Topic:
LEGISLATION; PROBATE COURT; SECURITIES;
Location:
SECURITIES;
Scope:
Connecticut laws/regulations;

OLR Research Report


The Connecticut General Assembly

OFFICE OF LEGISLATIVE RESEARCH




January 5, 1994 94-R-0025TO:

FROM: George Coppolo, Chief Attorney

RE: Uniform Transfer on Death Security Registration Act

You asked for a copy and summary of 1993 sHB 7253, An Act Concerning the Uniform Transfer on Death Security Registration Act.

SUMMARY

The bill establishes a registration procedure by which an owner of securities may arrange to have the title automatically transferred upon his death to a designated beneficiary without going through the probate court. Ownership and control of the security would remain with the owner until his death and the owner could change or cancel the registration at any time without the beneficiary's consent.

The bill applies to individual securities, mutual fund shares, and accounts maintained by brokers and others to reflect a customer's holdings of securities.

The bill authorizes, but does not require compliance by entities that issue and market securities, and provides certain protections for entities that do comply.

The bill applies to registrations made by decedents dying on or after October 1, 1993.

The right of any beneficiary to the immediate ownership of any security registered in accordance with the bill is subject to the state succession tax which applies to transfer of property made by will or inheritance.

The bill was raised by the Judiciary Committee on March 15, 1993. It held a public hearing on April 1, 1993, and voted a joint favorable substitute change of reference to the Finance, Revenue, and Bonding Committee on April 14, 1993. That committee reported the bill to the House on May 14, 1993 as File 767. The House took no action on the bill. The Judiciary Committee could be asked to raise this or a similar bill in the upcoming session.

We have enclosed a copy of the public hearing transcript. The proponent of the bill at the hearing was John Langbein, a Yale Law Professor and a Connecticut Uniform Law Commissioner. The principle reasons he offered in support of the bill were that it would save probate fees by allowing a transfer of securities at death without probate, and would allow the owner to change his mind during his lifetime and make a different disposition. Currently, people use joint tenancy to accomplish the goal of transfer at death without probate. But joint tenancy, once created, can not be unilaterally changed by the original owner.

The main concerns expressed about the bill by legislators were a loss of fees to the probate courts, a loss of probate court supervision of the asset transfer, greater possibility of fraud since the two witness rule that applies to wills would not apply, and a problem with tax collection.

Following is a more detailed summary of the bill, including a brief background section.

BACKGROUND

The bill places in statute a part of the Uniform Probate Code, as adopted by the National Conference of Commissioners on Uniform State Laws in 1989. Its stated purpose is to allow the owners of securities to register the title in a "transfer on death" (TOD) form and give them an alternative to joint tenency form of title in arranging a nonprobate transfer at death. Joint tenancy registration of securities, unlike TOD, normally entails a lifetime sharing of title and control, and the co-owner's interest is reachable by creditors.

PROCEDURE TO TRANSFER SECURITIES UPON DEATH

The bill authorizes entities that originate securities and maintain security accounts, brokers, and transfer agents to register a security in beneficiary form, which means to issue a certificate indicating the ownership of the security and the intention of the owner that the security automatically transfer to a named beneficiary at the owner's death. This authority extends to security accounts. The bill defines a security account to include such things as a reinvestment account associated with a security, a securities account with a broker, a cash balance in a brokerage account, and a cash balance or other property held for or due to the owner of a security as a replacement for or product of an account security, whether or not credited to the account before the owner's death.

Only a person with sole ownership or people with joint ownership with a right of survivorship may obtain registration of their securities in beneficiary form. Multiple owners of a security registered in beneficiary form hold the security as joint tenants with right of survivorship, as tenants by the entreaties, or as owners of community property held in survivorship form. They may not hold as tenants in common.

WHEN REGISTRATION IS EFFECTIVE

Under the bill, a security is registered in beneficiary form when the registration includes a designation of beneficiary to take the ownership at the owner's death.

HOW REGISTRATION MAY BE SHOWN

The bill permits registration in beneficiary form to be shown by the words "transfer on death," or "TOD" or by the words "pay on death" or "POD" after the name of the registered owner and before the name of a beneficiary.

WHEN REGISTRATION IN BENEFICIARY FORM IS AUTHORIZED

The bill authorizes a security to be registered in beneficiary form if it is allowed by the bill or a similar law of:

1. the state the issuer or registering entity (RE) is organized,

2. the location of the RE's principal office,

3. the location of the office of the RE's transfer agent or the RE's office making the registration, or

4. the state listed as the owner's address at the time of registration.

The bill establishes the presumption that a registration governed by the law of a jurisdiction in which a similar law is not in force, or was not in force when a registration was made, is valid and authorized as a matter of contract law.

OWNERSHIP OF SECURITIES ON DEATH OF OWNER

When the sole owner or the last of multiple owners dies, the ownership of securities registered in beneficiary form passes to the beneficiary or beneficiaries who survive all owners. If no beneficiary survives the death of all owners, the security belongs to the estate of the last owner who died.

The security may be registered in the name of the beneficiary only upon proof that all owners have died and in compliance with any other requirement of the entity that registered the security.

PROTECTION AND DUTIES OF REGISTERING ENTITY

Under the bill, a registering entity does not have to register securities in beneficiary form. But if an entity does register a security in this way, it agrees that the registration will be implemented on the owner's death pursuant to the bill.

The bill discharges the registering agency from all claims to a security by the owner's estate, creditors, heirs, or devisees if it registers a security pursuant to the bill and acts in good faith reliance on:

1. the registration;

2. the bill;

3. information provided to it by affidavit of the personal representative of the deceased owner or by the surviving beneficiary or his representative or other means; and

4. other information available to the registering entity.

This protection does not extend to a registration or payment made after a registering entity has received written notice from any claimant to any interest in the security objecting to implementing a registration in beneficiary form.

TERMS, CONDITIONS, AND FORMS FOR REGISTRATION

The bill authorizes a registering entity to establish the terms and conditions under which it will receive and implement requests for registration. These terms and conditions may include proving death, avoiding or resolving any problems concerning fractional shares, designating primary and contingent beneficiaries, and substituting beneficiaries.

The bill permits substitution to be indicated by appending to the name of the primary beneficiary the letters LDPS which stand for "lineal descendants per stirpes." This designation substitutes a deceased beneficiary's descendants for the beneficiary who fails to survive the owner's death. The bill specifies that these descendants are to be identified and to share in accordance with the inheritance law of the beneficiary's state of domicile at the owner's death.

The bill authorizes the registering entity to establish in its terms and conditions (1) other forms of identifying beneficiaries who are to take title on one or more contingencies and (2) rules for providing proof to satisfy its reasonable concerns regarding conditions and identities relevant to accurately implement the registrations.

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