distinction also tested with JTWROS accounts. During the owner's lifetime the beneficiary has no rights in the account: a third party may trade only with written power-of-attorney authorization, and a TOD designation does not create joint ownership. TOD registration of securities accounts is governed by state law (the Uniform TOD Security Registration Act adopted in most states).

The Trap: TOD avoids probate, not estate tax — and grants no lifetime authority

• The niece may enter orders in the account while the investor is alive.: Misconception that a TOD beneficiary gains lifetime authority; a third party may trade in an individual account only under written power-of-attorney authorization.
• The niece becomes a joint owner of the account as soon as the designation is signed.: Confuses a beneficiary designation with joint registration; TOD creates no present ownership interest for the beneficiary.
• At the investor's death, the assets will pass to the niece free of federal estate tax.: Conflates probate avoidance with estate-tax avoidance — the canonical twist; TOD assets remain part of the owner's taxable estate.

Verified against: 'avoids probate, not estate tax' misconception pair); SEC/investor.gov 'Transferring Assets' — 'Transfer on death (TOD) registration allows you to pass the securities you own directly to another person or entity upon your death without having to go through probate'; FINRA Investor Insight 'Plan Now to Smooth the Transfer of Your Brokerage Account Assets on Death' — 'you keep control of the brokerage account assets during your lifetime' and 'depending on the size of your overall estate, estate taxes may apply on the assets in your account'; IRS Estate Tax FAQ — 'The Gross Estate will likely include non-probate as well as probate property'

Answer: passes automatically to her sister outside of probate, although its value remains part of Marta's taxable estate.

In a JTWROS registration each owner holds an equal, undivided interest, and a deceased owner's interest passes automatically to the surviving owner(s) by operation of law — outside probate. Survivorship does not eliminate estate tax: the value of Marta's interest is still counted in her taxable estate, so choice C overstates the benefit. Choice A describes tenants in common (TIC), where a deceased owner's share passes to her estate rather than to the co-owner. Because the transfer occurs automatically, no probate-court appointment is needed (choice D), though the firm will typically require documents such as a certified death certificate to retitle the account.

The Trap: JTWROS vs TIC: survivorship vs estate — plus probate/estate-tax conflation

• is frozen until the probate court appoints an executor for her estate.: Misconception that joint accounts must await probate proceedings; survivorship operates automatically without court action.
• passes to her estate to be distributed under the terms of her will.: The JTWROS-vs-TIC swap — in tenants in common the decedent's share passes to the estate; under JTWROS it passes to the surviving owner.
• passes to her sister free of both probate and federal estate tax.: The classic twist: JTWROS avoids probate, not estate tax; the decedent's interest is still included in her taxable estate.

Verified against: State JTWROS property law (survivorship passes outside probate); Internal Revenue Code Section 2040 (jointly held property included in decedent's gross estate)

Answer: Tenants in common (TIC)

Tenants in common (TIC) is the joint registration that permits unequal ownership percentages — here 70/30 — and, at an owner's death, directs her share to her own estate instead of to the co-owner. From the estate, her share goes to her children under her will (or under state intestacy law), which is what these two friends want. JTWROS fails both tests: each owner has an equal, undivided right to the assets, and a decedent's interest passes automatically to the surviving owner, overriding any will. Note the trade-off that often accompanies this pair: JTWROS avoids probate (though not estate tax), whereas a TIC share passes through the deceased owner's estate and is generally subject to probate — the price of being able to direct it to her own heirs. An individual account with a TOD designation has only one owner, so it cannot hold two people's money jointly; a TOD is a beneficiary designation, not a form of co-ownership. A partnership account is an entity account for a formal business partnership, opened with a partnership agreement establishing who may trade — not a registration for personal co-ownership. The JTWROS/TIC contrast (survivor vs. estate; equal vs. unequal shares) is one of the most frequently tested pairs in customer-account questions.

The Trap: JTWROS assumed to allow unequal shares and passing to heirs

• Joint tenants with right of survivorship (JTWROS): Each JTWROS owner has an equal, undivided right to the assets, and a decedent's interest passes automatically to the surviving owner — overriding her will. This defeats both the unequal-share goal and the goal of leaving her share to her own children.
• An individual account with a TOD designation: Confuses a beneficiary designation with joint ownership. A TOD names who receives the assets at death; it is not a form of co-ownership. An individual account has only one owner, so it cannot hold both friends' contributions.
• A partnership account: Entity-account confusion. A partnership account is for a legal business partnership operating under a partnership agreement that establishes who may trade — and simply co-owning personal investments does not by itself create a partnership.

Verified against: JTWROS-vs-TIC misconception pair)

Answer: accept the sell order, but any check for the proceeds must be made payable to both account owners.

Joint-account mechanics pair two rules that students often mix up. First, any single owner may enter orders on their own authority — the standard joint-account agreement lets the firm accept instructions from any one owner as if that person were the sole owner. So the representative accepts the husband's sell order without the wife's sign-off, and choice C's written-approval requirement does not apply to ordinary order entry. Second, disbursements work differently: a check for the proceeds must be made payable to all owners jointly, and securities leaving the account must be delivered registered in all owners' names. That is why choice B fails — authority to trade is not authority to take money out in one name alone. (Mail may still go to a single agreed address, and all owners acting together can consent in writing to a different payee — but here the wife never did.) Choice D reflects the myth that joint property is tracked by contributor; JTWROS owners hold an equal, undivided interest in the entire account regardless of who contributed particular assets. The joint-payee rule is what protects each co-owner from a unilateral withdrawal by the other.

The Trap: Any-owner order authority wrongly extended to single-name disbursements

• accept the order and send the check as requested, because either owner may transact in the account.: Extends any-owner order authority to disbursements. Authority to trade is not authority to take money out in one owner's name alone; that would require the written consent of all owners, which the wife never gave.
• accept the order only if the husband originally contributed the shares being sold.: Source-of-funds myth. JTWROS owners hold an equal, undivided interest in the whole account; contribution history never gates order entry.
• refuse the order unless the wife also approves it in writing.: Misconception that all joint owners must approve each order. Under the standard joint-account agreement the firm may accept instructions from any one owner as if that person were the sole owner.

Verified against: Standard joint account agreement practice — any single owner may enter orders, but disbursements must be payable to all account owners jointly

Answer: The gift is irrevocable; the assets belong to the minor and may be used only for the minor's benefit.

Under state UTMA/UGMA statutes, a gift into a custodial account is irrevocable and immediately becomes the property of the minor. The custodian — even when he is also the donor — is a fiduciary who must manage the assets prudently and may spend them only for the minor's benefit. A later change in the donor's finances creates no right of return (choices A and C); there is no hardship exception, because the property is simply no longer the donor's to reclaim. Borrowing from the account is prohibited self-dealing regardless of repayment terms (choice D), since the custodian may never use the minor's assets for his own purposes. Note that the custodian may pay out or spend custodial property for the minor's benefit at any time — what he cannot do is route it back to himself. Custodial earnings are taxed to the minor (the account is opened under the minor's Social Security number), and whatever remains in the account stays under the custodian's control until the custodianship ends at the state's age of majority or UTMA termination age, when the property must be turned over to the (former) minor.

The Trap: Custodial gifts assumed revocable by the donor

• He may borrow the money from the account if he repays it with interest.: Custodian self-dealing; a fiduciary may not borrow from or pledge the minor's assets for personal use.
• He may reclaim the assets if he documents genuine financial hardship.: Hardship-exception myth; no such exception exists because the property already belongs to the minor.
• He may take the money back at any time because he is both the donor and the custodian.: Revocability myth — custodial gifts are irrevocable even when the donor serves as custodian.

Verified against: State Uniform Transfers to Minors Act (UTMA) — gifts to a custodial account are irrevocable; custodian owes a fiduciary duty to use assets only for the minor's benefit

Answer: A separate cash account must be opened for each grandson, each with one custodian and carrying that minor's Social Security number.

A custodial account is built on a strict one-and-one structure: exactly one custodian and exactly one minor per account, so the grandmother needs a separate account for each grandson (she may serve as custodian of both — one custodian per account does not prevent one person from being custodian of several accounts). That rules out a single account naming both boys (choice A). Each account is opened under that minor's Social Security number because the minor is the legal owner, so earnings are taxed to the minor, not the custodian or donor (choice B); under the kiddie-tax rules, a minor's unearned income above an annual threshold may be taxed at the parents' rate. Custodial accounts must also be cash accounts: margin, short sales, and speculative option strategies are prohibited (choice C). The full checklist under state UTMA/UGMA statutes: one custodian, one minor, the minor's SSN, irrevocable gifts, cash only, and transfer of the assets to the minor at the termination age set by state law — commonly the age of majority, though many states permit UTMA accounts to run later (often 21, and in some states as late as 25), so do not assume 18 everywhere.

The Trap: One custodian/one minor and minor's-SSN requirements violated (multi-minor account, custodian SSN, margin)

• A single custodial account may be opened naming both grandsons, with the assets divided when they reach adulthood.: Violates the one-custodian, one-minor structure; a custodial account has exactly one beneficiary, so each grandson needs his own account.
• Each account must be opened under the grandmother's Social Security number so that she pays the tax on the earnings.: Custodian-SSN misconception; the minor owns the account, so it carries the minor's SSN and earnings are taxed to the minor.
• The accounts may be opened as margin accounts to enhance long-term growth potential.: Margin-in-custodial misconception; UTMA/UGMA accounts must be cash accounts — no margin, short sales, or speculative options.

Verified against: State Uniform Transfers to Minors Act (UTMA) — one custodian/one minor per account, registered under the minor's SSN, cash-account-only requirement

Answer: Until his mother's death — the durable power survives her incapacity but terminates when she dies.

'Durable' means the power of attorney keeps operating if the grantor becomes mentally incapacitated — that is exactly what separates it from a regular (non-durable) POA, which lapses at incapacity (choice B). FINRA's investor guidance states it plainly: a durable power of attorney remains in effect even if you become incapacitated. What durability does not do is outlive the grantor. Under state agency law the principal's death terminates the power, so the son's authority stops when his mother dies; after that only the executor or administrator of her estate may act on the account, which is why choice C fails. In practice, once a firm is notified of a customer's death it restricts the account and requires court documentation of the executor's authority before anything moves. Choice D inverts the purpose of a durable POA: no court appointment is needed for it to function during incapacity — avoiding guardianship proceedings is much of the reason durable POAs exist — and even where a court does appoint a guardian, the durable POA keeps running unless the court limits or revokes it. Memory line: durable survives incapacity; the grantor's death ends it.

The Trap: Durable POA assumed to survive death (it survives only incapacity)

• Both before and after her death, until her estate is fully settled.: The death trap — the grantor's death terminates the power; from that point only the executor or administrator of her estate can act on the account.
• Only until she is declared incompetent, because a power of attorney lapses at incapacity.: Describes a non-durable POA; surviving incapacity is precisely what the durable feature provides.
• Only if a court appoints him guardian after the incompetency ruling.: Court-appointment myth; a durable POA keeps operating during incapacity without guardianship proceedings — avoiding them is much of its purpose — and even if a court does appoint a guardian, the durable POA continues unless the court limits or revokes it.

Verified against: FINRA investor alert 'Power of Attorney and Your Investments: 10 Tips' (durable POA remains in effect on incapacity); FINRA 'When a Brokerage Account Holder Dies—What Comes Next?' (executor/legal authority required after death); Uniform Power of Attorney Act §110(a)(1) (POA terminates at the principal's death) and §108(b) (durable POA continues despite conservator appointment unless the court limits it)

Answer: whether the trust document expressly permits margin trading.

For trust accounts, the trust document governs: the trustee may use margin (or options) only if the trust instrument expressly permits it, and in all cases the trustee must invest under the prudent-investor standard. Margin is not automatically banned in trust accounts — that absolute prohibition applies to UTMA/UGMA custodial accounts and retirement accounts such as IRAs, which is the confusion behind choice D. Neither FINRA approval (choice A) nor the trustee's personal experience (choice B) creates authority the document withholds. The same document-driven logic applies to corporate and partnership accounts, where a corporate resolution or partnership agreement establishes who may trade and whether margin is permitted.

The Trap: Trust margin assumed always prohibited (or regulator-approved) instead of governed by the trust document

• the trustee's personal investment experience with margin strategies.: Confuses suitability considerations with legal authority; a trustee's experience cannot confer powers the trust withholds.
• whether FINRA has approved the use of margin for this fiduciary account.: Regulator-approval myth; FINRA does not authorize margin account-by-account — the governing document controls.
• nothing — margin is prohibited in all trust accounts.: Overgeneralizes the margin ban from custodial and retirement accounts; trusts may use margin when the document allows it.

Verified against: Governing trust instrument together with the Uniform Prudent Investor Act (state trust law) — margin trading permitted only if the trust document expressly authorizes it

Answer: They transfer directly to her nephew, bypassing probate

A transfer-on-death (TOD) registration keeps an account as a pure individual account during the owner's lifetime — Miriam alone controls it, and the beneficiary has no rights until she dies. At death, the assets pass directly to the named beneficiary by operation of the registration, bypassing probate and superseding any conflicting instruction in the will: if Miriam's will left this account to someone else, the nephew named on the TOD still takes it. Two traps to avoid: (1) avoiding probate is not the same as avoiding estate tax — TOD assets are still counted in the owner's estate, and whether tax is owed turns on the size of the overall estate; and (2) a TOD beneficiary is not a joint owner and cannot trade or withdraw while the owner is alive. Note that TOD is a matter of state law rather than federal law — every state now has a transfer-on-death security registration statute — and individual brokerage firms decide whether to offer TOD registration.

The Trap: Confusing probate avoidance with estate-tax avoidance (and treating a TOD beneficiary as a co-owner)

• They are distributed under the terms of her will after the probate process concludes: Misconception: TOD assets pass through probate under the will. In fact, a TOD designation supersedes the will for those assets and passes them outside of probate. If the will left the account to someone other than the nephew, the TOD registration still controls.
• They pass to her nephew and are excluded from her taxable estate: Misconception: confusing avoiding probate with avoiding estate tax. The transfer half is right, but TOD assets are still counted in the owner's estate — whether any estate tax is actually owed depends on the size of the overall estate, not on the TOD registration.
• They transfer to her nephew, who has also had authority to trade the account during her lifetime: Misconception: treating a TOD beneficiary like a joint owner. The transfer half is right, but the lifetime-authority half is wrong — the owner keeps full control of a TOD account while living, and the beneficiary has no ownership, trading, or withdrawal rights until the owner's death.

Verified against: probate-vs-estate-tax pair); FINRA SIE Content Outline 3.2.2 Customer Account Registrations; verified against FINRA investor insight 'Plan Now to Smooth the Transfer of Your Brokerage Account Assets on Death' and Investor.gov 'Transferring Assets'

Answer: Alan's interest passes automatically to Ruth without probate, but its value may still be included in his estate for federal estate-tax purposes

In a JTWROS registration, each owner holds an equal, undivided interest, and a deceased owner's interest passes automatically to the surviving owner(s) by operation of law. No probate proceeding is required, which is why choice C is correct. The high-yield twist: avoiding probate is a question of how title transfers, not a tax exemption. Under IRC Section 2040, jointly held property is still included in the deceased owner's estate for federal estate-tax purposes. For non-spouse joint owners such as Alan and Ruth, the rule bites harder than most students expect: the entire account value is included, except to the extent the survivor can show she furnished her own consideration for it. (The automatic one-half rule applies only to spouses.) That makes choice A wrong. Note that inclusion and tax actually owed are different questions — whether any estate tax is due depends on the estate's total value measured against the federal exemption — but the assets are pulled into the calculation either way, so survivorship is never an estate-tax shelter. Choice B describes tenants in common (TIC), where each owner's share, which can be an unequal percentage, passes to his estate and heirs rather than to the co-owner. Choice D is tempting because a firm really will restrict the account until it receives a death certificate and transfer paperwork. But that step is administrative, not judicial: no probate court decides who receives Alan's interest, because the registration already did.

The Trap: JTWROS avoids probate, NOT estate tax

• Alan's half of the account passes to the heirs named in his will: Applies tenants-in-common (TIC) treatment to a JTWROS account. Only under TIC does a deceased owner's share pass to his estate and will beneficiaries. Right of survivorship operates by the account registration and overrides the will.
• The account is frozen until the probate court determines who receives Alan's interest: Assumes every transfer at death needs probate. The firm will require a death certificate and transfer paperwork before it retitles the account, but survivorship operates automatically by the account registration. No court distributes Alan's interest.
• Alan's interest passes to Ruth free of both probate and federal estate tax: The classic overreach. JTWROS does avoid probate, but probate and estate tax are two separate systems. The decedent's jointly held interest is still pulled into his estate under IRC Section 2040. Survivorship is not an estate-tax shelter.

Verified against: JTWROS-vs-TIC misconception pair with estate-tax twist). Primary verification 2026-07-17: IRC Section 2040(a)-(b) (joint interests included in gross estate; automatic one-half rule limited to spouses); finra.org/investors/insights/plan-ahead-transfer-your-brokerage-account-assets-death (JTWROS passes without probate); finra.org/investors/insights/when-brokerage-account-holder-dies (firm requires death certificate / surviving-tenant LOA to retitle).