CFP Ultimate Certified Financial Planner 4 — Questions and Answers
Question 1: Which of the following insurance arrangements allows a business to purchase life insurance on a key employee, with the employee's family receiving a portion of the death benefit and the business recovering its premium costs?
- Cross-purchase agreement
- Split-dollar life insurance (Correct answer)
- Key person insurance
- Buy-sell agreement funded by term insurance
Correct answer: Split-dollar life insurance
Split-dollar life insurance is an arrangement where the employer and employee share the costs and benefits of a life insurance policy, with the employer typically recovering premiums from the death benefit or cash value.
Question 2: A client is considering contributing to a Health Savings Account (HSA). Which requirement must be met to be eligible?
- The client must be under age 65
- The client must be enrolled in a High Deductible Health Plan (HDHP) (Correct answer)
- The client must have no other health insurance of any kind
- The client's employer must also contribute to the HSA
Correct answer: The client must be enrolled in a High Deductible Health Plan (HDHP)
HSA eligibility requires enrollment in a qualified High Deductible Health Plan (HDHP); individuals can have other permitted coverage like dental or vision without losing eligibility.
Question 3: A CFP professional discovers that a client's elderly parent has been the victim of financial exploitation by another family member. What is the CFP professional's PRIMARY ethical obligation?
- Do nothing — client confidentiality prohibits disclosure
- Report immediately to law enforcement without informing the client
- Discuss the situation with the client and consider reporting to appropriate authorities (Correct answer)
- Transfer the account to prevent further exploitation
Correct answer: Discuss the situation with the client and consider reporting to appropriate authorities
The CFP professional should first discuss the situation with the client and may be required to report suspected elder financial abuse to appropriate authorities depending on state law and the circumstances.
Question 4: Which of the following best describes the 'floor-and-upside' retirement income strategy?
- Investing 100% in equities with a cash reserve for near-term expenses
- Using guaranteed income sources to cover essential expenses while investing remaining assets for growth (Correct answer)
- Withdrawing only dividends and interest while preserving principal
- Purchasing an annuity with all retirement assets
Correct answer: Using guaranteed income sources to cover essential expenses while investing remaining assets for growth
The floor-and-upside strategy establishes a guaranteed income floor (Social Security, pensions, annuities) to cover essential needs, then invests additional assets for discretionary spending and legacy goals.
Question 5: A client owns a rental property with an adjusted basis of $80,000 and sells it for $350,000. They have taken $45,000 of depreciation deductions. What portion of the gain is subject to the 25% unrecaptured Section 1250 gain rate?
- $0 — all gain is taxed at long-term capital gain rates
- $45,000 (Correct answer)
- $225,000
- $270,000
Correct answer: $45,000
Unrecaptured Section 1250 gain equals the total depreciation taken ($45,000), which is taxed at a maximum rate of 25%; the remaining capital gain is taxed at standard long-term capital gains rates.
Question 6: Under the CFP Board's practice standards, what must a CFP professional do if the scope of the engagement does not include implementation of recommendations?
- Implement recommendations anyway to fulfill fiduciary duty
- Clearly communicate to the client that implementation is outside the scope (Correct answer)
- Decline to provide any recommendations
- Refer the client to another CFP professional immediately
Correct answer: Clearly communicate to the client that implementation is outside the scope
When implementation is outside the agreed scope, the CFP professional must clearly communicate this limitation so the client understands they are responsible for acting on the recommendations.
Question 7: A client with a $2 million portfolio wants to gift assets to reduce their taxable estate. They want to maximize annual gifts to their three adult children and five grandchildren in 2024. What is the total they can gift without using any lifetime exemption?
- $144,000
- $152,000
- $160,000 (Correct answer)
- $176,000
Correct answer: $160,000
The 2024 annual gift tax exclusion is $18,000 per recipient; gifting to 8 recipients (3 children + 5 grandchildren) equals $18,000 × 8 = $144,000—if a spouse gift-splits, the total doubles to $288,000 but individually it is $144,000.
CFP Ultimate Certified Financial Planner 4
Which of the following insurance arrangements allows a business to purchase life insurance on a key employee, with the employee's family receiving a portion of the death benefit and the business recovering its premium costs?