Account Owner

Operations at Thornbury Clearing is notified that the sole owner of an individual cash account has died. Good-till-cancelled orders are resting in the account. What is the department's immediate handling?

1. A.Cancel the resting orders and restrict the account pending the estate's authority documents.Correct. The person who gave those instructions no longer exists, and nobody has yet shown a right to give new ones.
2. B.Leave the resting orders working, since the customer entered them while fully competent.Wrong. An order is an instruction to an agent, and the agency that permitted the firm to act on it ended with the principal.
3. C.Journal the assets to the named beneficiary, since a transfer-on-death designation overrides probate.Wrong. Nothing in these facts establishes any such designation, and acting on an assumed one delivers property to somebody who may have no claim.
4. D.Liquidate the positions to cash so the estate receives a fixed value.Wrong. A protective motive does not make trading without authority acceptable, and it fixes a value nobody entitled to decide has chosen.

Why: The death of a sole account owner ends the authority under which the firm was acting, so the first operational steps are defensive: cancel resting orders, block new activity and mark the account so that nothing is released. The account is then reopened in the name of the estate or the successor once the firm holds documents establishing who may act, whether letters testamentary or of administration or the paperwork supporting whatever non-probate designation actually exists. Until that arrives there is no instructing party at all, which is why every option involving further activity fails. The department is not being asked to decide who inherits; it is being asked to stop acting on authority that has lapsed.

Larkspur Brokerage calculates the required minimum distribution for each of its IRA customers and notifies them of the amount. One customer withdraws less than the notified figure for the year. Where does responsibility for the shortfall lie?

1. A.With the custodian, which must distribute the shortfall automatically before the year ends.Wrong. No rule turns a custodian into an involuntary distributor of assets its customer has chosen to leave in place.
2. B.With the custodian, because performing the calculation transferred the duty to it.Wrong. Performing a service is not the same as assuming somebody else's obligation, which is why the IRS states the position in terms.
3. C.With the account owner, who remains responsible for taking the correct amount.Correct. The calculation is an aid to the owner, and the duty to withdraw was never the firm's to begin with.
4. D.Nowhere, provided the shortfall is made up during the following year.Wrong. A later withdrawal does not retroactively satisfy an earlier year, and the shortfall stays attached to the year it belongs to.

Why: The IRS is explicit on this point: although an IRA custodian or plan administrator may calculate the required minimum distribution, the account owner is ultimately responsible for taking the correct amount. Custodians calculate and notify because the rules oblige them to provide that service and because it is good practice, not because the duty to withdraw has moved anywhere. Operations therefore retains its notification records to show the service was performed, and does not treat the notice as discharging anything on the customer's behalf. Where the customer's own circumstances make the custodian's figure wrong, the customer's calculation governs, which is another reason the responsibility cannot rest with the firm.