CFP EXAM CHEAT SHEET: Estate Planning & Psychology

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ESTATE PLANNING FUNDAMENTALS

Core Documents Comparison

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Probate vs. Non-Probate Assets — Critical Exam Points

PROBATE (go through court):

• Only titled in individual name with no beneficiary

NON-PROBATE (pass by operation of law, override will):

• JTWROS, POD/TOD accounts, retirement accounts, life insurance

> ⚠️ High-yield: Beneficiary designation defeats will—an IRA left to ex-spouse via form will go to ex regardless of will instructions.

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FEDERAL GIFT & ESTATE TAX (2025)

Key Thresholds & Rates

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Gift Tax Decision Tree

Within annual exclusion ($18K)? → No tax, no return

Above annual exclusion? → File Form 709; apply to lifetime exemption

Lifetime exemption exhausted? → Pay 40% tax immediately

Estate + lifetime gifts > exemption? → Estate tax owed on death

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TRUSTS: Revocable vs. Irrevocable

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High-Yield Trust Types

ILIT (Irrevocable Life Insurance Trust)

• Key rule: Trustee (not insured) owns policy

• Estate exclusion: Proceeds excluded if irrevocable + held >3 years at death

• Funding: Annual exclusion gifts to trust (e.g., $18K) to pay premiums

• Use case: High-net-worth; insurance on client/spouse

CRT (Charitable Remainder Trust)

• Grantor receives income stream; charity gets remainder

• Benefits: Upfront charitable deduction + avoids capital gains on appreciated assets

• Use case: Appreciated securities; wants both income & charity gift

CLT (Charitable Lead Trust)

• Charity receives income first; remainder to heirs

• Effect: Reduces taxable gift to heirs

QPRT (Qualified Personal Residence Trust)

• Transfer home to trust; retain right to live there X years

• Effect: Retained interest ↓ taxable gift value

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BASIS & TITLING STRATEGY

Step-Up Basis at Death

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Ownership Forms

• JTWROS: Avoids probate; full value in non-spouse's estate

• Tenants in Common: No survivorship; pro-rata share in estate; allows unequal split of title

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GENERATION-SKIPPING TRANSFER (GST) TAX

Applies to: Transfers to skip persons (grandchildren+ or unrelated <37.5 yrs younger)

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Dynasty Trust: Structured to use GST exemption; assets pass to multiple generations tax-free.

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RETIREMENT ACCOUNT BENEFICIARIES (SECURE Act)

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PSYCHOLOGY OF FINANCIAL PLANNING

Cognitive Biases Quick Reference

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Emotional Biases (Harder to Fix)

Document	Primary Purpose	When Used
Will	Direct probate assets; name executor & guardians	Always; required to direct property
Revocable Living Trust (RLT)	Probate avoidance; manage during incapacity	High-asset estates; privacy desired
DPOA	Financial decisions if incapacitated	Must-have to avoid guardianship
Health Care Directive/Proxy	Medical end-of-life decisions if incapacitated	Must-have in all states
Item	Amount/Rate	Note
Exemption per person	$13.99M	Portability available for spouses
Annual exclusion	$18,000/recipient	No gift tax; no return required
Tuition/medical gifts	Unlimited	Direct to provider; bypass annual exclusion
Marital deduction	Unlimited	Only US citizen spouse; non-citizen → QDOT
Tax rate (gift & estate)	40% flat	Applied to taxable amount above exemption
Feature	Revocable	Irrevocable
Changeable	Yes	No
In grantor's taxable estate	YES	No (removed)
Asset protection from grantor's creditors	No	YES
Income tax to	Grantor	Trust/beneficiaries
Estate tax benefit	NONE	Reduces estate
System	Basis at Death	Planning Insight
Community Property (AZ, CA, ID, LA, NM, NV, TX, WA, WI)	Both spouses' halves stepped up	Preferred for couples with appreciated assets
Common Law	Only decedent's share stepped up	Plan: Consider community property vs. JTWROS
Item	Amount
GST exemption	$13.99M (same as estate exemption)
GST rate	40% flat
Beneficiary Type	Distribution Rule
Spouse	Roll into own IRA; delay RMDs
Eligible Designated Beneficiary (EDB): minor, disabled, chronically ill, ≤10 yrs younger	Life expectancy method
All other beneficiaries	10-year rule: Full withdrawal within 10 years
Bias	Client Behavior	Planner Fix
Anchoring	"I paid $100K; won't sell below that"	Shift focus to current FMV & future projections
Recency	Overreacts to recent market drop	Show long-term data; historical context
Confirmation	Only listens to bullish news	Present disconfirming views; multiple scenarios
Overconfidence	"I beat the market"	Show underperformance data; diversification
Mental accounting	"Inheritance is fun money; salary is savings"	Show consolidated portfolio impact
Bias	Root	Planner Strategy

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