FINRA Series 6 Investment Company and Variable Contracts Products Representative ExaminationOpening and Maintaining Customer Accounts and Investment RecommendationsEasy
A client is opening an Individual Retirement Account (IRA) and wants to designate a specific individual to receive the account assets upon their death, bypassing probate. Which of the following would they use to achieve this?
- AA power of attorney.
- BA letter of testamentary.
- CA transfer on death (TOD) designation.
- DAn affidavit of domicile.
Show answer & explanationAnswer & explanation
Correct answer: C. A transfer on death (TOD) designation.
A Transfer on Death (TOD) designation allows the account owner to name a beneficiary who will receive the assets directly upon their death, avoiding the probate process. This is common for IRAs and other brokerage accounts.
Why the other options are wrong
- A. A power of attorney grants authority to act on behalf of the client while they are alive, not for asset transfer upon death.
- B. A letter of testamentary is a legal document issued by a court confirming the appointment of an executor of a will.
- D. An affidavit of domicile is a legal document used to establish the deceased's primary residence at the time of death.
Transfer on Death (TOD) Designation
A feature that allows an investor to name a beneficiary to receive their securities and cash directly upon their death, without going through probate.
- Available for individual and joint accounts.
- Beneficiary designation can be changed by the owner during their lifetime.
- Simplifies asset transfer and avoids delays and costs of probate.
Memory trick: TOD is the direct line for beneficiaries.