In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in September 2010, public customer claimant Pihiak alleged that upon the death of her parents, Respondent Edward Jones failed to timely transfer her parents' account holdings. Accordingly, Claimant alleged negligence; breach of contract; and breach of fiduciary duty by Respondent. Claimant ultimately sought $24,920.90 in compensatory damages for the market losses sustained by the accounts during the period of transfer delay, plus $7,750 in attorneys' fees.
In the Matter of the FINRA Arbitration Between Mary Pihiak, Claimant, vs. Edward Jones, Respondent (FINRA Arbitration 10-04120, September 9, 2011).
Respondent Edward Jones generally denied the allegations; asserted various affirmative defenses; and sought expungement of this matter from unnamed registered representative Lawrence J. Najvar, Jr.'s Central Registration Depository records ("CRD").
The sole FINRA Arbitrator found Respondent Edward Jones liable to and ordered it to pay to Claimant Pihiak $24,920.98 in compensatory damages, and $7,750.00 in attorneys' fees pursuant to §38.001 of the Texas Civil Practice & Remedies Code.
Respondent's request for the expungement of Najvar's CRD was denied.
In a FINRA Arbitration Statement of Claim filed as amended in June 2010, Claimants alleged negligence; breach of fiduciary duty; and, negligent supervision by Respondent Morgan Stanley Smith Barney, LLC ("MSSB") in connection with the tax consequences incurred by Claimants as a result of MSSBs alleged failure to allow the Executor of the David N, Russell 2000 Trust to reinvest a mandatory required cash distribution back into the that Trust. Claimants ultimately sought $33,831.00 in compensatory damages plus interest, costs and attorneys' fees.
In the Matter of the FINRA Arbitration Between Steven Russell & Ronni Pitiger, as Trustees of the David N. Russell 2000 Trust, Claimants, vs. Morgan Stanley Smith Barney, LLC, Respondent (FINRA Arbitration 10-02604, September 9, 2011).
Respondent MSSB generally denied the allegations; asserted various affirmative defenses; and requested expungement of this matter from of non-party Robert S. Levy's CRD.
Beyond the Arbitration Decision's cursory recitation of the underlying facts in this case, we truly don't know much about the heart of this dispute; as such, the brief rationale provided by the sole FINRA Arbitrator is more perplexing than helpful:
The Arbitrator found no distinction between whether the executor of an estate is a spouse or child, or anyone else for that matter, of the deceased. As such, and pursuant to Gunther v. United States, 573 F. Supp. 126 - United States District Court, W.D. Michigan (1982), Respondent is liable . . .
SIDE BAR: Apparently, one of the parties in the Pitigers' FINRA arbitration raised some issue about whether an Executor was the deceased's child versus spouse. Why? I don't know because it's not explained in the FINRA Arbitration Decision. I believe that the pertinent part of the Gunther Decision holds that:
If a person receives a qualifying rollover distribution prior to his death, he may within 60 days under Section 402(a)(5) roll this over into an IRA and thereby defer payment of taxes on said distribution. If the spouse of the employee receives the qualifying rollover distribution after the employee's death, the spouse may likewise defer taxes, under Section 402(a)(7) in its present form, by rolling such distribution over within 60 days into an IRA. What the government argues is that as in the instant case where the employee received the qualifying rollover distribution prior to death but then died before the end of the 60 day period, his estate may not accomplish or complete the rollover within the 60 day period. Therefore the tax deferment is lost.
Allowing an estate to complete the rollover corresponds with the congressional intent behind these provisions of allowing a tax deferment when the qualifying rollover distribution is promptly rolled over into an IRA. This court does not believe that it unreasonably strains the language of Section 402(a)(5) to hold that when an employee receives a qualifying rollover distribution but then dies before the end of the 60 day period without having completed a rollover into an IRA, his estate may, pursuant to its authority under Section 6903(a) complete said rollover.
Piecing together what we can from the allegations, the Arbitrator's commentary, and a whole batch of inferences, it appears that the Arbitrator did not find the distinction of an Executor being a spouse or child was determinative in this case. Moreover, it appears that the Arbitrator concluded that Respondent MSSB wrongfully precluded the Executor from timely reinvesting a mandatory required cash distribution back into the the subject Trust .
As such, the FINRA Arbitrator awarded to Claimants:
Also, the Arbitrator recommended the expungement of this matter from Levy's CRD based upon a finding (and the parties' stipulation ) that Levy:
did nothing in this case to warrant a complaint on his CRD record. Further, the evidence presented dealt with Respondent's policies and procedures and not the actions of non-party Levy.
For many Wall Street professionals there is a false belief that once the account-holder dies, all that is required is to make sure that the account is frozen awaiting instructions from the Estate or some court. To an extent, that's correct; however, as demonstrated in the two arbitrations above, there are consequences to simply saying "no" to every request concerning the deceased's assets.
For industry professionals, once you're notified of the death of a customer, you should immediately contact your Compliance Department and confirm how you are required to proceed with any requested transfers, sales, purchases, or liquidations. Make sure to cover issues such as re-designating the account as "Deceased" or "The Estate of . . ." as the legal/regulatory circumstances may compel.
Similarly, you should promptly communicate your firm's policies and procedures concerning the transfer/liquidation of assets to those legally entitled to such information - again, this is not time for amateur hour and there may be consequences to providing such confidential information to family members not designated as executors or administrators. Just because someone calls you on the telephone and tells you that they're the grieving widow or child, doesn't mean that it's okay to tell them what's in the deceased's account or to email them the current Statement of Account.
With few and rare exceptions, buy or sell orders are rarely appropriate after a customer dies and before there is any formal legal notice sent to the brokerage firm designating an individual as having legal authority over the deceased's account. Stockbrokers handling such accounts should document everything in writing, retain all communications, and be careful - very careful - about giving legal and/or tax advice to anyone. At a minimum, brokerage firms should promptly re-code such accounts to ensure that the necessary precautions are in place. Further, make sure that joint tenancy or tenants in common accounts are properly handled following the death of one of the account holders.
Survivors, Heirs, Executors, and Administrators
As to surviving tenants, spouse, heirs, and folks who believe that they are entitled to some or all of the deceased's assets, it's important that you understand your legal rights and also those of the brokerage firm. Quite frequently, you will be met with a wall of stony refusals to do anything until such time as you produce an Order of Probate or Letters Testamentary. Similarly, as these cases demonstrate, taking a leisurely attitude towards transferring assets can have negative tax consequences - and if the stock markets drop dramatically while you're dawdling, the value of the deceased's assets can similarly plummet.
As in keeping with my advice to industry professionals, public parties claiming the rights to a deceased's accounts should timely communicate their demands to the brokerage firm and maintain written copies. Similarly, do-it-yourself is not often the best approach, and any miscues could easily slam the estate with tax consequences far greater than a competent lawyer's legal fees.
Finally, just because you have a copy of a Last Will and Testament doesn't mean that you can simply send a photocopy of that document to the brokerage firm and insist that your instructions are followed. There may be other wills in competition with your version - some may be more recent and others may be fraudulent. Similarly, even if you will is the only one discovered, that doesn't mean that it was honestly secured or that it won't be contested.
In the case of no Will being found, regardless of your status to the deceased, a court will likely have to step in and appoint an Administrator. The laws governing the distribution of estates can get quite complicated, and often depend upon where the deceased lived and died, where the assets are located - and then there's the whole mess of spouses and heirs. Similarly, some assets that many folks assume are part of an estate often are not; for example, insurance proceeds or a Joint-Tenants-With-Rights-of-Survivorship account generally are distributed outside of an estate.