I think you need to consult an estate lawyer Arnie but this is what Finra on this matter: https://www.finra.org/investors/ins...ith a TOD, you keep,changes or revoke the TOD.
The broker wouldn't suffer much. If there is a margin call and the deceased doesn't do anything, the broker is expected to flatten the outstanding position to minimize loss.
A serious broker should always liquidate your positions, when they reach margin call (or go slightly below). Anything else is unprofessional and non serious behavior. So, that should actually be the answer to this question. I think, that at least in Europe things are handled this way; but I could be wrong.
We had it written into our customer agreements that the beneficiary had to contact us with instructions upon the death of the customer. If we had not heard from the beneficiary within 72 hours of our notification of death, we would liquidate all positions and hold the balance in interest bearing cash awaiting further instructions.
FINRA should have more clear rules or at least guidance on this issue. From their website, all they specify is that the beneficiary contact the broker in a timely manner. That "timely manner" is very much up to interpretation. A death, especially a sudden death is a very stressful event and there is a LOT of things that kicks into motion and they all happen all at once! Many people to inform, many places to contact, many institutions to deal with, many things to arrange... If the trading portfolio is large and the estate is complicated with lots of people involved, 72 hours might not be enough. If there is no margin calls or anything, is it necessary to liquidate everything and trigger possible capital gain tax or result in losses? On the other hand, if it's necessary to liquidate everything regardless, then why wait for 72 hours? Everything should be liquidated immediately upon notification of the death of the account holder.
In our judgement 72 hours provided the best balance of both scenarios. Obviously you can have an incredibly wide range of clients - from individuals that have secret accounts all the way to institutions that have teams of people in regular contact. For those that are very interested in the account performance and the funds were meaningful and known to exist by beneficiaries, 72 hours allows them time to provide an instruction to leave everything in place if that's the desire. Keep in mind this is 72 hours from our notification, not the time of death. In reality we would typically get an email weeks after someone's death and immediately send a return email with condolences and asking for account instructions - 72 hours is enough time to ponder their next move. Immediate liquidation without notification could - depending on a wide variety of factors - trigger adverse tax impacts for the client. Leaving things in place could generate gains or losses. No one minds gains, but losses leave bad feelings. At the end of the day for these types of accounts, the reality is that we have been notified that because of the death no one is directing the account and that can't continue for more than 3 days for us.
FINRA can publish all the rules and guidelines they want. But when it comes to beneficiaries, heirs and what happens to assets upon death, it is state laws that matter.
The state laws decide who gets what and when at times when there is no clear instructions left by the deceased. FINRA should decide how the brokers which is the custodian of the assets that will go to the beneficiaries and heirs should handle and process these accounts upon the death of the account holder(s) of these assets under their management. That's not something the state laws might cover because it's very specific to the financial brokerage institutions' operation. Just my feeling.