CFP CFP Estate Planning: practice questions with answers

Question 1

Fintan and his sister Maeve own a house as joint tenants with right of survivorship. Fintan paid the entire $300,000 purchase price. When Fintan dies in 2026 the house is worth $900,000. How much is included in Fintan's gross estate, and what is Maeve's basis in the house afterwards?

1. A $0 included; basis $300,000
2. B $300,000 included; basis $300,000
3. C $450,000 included; basis $600,000
4. D $900,000 included; basis $900,000

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Answer: D. For joint tenancies between non-spouses, IRC §2040(a) includes the full value of the property in the first decedent's gross estate except to the extent the survivor can show she contributed to its cost. Maeve contributed nothing, so $900,000 is included. Under §1014 the survivor's basis equals the value included in the decedent's estate, so Maeve's basis is $900,000.

Question 2

Lysander signed a revocable living trust and a pour-over will in 2022 but never retitled his $600,000 brokerage account, which stayed in his own name with no TOD designation. What happens to the account when he dies in 2026?

1. A It passes to his heirs at law under the state's intestacy statute
2. B It passes directly to the trust without probate because the trust names a successor trustee
3. C It passes to his surviving spouse by operation of law
4. D It passes through probate and then to the trustee under the pour-over will

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Answer: D. A revocable trust avoids probate only for assets that are funded into it (retitled or made payable to it). An account left in the decedent's own name with no TOD is a probate asset. The pour-over will sends it to the trustee, but only after it goes through probate, so the probate-avoidance goal is lost for that asset. Funding the trust during life, or adding a TOD to the trust, would have prevented this.

Question 3

Lionel's executor estimates these post-death cash needs: funeral $20,000, debts $150,000 and administration expenses of 4% of the $2,000,000 probate estate. Liquid sources in the probate estate are $90,000 of bank accounts and a $100,000 life insurance policy payable to the estate. Another $500,000 policy names Lionel's wife as beneficiary. No estate tax is due. What is the estate's liquidity shortfall?

1. A $0
2. B $60,000
3. C $160,000
4. D $250,000

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Answer: B. Cash needs = $20,000 + $150,000 + 4% x $2,000,000 ($80,000) = $250,000
Liquid sources available to the executor = $90,000 + $100,000 = $190,000
Shortfall = $250,000 - $190,000 = $60,000

The $500,000 policy passes to the wife by contract; she may choose to help, but the executor cannot count on it. The shortfall may force sale of illiquid assets unless planned for, for example by insurance owned by an ILIT that may lend to or buy assets from the estate.

Question 4

In 2026 Winslow, a US citizen, gives his wife Keziah, a US resident who is not a US citizen, $250,000 in cash. He makes no other gifts to her during the year. The 2026 annual exclusion is $19,000 per donee, or $194,000 for gifts to a spouse who is not a US citizen. What is Winslow's taxable gift?

1. A $0
2. B $56,000
3. C $231,000
4. D $250,000

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Answer: B. Gifts to a spouse who is not a US citizen do not qualify for the unlimited marital deduction (IRC §2523(i)). Instead, an increased annual exclusion applies: $194,000 in 2026 for present-interest gifts.

Taxable gift = $250,000 - $194,000 = $56,000, reported on Form 709 and covered by Winslow's applicable exclusion amount, so no tax is due.

Question 5

Zephyrine died unmarried on 1 March 2026 with a gross estate of $18,000,000 at the date of death. Shares worth $2,400,000 at her death were sold by the executor on 1 July 2026 for $2,100,000; on 1 September 2026 they would have been worth $1,900,000. Her other assets, worth $15,600,000 at death, were worth $13,900,000 on 1 September. If the executor elects the alternate valuation date, what is the gross estate?

1. A $18,000,000
2. B $15,800,000
3. C $16,300,000
4. D $16,000,000

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Answer: D. Under IRC §2032 the executor may value all estate assets six months after death, if that reduces both the gross estate and the estate (and GST) tax. Assets sold or distributed within the six months are valued at that earlier date.

- Shares sold 1 July: $2,100,000
- Other assets at 1 September: $13,900,000
- Gross estate = $16,000,000

The election lowers the gross estate from $18,000,000 and, with the estate above the $15,000,000 exclusion, also lowers the tax, so it is available. Heirs take the lower values as their basis.

Question 6

Lothar Voss owned a $750,000 term life policy on his own life, naming his wife Margarethe as primary beneficiary and no contingent beneficiary. Both die in the same car crash, and there is no evidence of who died first. Their state has adopted the Uniform Simultaneous Death Act. Who receives the policy proceeds?

1. A Lothar's estate, to pass under his will or by intestacy, because Margarethe is treated as dying first
2. B Margarethe's estate, because she was the named primary beneficiary when the policy matured
3. C Lothar's and Margarethe's estates in equal shares, as with property they held in joint tenancy
4. D Their children directly as Margarethe's heirs, without the proceeds passing through either estate

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Answer: A. Under the Uniform Simultaneous Death Act, when the insured and the beneficiary die and there is no sufficient evidence of the order of death, the proceeds are paid as if the insured survived the beneficiary. With no contingent beneficiary, they are paid to Lothar's estate, become part of his probate estate and pass under his will (or by intestacy). For joint tenancy property, by contrast, half is distributed as if each had survived. Naming contingent beneficiaries avoids this result and the probate it causes.