CFP®: Estate Planning

Topic snapshot

Sample questions

These questions are original Securities Prep practice items aligned to this topic area. They are designed for self-assessment and are not official exam questions.

Question 1

Topic: Estate Planning

Marilyn, 72, has a taxable brokerage account titled in her name alone. She wants to keep full control during life, avoid probate at death, and have the account pass equally to her two adult children. Her CFP professional compares joint ownership with a transfer-on-death (TOD) designation. Which approach best matches Marilyn’s goals?

• A. Keep sole ownership and let her will control distribution.
• B. Add one child as joint tenant with right of survivorship.
• C. Keep sole ownership and add TOD to both children equally.
• D. Add both children as joint tenants with right of survivorship.

Best answer: C

What this tests: Estate Planning

Explanation: Keeping the account solely in Marilyn’s name with a TOD designation to both children best aligns control and transfer goals. Joint ownership is a present ownership change, so it can either give one child the entire account by survivorship or give the children current rights before Marilyn wants to transfer anything.

The key issue is whether joint ownership helps or frustrates Marilyn’s transfer goals. Joint tenancy with right of survivorship is not just a death arrangement; it creates current ownership rights now and controls who receives the account at death by title, not by the will. Adding one child would send the entire account to that child by survivorship, defeating Marilyn’s equal-transfer goal. Adding both children could avoid probate, but it would still give them present ownership interests and undermine Marilyn’s desire to keep full control during life. A TOD designation keeps the account in Marilyn’s sole name while she is alive, avoids probate at death, and directs the account to both children equally. The closest distractor is joint ownership with both children, but that still conflicts with Marilyn’s lifetime-control goal.

• One-child joint title fails because survivorship would pass the entire account to that child alone.
• Both-children joint title may avoid probate, but it gives the children current ownership interests now.
• Will only can support equal shares, but it does not avoid probate for this account.

A TOD designation preserves Marilyn’s sole control during life and transfers the account equally outside probate at death.

Question 2

Topic: Estate Planning

Daniel and Rosa, both 62, have a combined estate of $22 million. About $18 million is tied up in a family manufacturing company and $3.4 million in commercial real estate, and they have only $600,000 of liquid assets. Their attorney estimates estate taxes, debts, and administration costs of about $4.5 million at the surviving spouse’s death. They want both children to benefit without a forced sale of the business. Which action best aligns with these facts?

• A. Begin annual exclusion gifts of business interests.
• B. Focus first on equalizing the children’s inheritances.
• C. Purchase survivorship life insurance in an ILIT.
• D. Retitle major assets to a revocable trust.

Best answer: C

What this tests: Estate Planning

Explanation: The key issue is estate liquidity, not just transfer design. With only $600,000 of liquid assets against an estimated $4.5 million need, a dedicated funding source at the surviving spouse’s death is the most appropriate priority.

When most of an estate is concentrated in a closely held business or real estate, liquidity can become the binding constraint. Here, the projected cash need at the surviving spouse’s death is about $4.5 million, but the couple has only $600,000 of liquid assets. That mismatch creates a real forced-sale risk, which conflicts directly with their goal of keeping the business intact. A survivorship life insurance policy owned by an ILIT is a common way to address that problem because it is designed to provide cash at the second death, when the estate need arises, and the ownership structure can keep the proceeds outside the taxable estate.

• Estimate the likely cash shortfall at death.
• Match the funding source to the timing of that shortfall.
• Prefer solutions that preserve illiquid family assets.

Other estate-planning steps may still help, but they do not solve a large liquidity gap by themselves.

• Lifetime gifting may reduce future estate value, but it usually does not create enough cash to cover a large settlement shortfall.
• Revocable trust funding can streamline administration, yet retitling assets does not generate liquid funds to pay taxes and expenses.
• Inheritance equalization addresses fairness, not the more urgent risk that the estate may need to sell the business to raise cash.

It directly funds the estate’s projected cash shortfall at the second death without forcing a sale of illiquid assets.

Question 3

Topic: Estate Planning

Priya and Daniel ask whether their simple wills should be updated. Review the estate note.

Exhibit: Estate note

• Combined estate: $13.6 million
• Priya’s separate assets: $9.8 million, including $6.5 million of closely held stock with volatile value
• Daniel’s separate assets: $3.8 million of liquid assets
• Daniel could maintain his lifestyle from his own assets if Priya dies first
• Current wills: everything outright to surviving spouse
• Goal: preserve survivor flexibility, but if first-death values suggest future estate tax risk, move any disclaimed assets and later appreciation outside the survivor’s estate

Which planning action is most fully supported by the exhibit?

• A. Require mandatory bypass trust funding at the first death.
• B. Keep outright wills and rely solely on portability.
• C. Add disclaimer trust provisions to allow optional bypass trust funding.
• D. Retitle major assets to joint tenancy before revising documents.

Best answer: C

What this tests: Estate Planning

Explanation: The exhibit points to a disclaimer-based plan because the right first-death strategy depends on facts known only after death, especially the value of Priya’s volatile business interest. Daniel also has enough separate liquidity to preserve the option to disclaim if that later improves the family’s estate tax position.

A disclaimer trust is a classic way to build postmortem flexibility into a current estate plan. Here, Priya owns a large, volatile asset, so the amount that should stay in Daniel’s estate versus pass outside it may not be clear until the first death. Because Daniel can support himself from his own liquid assets, he is a realistic candidate to disclaim some inherited property if doing so would help use Priya’s exclusion and keep later appreciation out of Daniel’s estate.

Relying only on portability does not move future appreciation on inherited assets outside the survivor’s estate. A mandatory bypass trust goes too far in the other direction because it ignores the stated goal of preserving survivor flexibility if circumstances change. The best-supported recommendation is to add a disclaimer trust structure now so the final funding decision can be made after death, when values and tax exposure are clearer.

• Portability alone misses the stated goal of removing later appreciation on disclaimed assets from the survivor’s estate.
• Mandatory funding conflicts with the exhibit’s emphasis on preserving survivor flexibility.
• Joint tenancy retitling is not supported by the facts and can reduce separate-property planning flexibility rather than improve it.

A disclaimer trust preserves flexibility now and lets the survivor decide after the first death whether bypass-trust funding is desirable.

Question 4

Topic: Estate Planning

Anthony, 61, recently remarried after a divorce. He has two adult children from his first marriage, and his new spouse, Maya, has a son from her prior marriage. Anthony wants Maya to have housing and income security if he dies first, but he wants any remaining wealth to pass ultimately to his children. His main assets are a home in his sole name, a brokerage account, and a traditional IRA. Which action best aligns with sound CFP-level estate planning?

• A. Leave all assets outright to Maya and rely on her estate plan
• B. Retitle the home and brokerage account jointly with Maya
• C. Coordinate titling, estate documents, and beneficiary designations to fund a QTIP trust for Maya, with the children as remainder beneficiaries
• D. Name the children as beneficiaries of the IRA and brokerage account, and leave the home to them by will

Best answer: C

What this tests: Estate Planning

Explanation: In a blended-family estate, the key issue is balancing a surviving spouse’s security with control over the ultimate inheritance. Coordinating titling, beneficiary designations, and a QTIP trust can provide Maya lifetime support while ensuring remaining assets pass to Anthony’s children.

In remarriage and blended-family planning, the central estate issue is often control after the first death. Anthony wants two goals at once: support for Maya and certainty that the remaining assets eventually go to his children. A QTIP or similar marital trust is designed for that trade-off. It can provide Maya defined benefits, such as income or use of the residence, while Anthony still controls the ultimate remainder beneficiaries. Coordination matters because the IRA and other nonprobate assets may pass by beneficiary designation or title, not just by will. A CFP professional should therefore align titling, estate documents, and beneficiary designations so the plan actually works as intended.

In blended families, documented control is usually better than outright transfers or informal promises.

• Joint ownership simplifies transfer, but survivorship can give Maya outright control and bypass Anthony’s intended remainder plan.
• Outright to spouse may support Maya now, but Anthony loses control if Maya later changes beneficiaries, remarries, or spends the assets.
• Direct to children protects the remainder, but it can undermine Maya’s housing and income security, which Anthony also wants.

A QTIP trust can support Maya during life while preserving Anthony’s control over who receives the remainder at her death.

Question 5

Topic: Estate Planning

Elaine, age 79, has begun showing mild cognitive decline but still has legal capacity. She owns her checking account, brokerage account, and rental property solely in her name, has no durable financial power of attorney, and her estate is about $4 million with no current federal transfer-tax exposure expected. She asks whether to focus first on lifetime gifting or on incapacity planning. Which recommendation best matches her situation?

• A. Retitle major assets jointly with her son now to handle both tax and authority issues.
• B. Begin lifetime gifts now, then address incapacity documents after gifting is complete.
• C. Update her will now because it governs financial decisions during incapacity.
• D. Sign a durable financial power of attorney now, then revisit gifting later.

Best answer: D

What this tests: Estate Planning

Explanation: The more urgent issue is preserving legal authority to act if Elaine loses capacity. Because the stem says there is no current federal transfer-tax pressure, establishing a durable financial power of attorney should come before advanced gifting strategies.

A power of attorney issue is more urgent than a transfer-tax issue when the client has a meaningful near-term incapacity risk, assets are individually owned, and no agent currently has legal authority to manage finances. That is exactly Elaine’s situation. If she loses capacity before signing a durable financial power of attorney, her family may need court involvement just to pay bills, manage the brokerage account, or deal with the rental property.

By contrast, the stem says her estate has no current federal transfer-tax exposure, so delaying gifting does not create the same immediate harm. The right planning sequence is to secure authority first and optimize transfers second. Joint ownership and a will do not replace a durable financial power of attorney for broad lifetime financial decision-making.

• Gifting first misses the key constraint: tax planning is not the immediate problem when no current transfer-tax exposure exists.
• Joint retitling is not a full substitute for an agent’s legal authority and can create separate ownership and transfer issues.
• Will update fails because a will controls transfers at death, not financial management during lifetime incapacity.

She faces a near-term incapacity risk with no authorized agent, while the stem gives no immediate transfer-tax pressure.

Question 6

Topic: Estate Planning

Jordan and Mia, both age 62, are in a second marriage with adult children from prior relationships. They own a home, a brokerage account, and a vacation condo in another state. Their combined estate is about $3 million, so transfer-tax reduction is not a current concern. They want assets managed smoothly if either becomes incapacitated, want to keep full control and amendment power during life, and do not want to make completed gifts now. Which client objective is most decisive in favoring a revocable living trust over an irrevocable trust or a will with testamentary trust provisions?

• A. Avoiding ancillary probate on the vacation condo
• B. Shielding assets from their own future creditors
• C. Retaining lifetime control with lifetime incapacity management
• D. Removing future appreciation from their taxable estates

Best answer: C

What this tests: Estate Planning

Explanation: The decisive factor is that Jordan and Mia want a trust that operates during life without surrendering control or making completed gifts. That points to a revocable living trust, which can provide continuity at incapacity, while irrevocable trusts trade away control and testamentary trusts do not exist until death.

A revocable living trust is created during life and can be amended or revoked by the grantors, so it fits clients who want ongoing control rather than a completed transfer. Because it exists during life, a successor trustee can manage properly titled assets if the clients become incapacitated, and funded assets may also avoid probate. By contrast, an irrevocable trust is usually chosen when estate reduction, asset protection, or other separation-from-ownership goals justify giving up meaningful control. A testamentary trust is created under a will at death, so it can direct post-death distributions but does not solve lifetime incapacity planning and still depends on probate administration. Avoiding ancillary probate on the condo supports a living trust, but the more decisive fact is their unwillingness to give up control during life.

• Ancillary probate supports a living trust, but it does not explain why the trust should remain revocable.
• Creditor shielding is generally weak when clients retain the ownership-style control they want to keep here.
• Estate reduction is the classic reason to use an irrevocable transfer, which conflicts with their desire to avoid completed gifts.

A revocable living trust lets them keep control and amend terms during life while a successor trustee can manage funded assets at incapacity.

Question 7

Topic: Estate Planning

During discovery, a married couple says they want to divide their estate equally among three children. Their adult son has a permanent disability and currently receives SSI and Medicaid. They plan to name him directly on an IRA and life insurance beneficiary form because they want his share to be “simple and equal.” Before any changes are made, what is the most appropriate next step?

• A. Wait until inheritance is received, then consider disclaimers
• B. Name the son directly now and monitor benefit eligibility
• C. Use a standard revocable living trust for his share
• D. Coordinate with special needs counsel before changing beneficiary designations

Best answer: D

What this tests: Estate Planning

Explanation: The deciding fact is that the son currently receives means-tested benefits. That makes outright beneficiary designations risky, so the CFP professional should pause implementation and coordinate with qualified special needs counsel on a third-party special needs trust and aligned transfer designations.

When an intended beneficiary receives means-tested benefits such as SSI or Medicaid, an outright inheritance can become a countable asset and reduce or eliminate eligibility. That is the trigger for specialized special needs planning. In the CFP process, the proper next step is to stop short of changing beneficiary forms and collaborate with a qualified estate-planning attorney to evaluate a third-party special needs trust, then coordinate the parents’ will, trust terms, titling, and beneficiary designations around that structure. This is both a planning and workflow issue: the transfer design must usually be set before assets pass. A standard revocable trust or a wait-until-later approach does not reliably protect benefits.

• Direct designation risks making the inheritance a countable asset for SSI and Medicaid.
• Standard revocable trust may help with probate and control, but without special-needs provisions it is not the right structure.
• Wait-and-see approach is too late because post-death fixes are limited and may not fully preserve benefits.

Because the son receives SSI and Medicaid, beneficiary planning should first route his inheritance through an appropriate third-party special needs trust rather than an outright transfer.

Question 8

Topic: Estate Planning

Maria, 81, has a revocable trust that owns her brokerage account and vacation home. Her durable financial power of attorney names her niece, Erin, to act for assets outside the trust. Her will names her son, Paul, as executor, and the trust names a corporate successor trustee upon incapacity. Her daughter, Nina, is the sole remainder beneficiary. Maria is now incapacitated. Care bills must be paid from her personal checking account, and the trust-owned vacation home may need to be sold. No court has appointed a guardian. Which action best aligns with these roles?

• A. Use Nina for the home sale because future inheritance gives current decision power.
• B. Use the successor trustee for the vacation home and Erin for the checking account; no guardian is needed unless the documents fail.
• C. Use Paul for both assets because a will controls once incapacity begins.
• D. Use Erin for both assets because an agent under a durable power of attorney automatically controls trust property.

Best answer: B

What this tests: Estate Planning

Explanation: Authority depends on both the governing document and how the asset is titled. During incapacity, the successor trustee handles assets already in the trust, while the agent under a durable power of attorney manages property outside the trust; a guardian is usually only a backup if those arrangements are unavailable or ineffective.

In estate and incapacity planning, each role has a different source and timing of authority. Here, the vacation home is owned by the revocable trust, so the successor trustee is the proper decision-maker once Maria is incapacitated. The personal checking account is outside the trust, so Erin, as agent under the durable power of attorney, can handle bills and other authorized transactions while Maria is alive.

• A trustee manages trust assets under the trust document.
• An agent under a durable power of attorney manages the principal’s nontrust assets during lifetime incapacity.
• An executor’s authority begins after death, typically through probate appointment.
• A beneficiary has an economic interest, not management authority.
• A guardian is a court-appointed backup when existing incapacity documents are missing or not working.

The tempting executor approach fails because a will does not govern lifetime incapacity.

• Executor timing A will nominates a future estate fiduciary, but that role does not control property during Maria’s lifetime.
• Beneficiary status Being the remainder beneficiary does not give Nina power to approve a current sale.
• POA limits Erin’s power applies to Maria’s nontrust assets, not assets already owned by the trust.
• Guardian role Guardianship is usually a fallback remedy when the trust and durable power of attorney cannot function.

The successor trustee manages trust-owned property during incapacity, while Erin’s durable power of attorney covers nontrust assets; executor and beneficiary roles do not create current authority.

Question 9

Topic: Estate Planning

Mark and Elena, both 58, want their nonretirement assets to transfer with as little public disclosure as possible. They want to keep full control during life, retain the ability to change beneficiaries or terms later, and have their children receive distributions in stages after both spouses die. Which transfer approach best fits these goals?

• A. Retitle the assets jointly with their oldest child
• B. Use a will with a testamentary trust for staged distributions
• C. Use transfer-on-death designations naming the children directly
• D. Create and fund a revocable trust, while remaining co-trustees

Best answer: D

What this tests: Estate Planning

Explanation: A funded revocable trust best matches the full set of goals: privacy, lifetime control, and future flexibility. Mark and Elena can remain trustees, change the trust terms or beneficiaries, and let a successor trustee carry out staggered distributions outside probate.

For nonretirement assets, a funded revocable trust is often the best transfer method when clients want privacy, control, and flexibility together. During life, the grantors can usually serve as trustees, use and manage the assets, and amend or revoke the trust if family circumstances change. At death, the successor trustee can follow detailed distribution terms, such as staggered payouts to children, without the public probate process that usually applies to a will.

Transfer-on-death arrangements and joint ownership can simplify transfer, but they generally provide less post-death control. A will can create a testamentary trust for staged distributions, but the estate typically still goes through probate. The key takeaway is that a funded revocable trust best balances privacy with retained lifetime control and customizable transfer terms.

• Joint ownership risk adding a child as co-owner creates current ownership rights and can expose the assets to that child’s creditors or divorce.
• TOD limits naming the children directly may avoid probate, but it usually transfers assets outright rather than under staged trust terms.
• Will trade-off a testamentary trust can control timing after death, but it does not provide the same probate privacy as a funded revocable trust.

A funded revocable trust can avoid probate publicity, preserve lifetime control and amendability, and direct staged distributions through a successor trustee.

Question 10

Topic: Estate Planning

During discovery, Marisol, a widowed client, tells her CFP professional that her revocable trust is intended to divide her estate equally among her three adult children. Her largest bank account, worth $420,000, is titled jointly with rights of survivorship with one daughter, whom Marisol added years ago only to help pay bills during a medical recovery. What is the most appropriate next step for the CFP professional?

• A. Revise the trust but leave the account title unchanged.
• B. Note Marisol’s intent and revisit the issue next year.
• C. Retitle the account immediately without legal coordination.
• D. Explain the survivorship conflict and recommend attorney-led titling review.

Best answer: D

What this tests: Estate Planning

Explanation: Marisol’s account title appears to undermine her stated estate goal. Because joint rights of survivorship usually control transfer at death, the CFP professional should address the mismatch now and recommend coordination with an estate-planning attorney before any change is implemented.

When a client’s stated estate intent conflicts with how an asset is titled, the CFP professional should first identify and explain the mismatch before moving to implementation. A jointly titled account with rights of survivorship generally passes automatically to the surviving joint owner, so Marisol’s $420,000 account may bypass her revocable trust and defeat her goal of equal distribution among all three children.

A sound CFP workflow is to:

• confirm the client’s actual intent,
• compare current titling and beneficiary designations with estate documents, and
• recommend coordination with the estate-planning attorney before legal changes are made.

Changing the trust alone or delaying action would not fix a survivorship problem already built into the account title.

• Revising the trust alone fails because joint survivorship titling usually transfers the account outside the trust.
• Retitling immediately skips analysis, client confirmation, and legal coordination needed before implementation.
• Waiting until a later review leaves a known estate-plan conflict unresolved despite the client’s clear current intent.

Joint survivorship can bypass the trust, so the CFP professional should first identify the conflict and recommend legal coordination before implementation.

Continue with full practice

Use the CFP® Practice Test page for the full Securities Prep route, mixed-topic practice, timed mock exams, explanations, and web/mobile app access.

Related focused pages

• Free CFP® Full-Length Practice Exam
• CFP®: Professional Conduct and Regulation
• CFP®: General Principles of Financial Planning
• CFP®: Risk Management and Insurance Planning
• CFP®: Investment Planning
• CFP®: Tax Planning
• CFP®: Retirement Savings and Income Planning
• CFP®: Psychology of Financial Planning

Free review resource

Read the CFP® guide on SecuritiesMastery.com, then return to Securities Prep for timed practice.