Accredited Wealth Management Advisor Practice Exam

Which statement correctly explains an action related to estate planning's objective of maximizing premortem flexibility?

1. Retaining a life insurance policy that is payable to the estate.

2. Retaining a closely held business interest in the estate to utilize estate tax valuation elections.

3. Creating a testamentary trust whereby the executor has the discretion to make a QTIP election.

4. Creating a payable on death (POD) designation for a bank account.

The correct answer is: Creating a payable on death (POD) designation for a bank account.

Creating a payable on death (POD) designation for a bank account exemplifies an action that maximizes premortem flexibility in estate planning. This is primarily due to the fact that a POD designation allows the account holder to retain full control over the account during their lifetime, ensuring they can manage their assets as needed. Upon death, the funds in the bank account transfer directly to the designated beneficiary without going through probate, which can be a lengthy and complex process. This approach allows for immediate access to funds for the beneficiary, providing both convenience and efficiency in estate management. This method of designating beneficiaries gives the account holder the flexibility to change their mind about who will inherit the account at any time before their death, thereby allowing adjustments to be made in response to changing circumstances or relationships. It also keeps the asset outside of the estate, which can help in avoiding estate taxes and simplifying the distribution process.