Individual accounts

Individual accounts

Customers must choose a specific registration when an account is opened at a financial firm. Registrations are chosen depending on several factors, including account ownership, tax reporting, and beneficiary designations.

An individual account is owned and operated by one person. This registration type can simultaneously maintain a transfer on death (TOD) designation, which names a specified beneficiary. A beneficiary can be a person or an organization (e.g., a charity) that stands to inherit the account assets if the owner passes away. TOD designations allow accounts to be inherited outside of probate.

Probate court is the division of the US court system responsible for distributing a deceased person’s assets to surviving family, friends, creditors, or other third parties. The probate courts handle assets and accounts without named beneficiaries (TOD designations). Whether the decedent (deceased person) had a will or not, the court determines the estate distribution process and who runs it. Probate can be complicated, as it typically involves significant legal fees and is a time-intensive process. For those wanting their heirs to avoid probate, TOD designations direct assets to specific parties and fall outside the probate court’s jurisdiction. In many circumstances, all a beneficiary must provide to claim assets is a certified death certificate and an account to receive the inherited assets.

To be clear, a TOD designation and a will are two separate things. TOD designations are contracts between the customer and the firm maintaining custody of their assets to turn over their account to a named beneficiary upon their death. Wills are typically created with legal assistance (e.g., an estate attorney) outside of the custodial firm. These documents name heirs to receive assets in a person’s estate, including brokerage accounts, bank accounts, real estate, property, vehicles, among other assets.

While there are clear similarities between the two, TOD designations are handled outside of probate, while wills are subject to probate. Additionally, TOD designations supersede wills. For example, let’s assume Bob Smith names his brother as his beneficiary in his brokerage account’s TOD designation, while also naming his sister as the beneficiary of the same account in his will. The TOD designation “trumps” the will’s instructions, so Bob’s brother will inherit the account.

Accounts without a TOD designation (or those left explicitly to the estate) are subject to probate. If the decedent died testate, a named executor would be in the will. This is the person nominated to handle the deceased person’s estate. Their responsibilities include paying off outstanding debts and taxes, then distributing the remaining assets to beneficiaries. To gain legal authority as the estate executor, the nominated person must present the will to their local probate court. If the court validates the will, the person receives an official document named letters testamentary.

The executor presents the letters testamentary to the firm maintaining custody of the decedent’s assets. Once received (along with a certified death certificate and any other required documents), the executor takes control of the account assets. From there, they’ll typically abide by the will’s instructions.

If a person dies intestate, the process is a bit different from the start. There is no will, so there is no named executor. Surviving family members typically petition the probate court to nominate an estate administrator, who play the same role as an executor (different name, but same idea). Once named, the probate court issues letters of administration, officially confirming the person’s role with the decedent’s estate. Similar to letters testamentary, letters of administrator are then submitted to the firm maintaining custody of the decedent’s assets. From there, the administrator handles the estate according to instructions from the probate court.

Numbered accounts

In some circumstances, an individual account can be opened as a numbered account. This type of account does not show the customer’s name or other specific identifiers, but instead a string of numbers (e.g., Customer #45295923), allowing the account owner to maintain anonymity. Numbered accounts have been used by celebrities, politicians, and other infamous persons to shield their identities from representatives.

Regardless, customers with numbered accounts are only anonymous on the surface. FINRA rules require the customer to provide a written attestation of their ownership (basically a letter stating they are the account owner). The firm maintains this document on file for the life of the account. Internal employees with access to the document can always determine the owner’s identity, which may be important if government authorities (e.g., the IRS or the police) request account information.