Whether you intend to be an investor or trader, understanding the “small” print
in your brokerage’s “Terms & Conditions” is very important. Each brokerage will have slightly different requirements for their specific operations. When you open an
account, one of the very first important choices to make is the “type” of account to set up.
Each has specific requirements and obligations. The following are some typical types of accounts. Their descriptions and requirements
are only an overview. Remember, each brokerage firm will have additional restrictions, powers and requirements beyond these descriptions.
A Community Property Account is basically the same as Joint Tenants with Rights of Survivorship. However, only a married couple can hold a Community Property Account.
Each party has equal rights to income and appreciation of assets.
In order to set up a Community Property Account, you must complete a regular account application and a Community Property Agreement.
You can open a Community Property Account based on the Community Property Laws of the state in which you reside. For tax purposes, income in community property states is
considered to belong half to the husband and half to the spouse regardless of who actually earned the income. Regulations for each individual state vary and, currently,
the community property states are as follows:
- New Mexico
A Corporate Account is opened on behalf of a corporation, which is a legal
entity chartered by a state or federal government which keeps it separate from the persons owning it. It gives a corporation the opportunity to invest funds and assume debts.
To open a Corporate Account, you will need a Corporate Application, a tax ID number (not a social security number), and a Corporate Agreement form bearing a corporate
seal or a notary stamp, if a seal does not exist. If only one corporate officer exists, a copy of the Articles of Incorporation is needed.
You can get a corporate Tax ID Number, also known as an Employer Identification Number (EIN), through the Internal Revenue Service (IRS). You will need to submit IRS
form SS-4, which you can receive from your local IRS office or by calling the IRS at 1-800-829-1040. There is no cost for getting an EIN.
Authorized corporate officers may place trade orders in a corporate account; however, your brokerage relies on the Corporate Agreement to determine the authorized
As long as a margin agreement has been completed and approved by your brokerage, corporate accounts may use margin. As well, if the account has been approved for
option trading, you may place option orders in a corporate account.
A corporate resolution is needed to deposit stocks into a Corporate Account. The resolution will state which corporate officers are permitted to sign the certificate
for deposit. The corporate resolution must either bear a corporate seal or be notarized. One corporate resolution is needed per certificate that is being deposited.
Additionally, the person who signs the stock certificate cannot be the same person who signs the corporate resolution.
Should an officer leave the Corporation, a new Corporate Agreement signed by all the current officers and a copy of the letter of resignation from the officer leaving is
required. To facilitate your brokerage’s record keeping, the brokerage will likely request you also include a copy of the previous Corporate Agreement. All changes of
address must be reported to your brokerage in writing and signed by a corporate officer.
A Custodial Account is created on behalf of a minor and is overseen by a custodian. Security transactions in a Custodial Account are effected by the custodian who
manages the cash and other securities gifted to the minor under the Uniform Gifts to Minor Act. When the minor reaches the age of majority, he or she may assume control
of the assets. Keep in mind that all assets in a Custodial Account belong to a minor and are taxed as such.
In order to open a Custodial Account, you will need to complete a regular account application. The requirements and characteristics of a Custodial Account are:
- All assets represent an irrevocable gift to the minor.
- The custodian must be of legal age.
- Only one custodian and one minor can be named per account.
- The social security number and date of birth must belong to the minor.
- The custodian must sign the application.
- Only covered call writing is allowed in a Custodial Account, and the custodian must sign an Options Agreement.
- Only one Limited Power of Attorney is allowed for the account. A Limited Power of Attorney is an individual who is given authorization by the account holder to
place trade orders, obtain account information, change the address of record and request checks.
- The minor cannot place trade orders in the account. Only the custodian or the Limited Power of Attorney is authorized to place trade orders.
- Check writing is allowed.
The age of majority is 18 in all U.S. states except Alabama and Alaska, where the age of majority is 19. When a minor reaches the age of majority, the custodian is
responsible for reregistering the account in the name of the minor. A new account application needs to be completed and sent to your brokerage along with a letter and a
copy of the custodial account holder's birth certificate. The custodian transfers all the securities in the name of the minor with a notarized letter of authorization.
Assets cannot be transferred out of a Custodial Account through special registration or by letters of authorization because all the assets in the account are the
irrevocable property of the minor.
An Estate Account represents assets and liabilities possessed by a person at the time of his or her death. It gives the executor/executrix or the administrator of the
estate the ability to manage and distribute the estate according to the deceased person's will or a court ruling.
The following documents are required when opening an Estate Account:
- A completed Estate Account application.
- A certified copy of the death certificate.
- Letter of Testamentary, dated within 60 days, which names the estate's executor/executrix.
- A Notarized Affidavit of Domicile, which indicates the deceased's last state of residence.
- A Letter of Authorization, which is necessary to move assets from the deceased's account to an estate account.
Each certificate to be deposited requires the following additional information:
- A certified copy of the death certificate.
- A notarized Affidavit of Domicile, which indicates the deceased's last state of residence.
- Original letters of Testamentary which must be under the seal of the court and dated within 60 days. This letter names the estate's executor/executrix.
- The stock certificates signed by the administrator of the estate.
Only the executor/executrix and a Limited Power of Attorney, if one has been named, are authorized to place trade orders in an Estate Account.
Neither option nor margin trading is allowed in an Estate Account.
A Joint Account is a bank or brokerage account owned together by two or more people. Any one party may take such actions on his or her own in the account.
There are four types of Joint Accounts at your brokerage:
- Joint Tenants with Rights of Survivorship
- Tenants in Common
- Community Property Account
- Tenant by Entireties
In order to set up a Joint Account with Rights of Survivorship, you need to complete a regular account application. Joint Accounts are generally opened with one social
security number, but certain brokers go a step further and require the social security numbers of all the parties.
In a Joint Tenants with Rights of Survivorship Account, upon the death of one party, the assets of the account become the sole property of the surviving party or parties.
In a Tenants in Common Account, upon the death of one party, the account is evenly divided among the remaining party or parties and the decedent’s estate (or as otherwise
In most cases, either party can place trade orders, sign Investors Money Management checks and make requests on the account. The only exception is a request to transfer
assets to another account with a different title. This requires a notarized letter of authorization by all parties.
Personal Trust Account
A Personal Trust Account represents a fiduciary relationship between two individuals, in which a person, called a trustee, has responsibility for handling property for
the benefit of another person, the beneficiary. Personal trust accounts are usually set up for tax, estate and gift purposes and are established by the grantor, under will or
under agreement. The main reason a customer might establish a Personal Trust Account is for tax and estate planning purposes. The grantor usually transfers property to a
trustee during the life of the grantor to reduce tax liabilities.
To open a personal trust account, you will need to complete a Personal Trust Application and a Trustee Certificate of Investment Powers (TCIP) Form, which is included
in the application. All trustees must sign the application and the TCIP. Additionally, the trust must be pre-established by an attorney. U/W means under will, and U/A means
under agreement. They denote the location of the terms for the trust.
Personal Trusts may be revocable or irrevocable, depending upon the outline of the title or terms of the trust. A Revocable Trust is an agreement providing transfer of
property to heirs who may be terminated by the person creating the trust at any time. An irrevocable trust is a trust in which the grantor transfers the property to the
trustee but does not have the right to cancel the agreement.
The TCIP states the powers of the trust. This summation of the trust negates the need for your brokerage to retain a full copy of the Trust Agreement.
In order to trade options or on margin, a Section 5 must be completed on the TCIP form. The option agreement must be approved for option trading and a margin agreement
must be completed and signed by all the trustees.
Some of the characteristics of a Personal Trust account are as follows:
- Any of the trustees listed on the account can place trade orders, authorize check payouts, and request securities be issued in the name of the trust.
- Check writing is available for most personal trust accounts.
- Only one Limited Power of Authorization (LPOA) is allowed, and the authorization for this person must come from all the trustees.
- Assets may only be transferred from a personal trust to another account where all parties are also listed as trustees. The letter of authorization does not have to
be notarized if you are moving assets to the account where the parties on the account are also trustees.