PFS Estate Planning

Question 1

Which of the following documents is most commonly used to transfer assets after death?

Accepted Answer

Will

Answer

A will is the most common and fundamental legal document used to transfer assets after death. It allows an individual to specify how their property, money, and other assets should be distributed to beneficiaries, and it can also name guardians for minor children, ensuring their wishes are legally carried out.

Question 2

What is the main advantage of using a revocable living trust in estate planning?

Accepted Answer

It bypasses the probate process

Answer

A main advantage of a revocable living trust in estate planning is its ability to bypass the probate process. Probate is a public, often lengthy, and costly court procedure, so avoiding it allows for a quicker, more private, and potentially less expensive distribution of assets to beneficiaries.

Question 3

Which type of trust becomes irrevocable upon the death of the grantor?

Accepted Answer

Revocable trust

Answer

A revocable trust, also known as a living trust, can be modified or revoked by the grantor during their lifetime. However, upon the grantor's death, the trust typically becomes irrevocable, meaning its terms are fixed and can no longer be altered, and assets are distributed according to its established provisions.

Question 4

What does the term 'step-up in basis' refer to in estate planning?

Accepted Answer

Adjusting the cost basis of inherited assets

Answer

The term 'step-up in basis' refers to the adjustment of an inherited asset's cost basis to its fair market value on the date of the decedent's death. This is a significant tax advantage for beneficiaries, as it can reduce or eliminate capital gains taxes if they later sell the inherited asset, as the gain is only calculated from the stepped-up value.

Question 5

Which of the following is NOT typically a goal of estate planning?

Accepted Answer

Increasing investment risk

Answer

Estate planning primarily focuses on managing and distributing assets, minimizing estate taxes, and providing for dependents after death. While investment strategies are part of overall financial planning, the core goal of estate planning itself is not to increase investment risk, but rather to preserve and transfer wealth efficiently according to the grantor's wishes.

(PFS) Personal Financial Specialist Practice Test

(PFS) Personal Financial Specialist Practice Test

PFS Estate Planning