Joint Tenants, a Death Certificate, and a Gift the Son Is Not Ready For
Eight years ago you sold 1,000 limited partnership units ($50,000) in a non-traded equipment leasing program to Harold and Diane, registered as joint tenants with right of survivorship. Harold died in February. In March, Diane calls: she wants the units retitled in her name alone, and then wants to give 400 units to her son Kevin. Kevin is 24, has about $12,000 in savings, rents an apartment, and says he “wants the income.” The partnership's transfer agent requires a certified death certificate, a completed transfer form with a medallion signature guarantee, and an investor questionnaire for any new unitholder. The partnership agreement permits transfers only to transferees who meet the partnership's suitability standards and who represent that they are acquiring for investment. Diane asks whether the units can simply be registered in Kevin's name “to skip the paperwork and the transfer fee.”
1. Describe the correct process for retitling the units from Harold and Diane to Diane alone.
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Because the registration is joint tenants with right of survivorship, Harold's interest passes to Diane by operation of law, outside probate. The account is not frozen for executor approval and no letters testamentary are required - but the transfer must still be documented.
Process:
- Obtain a certified death certificate and confirm the registration on the firm's records matches the certificate.
- Have Diane complete the transfer agent's transfer form with a medallion signature guarantee; the firm should not act as guarantor for its own customer's transfer.
- Submit the file to the transfer agent and request new registration in Diane's name alone; confirm whether the units are certificated or book-entry and update the firm's account records accordingly.
- Verify the account's investment objective, financial profile, and beneficiary/TOD designations are current now that she is sole owner.
- Confirm the transaction is exempt or registered under the applicable state blue-sky law, and confirm any transfer fee is the one disclosed in the partnership agreement.
- Advise her to speak with her tax advisor about basis. Joint tenants who are spouses generally receive a step-up on the decedent's half only; community property treatment differs.
None of this requires a new suitability sale - she is already an owner - but the file must reflect the change.
2. Can Kevin receive 400 units by gift, and what must happen before any transfer to him?
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The gift is Diane's to make, but the firm and the transfer agent control whether the transfer is recorded, and the partnership agreement here conditions transfers on the transferee meeting the partnership's suitability standards.
Before anything is transferred:
- Suitability review on Kevin. He has about $12,000 in savings, rents, and no investment experience. An illiquid partnership interest producing income is a poor fit for that profile and may not satisfy the partnership's own investor standards (which often mirror the offering's minimum income or net worth thresholds). Complete the investor questionnaire honestly and evaluate it as you would any new account.
- Written investment representation from Kevin that he is acquiring for his own account for investment and not for distribution.
- Issuer/transfer agent consent. The general partner may decline a transfer that would violate the agreement or securities law.
- Blue-sky check. The transfer must be exempt or registered in Kevin's state.
- Documentation of the gift for the transfer agent - and a reminder that a gift of appreciated units may require a gift tax return if it exceeds the annual exclusion; refer him and Diane to their tax advisor.
If Kevin does not qualify, say so in writing. The firm can decline to process a transfer it believes would violate the partnership agreement or the suitability standards.
3. How do you respond to Diane's request to simply register the units in Kevin's name to avoid the paperwork and fee, and what records must you keep?
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Decline, clearly and in writing. Registering units directly in Kevin's name while the file shows Diane as the owner would misstate the chain of ownership, misrepresent the transaction to the transfer agent and the issuer, and create a false books-and-records entry. It also defeats the transferee suitability representation the partnership agreement requires, and would expose the firm to a claim by Diane if the gift were later disputed or if Kevin transferred the units.
The transfer fee is set by the partnership agreement and disclosed; it is not something the representative can waive to accommodate a customer.
Records to create and retain under Rule 4511 and firm policy:
- The certified death certificate and completed transfer forms.
- The account record showing the registration change and its effective date, plus updated profile and objective.
- Kevin's investor questionnaire, suitability analysis, and investment representation - including the written explanation if the transfer was declined.
- All correspondence with Diane, including the refusal to backdate or bypass the process.
- The transfer agent's confirmations of the new registrations.
If Diane presses, escalate to compliance rather than handling it as a service accommodation.