Financial Advisor Estate Planning

Question 1

What is the primary advantage of a revocable living trust over a traditional will?

Accepted Answer

It avoids probate and keeps asset distribution private

Answer

A revocable living trust avoids probate — the public court process for validating a will and distributing assets — and keeps the distribution private. However, because the grantor retains control, the trust assets remain in the taxable estate and are reachable by creditors.

Question 2

For 2024, the annual gift tax exclusion allows an individual to give how much per recipient without filing a gift tax return or reducing their lifetime exemption?

Accepted Answer

$18,000

Answer

The annual gift tax exclusion for 2024 is $18,000 per recipient. Gifts at or below this threshold do not require filing Form 709 and do not reduce the donor's lifetime unified credit. A married couple can combine exclusions (gift splitting) to transfer $36,000 per recipient per year.

Question 3

Which estate planning document designates a specific individual to make medical decisions for a person who becomes incapacitated?

Accepted Answer

Healthcare proxy (durable power of attorney for healthcare)

Answer

A healthcare proxy or durable power of attorney for healthcare names a specific agent to make medical decisions on the principal's behalf if incapacitated. A living will states the principal's own wishes but does not delegate authority to another person; a financial durable POA covers only financial matters.

Question 4

A client dies without a valid will. How are her assets distributed?

Accepted Answer

State intestacy laws determine distribution, typically prioritizing spouse and children

Answer

Dying without a valid will is called dying intestate. State intestacy statutes then dictate the distribution order — usually spouse first, then children, then more distant relatives. The specific shares vary by state. Assets do not automatically go to the state unless there are truly no heirs.

Question 5

Which trust structure is most commonly used to keep life insurance death benefits out of the insured's taxable estate?

Accepted Answer

Irrevocable Life Insurance Trust (ILIT)

Answer

An Irrevocable Life Insurance Trust (ILIT) owns the life insurance policy, so at death the proceeds are paid to the trust — not the insured's estate — keeping them out of the taxable estate. A revocable trust does not achieve this because the grantor retains control and the assets remain estate-taxable.

Financial Advisor Practice Test

Financial Advisor Practice Test

Financial Advisor Estate Planning