CFP Estate Planning & Wealth Transfer 1 — Questions and Answers
Question 1: What is the federal estate and gift tax exemption amount per individual for 2024?
- $12.92 million
- $13.61 million (Correct answer)
- $11.58 million
- $14.00 million
Correct answer: $13.61 million
The federal estate and gift tax exemption for 2024 is $13.61 million per individual, adjusted annually for inflation.
Question 2: Which type of trust allows the grantor to retain full control during their lifetime and avoids probate at death?
- Irrevocable living trust
- Testamentary trust
- Revocable living trust (Correct answer)
- Spendthrift trust
Correct answer: Revocable living trust
A revocable living trust allows the grantor to maintain control, amend, or revoke it during their lifetime, and assets transfer to beneficiaries outside of probate.
Question 3: What is the annual gift tax exclusion amount per donee for 2024?
- $15,000
- $16,000
- $17,000
- $18,000 (Correct answer)
Correct answer: $18,000
The 2024 annual gift tax exclusion is $18,000 per donee, allowing tax-free gifts up to this amount to any number of recipients.
Question 4: The unlimited marital deduction allows a U.S. citizen spouse to receive estate assets tax-free, but this deduction is NOT available when the surviving spouse is:
- Over age 65
- A non-U.S. citizen (Correct answer)
- A beneficiary of a trust
- Legally separated
Correct answer: A non-U.S. citizen
The unlimited marital deduction is restricted when the surviving spouse is a non-U.S. citizen; a Qualified Domestic Trust (QDOT) must be used instead.
Question 5: What is the 'step-up in basis' rule as applied to inherited assets?
- The heir must increase the asset's cost basis by 10% annually
- The asset's cost basis is reset to its fair market value at the decedent's date of death (Correct answer)
- The heir pays capital gains tax on all appreciation since the original purchase
- The asset basis steps up only for assets held longer than one year
Correct answer: The asset's cost basis is reset to its fair market value at the decedent's date of death
Assets inherited from a decedent receive a new cost basis equal to their fair market value on the date of death, eliminating capital gains tax on pre-death appreciation.
Question 6: A Qualified Terminable Interest Property (QTIP) trust is primarily used to:
- Avoid the generation-skipping transfer tax
- Provide income to a surviving spouse while controlling the ultimate disposition of assets (Correct answer)
- Fund charitable bequests at the grantor's death
- Minimize income taxes during the grantor's lifetime
Correct answer: Provide income to a surviving spouse while controlling the ultimate disposition of assets
A QTIP trust qualifies for the marital deduction while allowing the first spouse to die to direct where the remaining assets go after the surviving spouse's death.
Question 7: Which document authorizes an individual to make healthcare decisions on behalf of an incapacitated person?
- Durable power of attorney for finances
- Living will (advance directive)
- Healthcare proxy (durable power of attorney for healthcare) (Correct answer)
- Revocable trust
Correct answer: Healthcare proxy (durable power of attorney for healthcare)
A healthcare proxy or durable power of attorney for healthcare designates an agent to make medical decisions when the principal is unable to do so.
CFP Estate Planning & Wealth Transfer 1
What is the federal estate and gift tax exemption amount per individual for 2024?