Estate planning and wealth transfer
What the exam tests
Domain 8 covers estate objectives - control, liquidity, tax efficiency and orderly transfer - and the tools that achieve them: wills, trusts, gifts, beneficiary designations, powers of attorney and insurance. Questions test intestacy, estate liquidity and the coordination of documents.
Core rules
- A will directs probate assets but does not control jointly held property, nominated accounts or trust assets.
- Intestacy rules apply when there is no valid will; the outcome may not match the client's wishes.
- Beneficiary designations override the will for pensions and life policies; review them after every life event.
- Trusts can provide control, privacy, creditor protection and staged distributions, but add cost and complexity.
- Gifting reduces the estate but may trigger gift tax, lose control or create capital gains issues; check the jurisdiction.
- Estate liquidity: taxes, debts and expenses may fall due before assets can be sold; life insurance or cash reserves can fund them.
- Powers of attorney and guardianship nominations cover incapacity, which a will does not.
Worked example
An estate is valued at 5,000,000. The estate-tax exemption is 3,000,000 and the rate above it is 40%. Tax is (5,000,000 − 3,000,000) × 40% = 800,000. If the client gifts 500,000 now and survives the required period, the estate falls to 4,500,000 and tax to 600,000, a saving of 200,000, assuming the gift is exempt or uses available relief. The planner must also check whether the gift creates a capital gain, whether the client needs the money, and whether the will and beneficiary forms match the new plan.
Traps
Relying on a will alone; stale beneficiary designations; ignoring probate and liquidity; gifting without cash-flow review; assuming trusts are always tax-efficient; missing incapacity planning.