Estate and Advanced Planning
Domain 4 tests how property passes and what that transfer costs. The exam separates probate from nonprobate assets, counts the gross estate correctly, and applies the transfer-tax exclusions.
Transfer mechanics
- A will passes through probate; without one, state intestacy statutes decide. Trusts, beneficiary designations, jointly held property with right of survivorship, and POD/TOD accounts pass outside probate.
- The gross estate includes life insurance only where the decedent held incidents of ownership. An irrevocable life insurance trust removes the proceeds if the insured survives the three-year lookback under IRC 2035.
- The marital deduction is unlimited for a U.S. citizen spouse. Portability of the deceased spousal unused exclusion requires a timely Form 706.
- 2024: basic exclusion $13.61 million ($13.99 million in 2025); annual gift exclusion $18,000 ($19,000 in 2025), doubled with gift splitting.
- Inherited property takes a stepped-up basis under IRC 1014; gifted property carries over the donor's basis.
Worked example
A $2,000,000 policy owned by the insured is pulled into the gross estate. If an irrevocable ILIT owns it for more than three years, it is excluded - at the 40% federal rate, that is 0.40 × $2,000,000 = $800,000 of estate tax avoided. The trade-off is permanence: the grantor gives up all rights to the policy and its cash value.
Advanced tools
- Crummey withdrawal powers let ILIT premium gifts qualify for the annual exclusion, but only with real withdrawal rights and written notice.
- A generation-skipping transfer tax applies on top of estate tax to transfers more than one generation below the transferor, with its own exemption.
- Charitable remainder trusts convert appreciated assets into income with a charitable deduction; private annuities and family limited partnerships address valuation.
Traps that cost marks
Assuming the annual exclusion covers future interests; forgetting that naming the insured as trustee of their own ILIT reinstates incidents of ownership; and overlooking state estate or inheritance taxes with thresholds far below the federal level.