The Merrill Lynch Stockbroker, the Deceased Mom, Her Son, And Transfer On Death

December 14, 2015

Here's a lovely holiday sentiment: In the end, we all die. Yeah, I know but what can I tell you, Wall Street's legal, regulatory, and compliance scene ain't always Ho, Ho, Ho. Sometime my job here is to warn you about how to file an insurance claim after your roof collapsed on Christmas Eve because some fat guy in a red suit gave hernias to a bunch of overworked, undocumented reindeer as they crash-landed an overweight sled and broke through your living room ceiling. In keeping with that spirit, today's cheerful BrokeAndBroker Blog considers the claims of a deceased mother's son and how his anger over the handling of a Transfer on Death account besmirched a veteran stockbroker's reputation. Don't miss the dark holiday video at the end of the article

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in December 2014, registered representative Claimant Carr, who represented himself pro se, sought the expungement of what had been characterized as customer complaint from his Central Registration Depository records ("CRD"). In the Matter of the FINRA Arbitration Between Arthur T. Carr, Claimant, vs. Merrill Lynch, Pierce, Fenner & Smith Inc., Respondent (FINRA Arbitration 14-03721, December 4, 2015).

Respondent Merrill Lynch did not submit an Answer but did submit a Uniform Submission Agreement in February 2015.

No Word. No Show

In July 2015, Claimant Carr moved for summary judgement after Respondent Merrill Lynch failed to respond to his Statement of Claim; however, the FINRA Arbitration Panel denied the motion. In November 2015, the Arbitration Panel conducted an expungement hearing, which Respondent Merrill Lynch did not attend and did not contest.

Prior to rendering a decision, the FINRA Arbitration Panel ordered Claimant Carr to send a copy of his Statement of Claim to the individual who was characterized as a complaining person (the complaining person was the son of the deceased account-holder "customer").

A Haunting Complaint?

The FINRA Arbitration Decision offers this background and rationale;

The allegation was factually impossible and clearly erroneous, as the individual requesting the liquidation of investments and transfer of accounts was not a "customer" and the Claimant followed the actual customer's instructions. The actual customer was the individual's recently deceased mother who had set up her accounts as "transfer on death" accounts. The customer's designated legal representative was handling her estate, including the accounts at issue. The individual requesting the liquidation was one of several beneficiaries named by the customer. This individual presented himself at Merrill Lynch offices about eleven days after his mother's passing, to receive immediately the account funds to which he was entitled. He was disappointed to learn that the process for the "transfer on death" accounts was complicated and would take an extended time to complete. The Panel concluded that someone at Respondent's corporate office, in error, had taken this individual's expression of disappointment in the lengthy process as a complaint against the Claimant, and reported it as such. With the exception of this "complaint" the Claimant had an unblemished record in over thirty years of service.

Bill Singer's Comment

Corporate Office Error

I loved how the FINRA Arbitration Panel put it: The Panel concluded that someone at Respondent's corporate office, in error, had taken this individual's expression of disappointment in the lengthy process as a complaint against the Claimant, and reported it as such.

As I have often admonished, not all customer communications are necessarily "complaints;" and, not all complaints pertaining to customer accounts are prepared and sent by the customer. How communications are interpreted concerning the content of the message and the status of the sender can makes all the difference when it comes to compliance and regulatory issues on Wall Street. READ: "That Customer Complaint May Not Be A FINRA Reportable Event"( Blog, December 4, 2015)

BrokerCheck History

Claimant Carr's online FINRA BrokerCheck records as of December 14, 2015, disclose under the heading: Customer Dispute- Closed-No Action/Withdrawn/Dismissed/Denied the following submission from Merrill Lynch based upon allegations contained in a written complaint purportedly received by the firm on February 13, 2015:


Following Respondent Merrill Lynch's denial of the complaint on May 1, 2014, Claimant Carr offered this statement as reflected on BrokerCheck:


Setting the Record Straight

When the account-holder died, she appears to have left several beneficiaries. It is unclear whether there were multiple beneficiaries named for all of the deceased's accounts or only for the TOD account at issue. There was a "designated legal representative" for the deceased, and that representative was handling the various probate and transfer issues at the time the son demanded that Merrill Lynch "immediately" transfer funds to him from the applicable TOD account. It may well be that the legal rep and son didn't like each other, were unaware of each other, weren't on the same page concerning the TOD, or communications had simply broken down.

The arbitrators noted an important factor in this matter; namely, that the complaining son who raised the issues that wound up on Claimant Carr's CRD was not, in fact, a "customer" as is defined in the applicable FINRA rules and industry regulations. Does the death of a customer automatically render her heirs or beneficiaries customers? Does the fact that a likely legitimate heir/beneficiary shows up at a brokerage office demanding to be paid impose an obligation upon the broker-dealer to immediately liquidate assets and tender payment? As this case explains, not necessarily -- and more often than not, the more accurate answer is a plain-and-simple "NO."

Where There's A Will, There Is Not Always A Way

Although it is understandable that beneficiaries desire the immediate distribution of a deceased's estate, on the one hand, or assets that do not necessarily pass through the estate or court administered probate, on the other hand, such prompt payouts are not always practical or legal. The law and sound business practices requires the presentation of legally compelling "proof" of the death of the account-holder and of the beneficiary status claimed by an applicant. Even in the face of a bona fide death certificate and a copy of a Last Will and Testament or other document upon which a sought transfer is based, the issue of who is entitled to what and when is not always easy to discern or accommodate.

Determining which state laws apply to the distribution of an estate and/or gifts may be complicated by issues of the deceased's domicile versus residence versus terms of a Will, Trust, Contract, or other legal instrument. Wills, trust, and gifts may be challenged. Previously "unknown" family members or debtors may seek to halt distributions or payments. Do such circumstances give brokerage firms a blank check to unreasonably delay payment? No . . . and if timely payment is not forthcoming, that is a basis for a regulatory complaint and a civil lawsuit.

Transfers on Death (TOD)

As part of its "Fast Answers" online series, the Securities and Exchange Commission offers this explanation about Transfer on Death Registration:

Transfer on death (TOD) registration allows you to pass the securities you own directly to another person or entity (your "TOD beneficiary") upon your death without having to go through probate. By setting up your account or having your securities registered this way, the executor or administrator of your estate will not have to take any action to ensure that your securities transfer to whomever you have designated. However, TOD beneficiaries must take steps to re-register the securities in their names. This typically involves sending a copy of the death certificate and an application for re-registration to the transfer agent.

State law, rather than federal law, governs the way securities may be registered in the names of their owners. Most states have adopted the Uniform TOD Security Registration Act, although some have modified it. In addition, brokerage firms may decide whether or not to offer TOD registration.

For more information about TOD registration, please visit the website of the National Conference of Commissioners on Uniform State Laws. There you'll find a summary of the Act, explaining how TOD registration differs from joint ownership. You'll also find a list of the states that have adopted the Act and the full text of the Act.

The Nation Conference of Commissioners on Uniform State Laws website offers further guidance under its "TOD Security Registration Act Summary":

The Uniform TOD Security Registration Act is a late-1989 product of the National Conference of Commissioners on Uniform State Laws. The proposed statute is wholly enabling; it forces nothing on anyone. It is addressed to financial intermediaries, such as mutual funds, banks and brokers maintaining securities accounts for customers, and other organizations responsible for registries showing investment ownerships. The statute encourages and protects intermediaries who decide to offer a security or account registration form showing the owner's name and another designated as the owner's choice to become owner at the owner's death. A registration under the act might say: "owner; John Q. Investor; TOD beneficiary, Martha G. Investor" or more simply, just "John Q. Investor TOD Martha G. Investor." The letters T.O.D. stand for "transfer on death" signaling that the investment or account is to be re-registered on request after the owner's death in the name of the beneficiary.

Control of an investment registered in TOD beneficiary form, including the right to change or cancel the death beneficiary, lies solely with the owner and may be exercised via use of the intermediary's standard procedures for new registrations.

As is so with securities registered in two names with right of survivorship, the transfer of ownership at an owner's death to a survivor designated in the title form results from the registration form and occurs outside the probate process and without reference to any will. Proof of death and survivorship necessary to effect a re-registration or liquidation after the owner's death will be handled as survivorship claims of surviving joint tenants are handled today; i.e., by submission of a death certificate and an application for liquidation or re-registration in the beneficiary's name.

The statute proposes nothing that is novel or untested. Beneficiary form registrations of U.S. Savings Bonds have been available under federal law for more than half a century. Bank accounts and c.d.'s in an owner's sole name and payable on death to a named beneficiary are available in a number of states under p.o.d. account rules found in many banking codes. Life insurance and retirement benefit accounts by-pass probate en route to death beneficiaries designated in controlling paperwork. Mutual funds have occasionally offered a trust form registration that, like bank accounts in the name of one as trustee for another, achieve the results of a TOD registration by use of language that is much less understandable as to its purpose.

The statute enables avoidance of probate without the risk of problems caused by joint and survivor security titles that are especially hard on the elderly. A person, typically elderly and worried about the impact of high probate costs on family survivors, decides to add the name of a child to her own to create a joint tenancy with right of survivorship on a security or account title. The sole purpose is probate avoidance. The elderly originator of the joint holding probably does not realize that the one named co-owner now appears to own half of the asset meaning that the investment can't be cashed out or re-registered without the consent of both owners. The bad news may come when a child's creditors or divorcing spouse lays claim to the child's half. In short, to get the benefit of probate avoidance through co-ownership and survivorship, an elderly owner has to subject money set aside for future needs to the whims and claims of others, including possible strangers to the family. TOD security registration merely permits realization of the probate avoidance benefits of a joint registration but avoids the loss of sole control for the owner. In time, the TOD registration form should replace joint and survivor titling of investments.

This simple bill is very important for it responds directly and efficiently to serious problems having a unique impact on the elderly that attend joint and survivor titling of investments. It also sanctions a title form that would enable probate-avoiding transfers at death in favor of any death beneficiary, possibly including recognized charitable organizations or a trust company that could not be listed as a co-owner with survivorship under conventional joint tenancy rules. It entails no unwanted costs for anyone, meets a strong need of the elderly, and is without downside risks to any but those very few who continue to feed on assets passing through probate.

Y'know, all of this cheery holiday season blogging put me in mind of this uplifting Christmas song: