Estate Planning and Wealth Transfer
Estate Planning and Wealth Transfer
This domain tests how assets move at death, what that transfer costs, and which tools give the client control, privacy, and liquidity.
Core mechanics
- Intestacy: dying without a valid will leaves distribution to statute rather than to the client's wishes, often at higher tax and administrative cost.
- Probate validates the will and is a public process; fees or taxes are levied on value passing under the will. Assets passing outside the will - joint tenancy with right of survivorship, beneficiary-designated insurance and registered accounts, trust assets - generally avoid probate.
- Beneficiary designations override the will. Revisit them after every marriage, divorce, or birth.
- Trusts: revocable (client keeps control, assets generally remain taxable in the estate) versus irrevocable (control surrendered, potential tax and creditor benefits). Testamentary trusts are created by the will; inter vivos trusts during life.
- Powers of attorney for property and for personal care are incapacity tools, not death tools, and are separate documents.
- On death, assets can trigger a deemed disposition and capital gains, plus estate tax on value above the exemption threshold.
Worked example
An estate is valued at $3,000,000 with no spousal rollover available. The exemption is $2,000,000 and the rate is 40%. Tax = (3,000,000 − 2,000,000) × 0.40 = $400,000. If the client leaves $200,000 to charity in the will, the estate falls to $2,800,000 and tax falls to $320,000. Alternatively, an irrevocable life insurance trust owning a $400,000 policy supplies liquidity outside the estate. Show both, with the trade-off: the gift costs the heirs $200,000 of inheritance but saves $80,000 of tax and delivers the charitable intent.
Traps that cost marks
- Assuming joint tenancy is always right - it can trigger unintended capital gains and defeat an equalisation plan.
- Forgetting that life insurance is included in the estate when the deceased owns the policy.
- Confusing a will with a power of attorney, leaving no incapacity plan.
- Ignoring beneficiary designations, so registered accounts pass to an ex-spouse.
- Relying on the will alone when assets pass outside it.