Customer Accounts and Basic Accounts Flashcards
(92 cards)
1
Q
True or False: In a TIC account, each owner has an equal share of the property.
A
False
2
Q
What is the main feature of a JTWROS account?
A
Right of Survivorship
3
Q
Fill in the blank: In a Tenants in Common agreement, owners can sell or transfer their interest ______.
A
independently
4
Q
Which type of ownership allows for unequal shares among owners?
A
Tenants in Common (TIC)
5
Q
True or False: In a JTWROS account, if one owner dies, their share automatically goes to the surviving owner(s).
A
True
6
Q
What happens to a deceased owner’s share in a TIC account?
A
It goes to their estate.
7
Q
Fill in the blank: JTWROS accounts typically require ______ ownership.
A
equal
8
Q
Short Answer: Name one advantage of holding property as JTWROS.
A
Avoidance of probate for the deceased owner’s share.
9
Q
- avoids probate
- allows owner to pass all or a portion of the account to a named beneficiary at death
- may be added to individual account or JWTROS account
A
Transfer on Death (TOD)
10
Q
When does a TOD designation become effective on a joint account?
A
after the death of the last surviving tenant
11
Q
- a business owned by one person
- accounts opened are property of business onwer
- may use fictitious business name (DBA)
- checks may be made payable to account owner or to the business name
A
sole proprietor
12
Q
True or False: Security recommendations provided to the owner of a sole proprietor account do not apply to their business.
A
False
13
Q
- an association of two or more individuals
- typically open accounts for business purposes
- must have written agreement stating who is allowed to transact on accounts opened under business name
- account assets are owned by the associated individuals per written agreement
A
partnership
14
Q
What is a corporation?
A
A legal entity organized for a purpose, usually to be a business.
15
Q
Who runs a corporation?
A
A board of directors.
16
Q
What document must a firm obtain when opening an account for a corporation?
A
A copy of the corporate charter.
17
Q
What is a corporate charter?
A
A document filed with a state that forms the corporation.
18
Q
What additional document is needed along with the corporate charter to open a corporate account?
A
A corporate resolution.
19
Q
What is a corporate resolution?
A
A resolution of the board that authorizes who may open and control the account.
20
Q
What is required for all new accounts opened by a corporation?
A
A new account form.
21
Q
What must a corporate resolution contain? (List three components)
A
- The business’s legal right to open an investment account
- Indication of limitations on securities investments
- Name of the individual representing the business
22
Q
What must the corporation’s charter not prohibit for a margin account?
A
The activity of having a margin account.
23
Q
Fill in the blank: A corporation is run by a _______.
A
board of directors.
24
Q
True or False: A corporate resolution can include limitations imposed by stockholders.
A
True.
25
What is a trust?
A way to hold assets for a special purpose
26
What is the most common reason individuals and families form a trust?
Estate planning
27
What are the three aspects of asset ownership?
* Owning the asset
* Controlling the asset
* Benefiting from the asset
28
What is the role of the grantor in a trust?
The person who owns the asset and has legal possession
29
Who is responsible for managing the asset in a trust?
The trustee
30
Who benefits from the asset in a trust?
The beneficiary
31
What is the most common type of trust formed by individuals and families?
Revocable living trust
32
True or False: A trust allows for assigning different aspects of ownership to different persons.
True
33
Fill in the blank: The person who controls the asset in a trust is called the _______.
Trustee
34
Fill in the blank: The person who benefits from the asset in a trust is called the _______.
Beneficiary
35
What is one type of plan that is often organized as a trust?
Retirement plans
36
decedent trust
trust that is funded by a will or some other estate process where the assets are placed in the trust after the owner has died
37
- may be modified or revoked by grantor
- assets in the trust are still considered part of the grantor's assets
- assets will be included in grantor's estate
- common for the grantor to also be the trustee and the beneficiary
revocable trust
38
- trust that cannot be modified by the grantor
- grantor forfeits control of assets
- assets may be removed from grantor's estate for tax purposes
- grantor may not serve as trustee or beneficiary for estate tax purposes
Irrevocable Trust
39
an estate planning tool that is often used to help pay estate taxes when an estate holds a large illiquid asset, such as a family business
irrevocable life insurance trust (ILIT)
40
If a grantor forms and funds a trust in their lifetime, it is a _ .
living trust
41
What is the legal status of minors under securities laws?
Minors are not persons under securities laws and cannot manage a brokerage account or make investment decisions.
42
What types of accounts can be established for minors?
Custodial accounts and Coverdell Education Savings Accounts.
43
Who manages accounts set up for minors?
An adult custodian manages the accounts for the minor beneficiary.
44
Under which act can custodial accounts for minors be established?
Uniform Transfers to Minors Act (UTMA).
45
What does the custodian of a UTMA account do?
The custodian acts on behalf of the minor, managing the account until the minor reaches the age of majority (or age 25).
46
What can be held in a custodial account?
Many kinds of securities and cash.
47
What happens to assets given to a minor through a UTMA account?
They are managed by a custodian until the minor reaches the age of majority (or age 25).
48
What authority does the custodian have over the minor's account?
The custodian can buy or sell securities, exercise rights or warrants, and liquidate or hold securities.
49
For what purposes can the custodian use the property in the account?
Support, education, maintenance, general use, or benefit of the minor.
50
True or False: The account is typically used to pay for normal parental responsibilities, such as food and clothing.
False
51
Fill in the blank: The age of majority varies _______.
from state to state.
52
Who is the beneficial owner of a custodial account?
The minor
## Footnote
The account contains the minor's Social Security number.
53
Who is responsible for ensuring taxes are paid on a minor's custodial account?
The parent or legal guardian
## Footnote
Although the minor is responsible for taxes, the adult must ensure payment.
54
What type of accounts are custodial accounts classified as?
Cash accounts only
## Footnote
Securities may not be purchased on margin or pledged as collateral.
55
What must a custodian do with cash, dividends, and interest in a custodial account?
Reinvest within a reasonable time
## Footnote
This is part of their fiduciary responsibilities.
56
What must custodial investment decisions take into account?
The minor's age
## Footnote
This is crucial for responsible investment management.
57
What type of investments are considered inappropriate for custodial accounts?
High-risk securities such as:
* Commodities futures
* Naked options
* Other high-risk securities
## Footnote
Options may not be bought, but covered call writing is usually allowed.
58
What must be done with stock subscription rights or warrants in a custodial account?
They must be exercised or sold
## Footnote
This ensures proper management of the account's assets.
59
Can a custodian delegate fiduciary responsibility in managing a custodial account?
No
## Footnote
However, a custodian can grant trading authority to a qualified third party.
60
Can a custodian borrow money from a custodial account?
No
## Footnote
A custodian may loan money to an account but cannot borrow from it.
61
What can a custodian be reimbursed for in managing a custodial account?
Reasonable expenses incurred
## Footnote
A custodian can also be compensated for managing the account unless they are the donor.
62
How are custodial accounts taxed?
Under the minor's Social Security number at the minor's tax rate
## Footnote
This reflects the minor's tax responsibilities.
63
What happens when the beneficiary of a custodial account dies while still a minor?
The securities in the account pass to the minor's estate, not to the parents' or custodian's estate
64
In the event of a custodian's death or resignation, who must be appointed custodial duties?
A new custodian will be appointed by **either a court of law** or **the donor of securities** in the account.
65
Education IRAs
Coverdell Education Savings Accounts (Coverdell ESAs)
66
What is the maximum annual contribution limit for a Coverdell Education Savings Account?
$2,000 per beneficiary
67
True or False: Coverdell ESAs can be used for both K-12 and higher education expenses.
True
68
Fill in the blank: Contributions to a Coverdell ESA are made with ______ money.
after-tax
69
What is the age limit for contributions to a Coverdell ESA?
Under 18 years old
70
Which of the following is a qualified expense for Coverdell ESAs? A) Room and board B) Car payments C) Travel expenses D) None of the above
A) Room and board
71
If a student's Coverdell ESA account is not depleted by age _ , the funds must be distributed to the individual and are subject to income tax and a 10% penalty.
30
72
Custodians, trustees, attorneys, and investment advisers are all examples of
fiduciaries
73
What are fiduciaries?
Fiduciaries include a trustee, executor, administrator, guardian, custodian, receiver, and conservator.
74
What is the role of a trustee?
A trustee is designated to administer a trust.
75
What does an executor do?
An executor is designated in a decedent's will to manage the affairs of the estate.
76
What is the function of an administrator?
An administrator is appointed by the courts to liquidate the estate of a person who died intestate.
77
What is a guardian's responsibility?
A guardian handles a minor's affairs until they reach the age of majority or manages an incompetent person's affairs.
78
What is the role of a custodian for a minor?
A custodian manages custodial accounts for a minor.
79
What does a receiver do in bankruptcy?
A receiver is appointed to manage the assets of a bankrupt entity.
80
What is a conservator's role?
A conservator manages the affairs of an incompetent person.
81
What must a representative know when working with a fiduciary account?
Proper authorization must be given and verified by the BD.
82
Are speculative transactions allowed in fiduciary accounts?
Speculative transactions are generally not permitted.
83
What is required for margin accounts in fiduciary accounts?
Margin accounts are only permitted if authorized by the legal documents establishing the fiduciary accounts.
84
What does the prudent investor rule require?
The prudent investor rule requires fiduciaries to make wise and safe investments.
85
What do many states publish for fiduciary accounts?
Many states publish a legal list of securities approved for fiduciary accounts.
86
Can a fiduciary share in an account's profits?
A fiduciary may not share in an account's profits but may charge a reasonable fee for services.
87
The two basic types of POAs are
Full Power of Attorney (FPOA) and Limited Power of Attorney (LPOA)
88
- grants the appointed person the power to deposit or withdraw cash or securities and make investment decisions for the account
- would be highly unusual for a registered representative to have this type of authority of a customer account that does not belong to a family member (most firms do not allow this practice)
full power of attorney
89
- also called *limited trading authorization*
- allows the appointed person to have some, but not total, control over an account
- appointed person may buy and sell orders
- MAY NOT withdraw assets
- commonly used by IRA owners to grant authority to a spouse
limited power of attorney
90
A POA with specific language in the agreement stating that the appointed person may act on behalf of the of the owner should they become incapacitated.
DURABLE power of attorney
91
mainly used as a will substitute
revocable trust
*While alive the grantor has full control of the trust.*
92
**True or False**: FINRA firms must employ at least four principals.
**False**: The rule requires at least **two** principals, unless the firm only has one individual working for the firm.
