Chapter 5 Practice Question Answers
1. Answer: C. Joint tenants in common provides that the deceased owner’s interests in the account pass to his estate. In a JTWROS account, those assets pass to the surviving owner. Tenancy by the entirety is only available to married couples and usually involves real estate. A TOD account is a type of individual account and not a joint account.
2. Answer: C. Under a UTMA account, assets must be transferred to the minor they have been held for no later than a specified age, which varies by state. Transfers in California, for example, may be delayed by contract as late as age 25.
3. Answer: D. The customer’s signature is not required on the new account form. According to the PATRIOT Act, the full name, date of birth, and Social Security number or tax ID is required to open an account. If the Social Security number has been applied for but not yet received, the firm may open the account, but they must obtain the SSN in a reasonable timeframe.
4. Answer: B. The gift of stock cannot be reversed, either by the donor or the minor, because a gift to a custodial account for a minor conveys an indefeasible title. The minor, once he reaches the age of majority, can return the stock if he chooses to do so.
5. Answer: D. As a custodian, Josh has a fiduciary duty to his daughter in managing her account. This includes a duty to invest conservatively, which is known as the prudent investor rule. Therefore, Josh’s decision to invest in the mutual fund recommended by a professional would be acceptable. However, his decision to invest in a risky new biotech company would not be acceptable, as it is not a conservative investment. There are no limits to the amount a donor may give to an UGMA account, so Josh’s plan to contribute $1,000 each year is permitted. Josh would not be able withdraw any money from the account unless it was for the benefit of his daughter.
6. Answer: B. A broker-dealer or one of its representatives mus