Estate Planning and Wealth Transfer
This domain tests whether you can pass assets to the intended people, at the intended time, with the intended control and the least friction - while keeping the estate liquid.
The toolkit
- Will: directs probate assets, names guardians, but does not govern jointly held property, nominated accounts or trust assets.
- Intestacy: statutory distribution that ignores the client's wishes and often splits assets inconveniently.
- Trusts: a revocable living trust avoids probate and manages incapacity; an irrevocable trust removes assets from the estate but surrenders control.
- Beneficiary designations on policies and accounts override the will - the most common cause of a plan failing.
- Powers of attorney and healthcare directives cover incapacity, which is a living problem, not a death problem.
Transfer mechanics
Gifts within the annual exclusion are typically free of gift tax and remove future growth from the estate. Assets held until death often receive a step-up in basis, eliminating pre-death capital gains - which is why low-basis assets are frequently the worst assets to gift during life. Estate liquidity is a separate question: the tax and costs fall due before assets can be sold, so life cover in trust or accessible cash is often required.
Worked example
Shares bought for 100,000 are worth 500,000 at death. The heir receives the step-up and sells at 520,000. Taxable gain is only 20,000. Had the same shares been gifted five years earlier, the heir would inherit the 100,000 basis and face a 420,000 gain. The correct advice is to hold for the step-up and satisfy liquidity needs with other assets.
Traps
- Assuming the will controls everything.
- Gifting low-basis assets and destroying the step-up.
- Equalising inheritances where the business must stay intact - fairness and equality differ.
- Forgetting that a trust needs a funded, not just signed, structure.