9.1 Account Types

Why Account Types Matter

The General Securities Representative (Series 7) exam tests account structure because the registration determines who controls trading, who is taxed, and where assets go when an owner dies. Get the wrong structure and you create probate, tax, and liability problems. Memorize the documentation and the death-transfer rule for each type.

Individual Accounts

An individual account is owned and controlled by one person who makes every decision, bears all tax liability, and is the only party who can request distributions. A registered rep may only enter trades the owner approves unless the owner signs discretionary authority (covered in 9.5).

A Transfer on Death (TOD) designation lets the owner name beneficiaries who inherit the assets directly at death, bypassing probate. TOD does NOT give the beneficiary any rights while the owner is alive — the owner can change beneficiaries, sell holdings, or close the account freely.

Joint Accounts

Joint accounts have two or more owners. Both must sign the new-account form, both receive confirmations and statements, and — critically — a check distributed from the account must be made payable to ALL owners, even though either owner can enter trades alone. The two structures differ entirely in what happens at death.

Joint Tenants with Rights of Survivorship (JTWROS)

Tenants in Common (TIC)

The classic trap: JTWROS = survivorship + probate bypass; TIC = no survivorship, share flows to the estate. If a question stresses unequal ownership or that a partner's share should pass to their heirs, the answer is Tenants in Common.

Corporate and Partnership Accounts

Corporate accounts require a corporate resolution — a board document naming who is authorized to trade and listing any limits (for example, whether the account may use margin or trade options). Firms also collect the articles of incorporation and the corporation's Employer Identification Number (EIN).

Partnership accounts require a partnership agreement identifying general partners (management authority, unlimited liability) and limited partners (no trading authority, liability capped at their investment). Only a general partner can bind the partnership in securities transactions.

Trust Accounts

A trust account is governed by the trust document. Know the three parties: the grantor (settlor) who funds it, the trustee who manages it under a fiduciary duty, and the beneficiary who benefits. The trustee's powers — including whether margin or options are permitted — come only from the trust document and state law, never from the trustee's personal preference.

Estate Accounts

An estate account is opened after death to settle the deceased's affairs. The executor (named in the will) presents Letters Testamentary; a court-appointed administrator (no valid will) presents Letters of Administration. The firm also needs a death certificate and the estate's own tax ID. Estate accounts are temporary and close when assets are distributed to heirs.

Custodial Accounts (UGMA/UTMA)

The Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) let an adult custodian manage assets for one minor.

Exam-critical custodial rules: one custodian and one minor per account (no joint custodians, no multiple minors); gifts are irrevocable and immediately belong to the minor; no margin and no short selling; the account uses the minor's Social Security number, so income is reported under the minor.

Kiddie tax (2026): a child's unearned income above $2,700 is taxed at the parent's marginal rate (applies under age 19, or under 24 for full-time students). The first $1,350 is tax-free and the next $1,350 is taxed at the child's own rate. The custodian, although managing the account, is never the owner; control passes irreversibly to the minor at the age of majority set by the state. Because the custodian holds legal title only as a fiduciary, the custodian may not use account assets for the custodian's own benefit, may not commingle them with personal funds, and may liquidate or reinvest only for the minor's benefit.

A donor who is also the custodian and dies before the minor reaches majority has the gifted assets pulled back into the donor's taxable estate — a frequently tested wrinkle.

Retirement and Education Accounts in Brief

Many customer relationships also involve tax-advantaged registrations the exam touches on. A Traditional IRA allows pre-tax contributions with taxable withdrawals; a Roth IRA uses after-tax contributions with tax-free qualified withdrawals. Both prohibit short selling and uncovered options because they cannot use margin — the IRS treats borrowing against IRA assets as a prohibited transaction. A 529 plan and a Coverdell Education Savings Account are education vehicles whose growth is tax-free when used for qualified education expenses. These accounts, like custodial accounts, are cash-only for trading purposes.

Numbered Documentation Checklist

When opening any entity or fiduciary account, confirm you have collected the controlling document:

1. Corporation — corporate resolution plus the corporation's EIN.
2. Partnership — partnership agreement naming authorized general partners.
3. Trust — the trust document (or a certification of trust) identifying the trustee and powers.
4. Estate — Letters Testamentary or Letters of Administration plus a death certificate.
5. Custodial — the minor's Social Security number and the single custodian's identification.

On the Exam

Expect questions that hinge on survivorship (JTWROS vs. TIC), the single required document for an entity (corporate resolution; partnership agreement; Letters Testamentary versus Letters of Administration), and the bright-line custodial restrictions: irrevocable gift, one minor and one custodian, the minor's Social Security number, and absolutely no margin or short selling.