CFP Estate Planning Practice Questions
Question 1
Which of the following assets will typically pass to the intended recipient WITHOUT going through probate?
- A. Real estate titled in the decedent's name alone, with no beneficiary designation
- B. Personal property distributed under the residuary clause of the will
- C. A brokerage account titled Joint Tenants with Right of Survivorship (JTWROS)
- D. A solely-owned business interest with no buy-sell agreement or successor named
Show answer and explanation
Correct answer: C. A brokerage account titled Joint Tenants with Right of Survivorship (JTWROS)
Assets titled JTWROS pass automatically to the surviving joint owner by operation of law, entirely outside probate, regardless of what a will says. Solely-titled real estate with no beneficiary designation must go through probate; property passing under the residuary clause is, by definition, a will-controlled probate asset; a business interest with no succession mechanism also falls into probate.
- A. Solely titled real estate with no beneficiary designation passes through the decedent's probate estate under the will or intestacy law.
- B. Property distributed under a will's residuary clause is, by definition, part of the probate estate being administered.
- C. Correct. JTWROS property passes automatically to the surviving joint owner by operation of law/right of survivorship, bypassing probate entirely.
- D. A solely-owned business interest with no successor arrangement remains part of the decedent's probate estate and must be administered and distributed through probate.
Question 2
For property transferred to a QTIP (qualified terminable interest property) trust to qualify for the marital deduction on the transferor's estate tax return, which condition must be satisfied?
- A. The surviving spouse must receive all trust income at least annually for as long as the spouse lives
- B. The trustee has full discretion over whether and how much income to distribute to the surviving spouse
- C. The surviving spouse must have a general power of appointment over trust principal exercisable during life
- D. The trust must terminate and distribute all principal to the surviving spouse within five years of the decedent's death
Show answer and explanation
Correct answer: A. The surviving spouse must receive all trust income at least annually for as long as the spouse lives
A QTIP election under IRC §2056(b)(7) requires that the surviving spouse be entitled to all trust income for life, payable at least annually, and that no one (including the spouse) hold a power to appoint the property to anyone other than the spouse during the spouse's lifetime. The executor makes an irrevocable QTIP election on the estate tax return, and the remaining trust property is later included in the surviving spouse's estate.
- A. Correct - a mandatory lifetime income interest, paid at least annually, is the core QTIP requirement.
- B. Incorrect - discretionary (rather than mandatory) income distribution defeats QTIP qualification.
- C. Incorrect - a general power of appointment describes a different marital trust structure, not a QTIP.
- D. Incorrect - QTIP trusts have no mandatory termination schedule; they can last for the surviving spouse's entire life.
Question 3
Which estate planning document specifically authorizes an agent to make medical treatment decisions on a principal's behalf upon incapacity, as distinct from managing financial or property matters?
- A. Durable power of attorney for finances
- B. Letter of instruction
- C. Pour-over will
- D. Healthcare power of attorney (medical proxy)
Show answer and explanation
Correct answer: D. Healthcare power of attorney (medical proxy)
A healthcare power of attorney (medical proxy) grants an agent authority over medical treatment decisions specifically, separate from a durable financial power of attorney, which covers property and financial management. A pour-over will directs leftover probate assets into a trust at death, and a letter of instruction is a non-binding informal document conveying wishes/information.
- A. Wrong — a durable power of attorney for finances authorizes an agent over financial and property matters, not medical treatment decisions.
- B. Wrong — a letter of instruction is an informal, non-binding document conveying wishes and information; it grants no legal decision-making authority.
- C. Wrong — a pour-over will directs remaining probate assets into a trust at death; it has nothing to do with incapacity or medical decisions.
- D. Correct — a healthcare power of attorney (medical proxy) specifically authorizes an agent to make medical treatment decisions on the principal's behalf upon incapacity.
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A client wants to ensure that a trusted agent can continue managing her financial affairs if she becomes mentally incapacitated. Which document accomplishes this?
- A. A durable power of attorney
- B. A general (non-durable) power of attorney, which by default terminates if the principal becomes incapacitated
- C. A living will
- D. A last will and testament
Show answer and explanation
Correct answer: A. A durable power of attorney
A durable power of attorney contains express language stating that the agent's authority continues despite the principal's subsequent incapacity. A general, non-durable POA automatically terminates the moment the principal becomes incapacitated. A living will addresses end-of-life medical treatment preferences, not financial management. A last will only operates after death.
- A. Correct. A durable power of attorney is specifically designed to remain effective (or become effective) despite the principal's subsequent incapacity, letting the named agent keep managing financial affairs.
- B. A general (non-durable) POA terminates automatically upon the principal's incapacity, which is the opposite of what the client needs here.
- C. A living will addresses end-of-life medical treatment preferences, not ongoing management of financial affairs.
- D. A will only controls property distribution after death; it has no effect during the person's lifetime and does nothing to address incapacity.