Chartered Financial Consultant (ChFC) Estate Planning Syllabus

What distinguishes a testamentary trust from an inter vivos (living) trust?

A testamentary trust is created by the will and takes effect only at death (so its funding assets pass through probate). An inter vivos trust is created and effective during the grantor's lifetime.

What is a spendthrift provision in a trust?

A clause that prevents a beneficiary from assigning or pledging their trust interest and bars the beneficiary's creditors from reaching trust assets until distributions are actually made.

What is the primary purpose of a bypass (credit-shelter / B) trust?

To use the first spouse's applicable exclusion amount by sheltering that amount from estate tax at both deaths, while still allowing the surviving spouse income/limited access — assets are not included in the survivor's estate.

What is a QTIP trust and what control does it give the grantor?

A Qualified Terminable Interest Property trust qualifies for the marital deduction while letting the first-to-die spouse control the ultimate disposition of the remainder; the surviving spouse must receive all income for life, and the executor makes the QTIP election.

What is the purpose of an Irrevocable Life Insurance Trust (ILIT)?

To own life insurance so the death proceeds are excluded from the insured's gross estate, providing liquidity outside the taxable estate; requires the insured not hold incidents of ownership and survive the 3-year transfer rule.

What are Crummey powers and why are they used in an ILIT?

They give beneficiaries a temporary right to withdraw contributions, converting those gifts into present interests that qualify for the annual gift tax exclusion (otherwise gifts to the trust would be future interests).

What is the 3-year 'bring-back' rule for transferred life insurance?

Under IRC §2035, if an insured transfers a life insurance policy and dies within 3 years, the death proceeds are pulled back into the insured's gross estate.

What is the 2026 federal annual gift tax exclusion per donee?

$19{,}000 per donee per year (indexed for inflation); gift-splitting by spouses doubles this to $38{,}000 per donee.

What is gift-splitting and what is required to use it?

An election (IRC §2513) allowing a married couple to treat a gift made by one spouse as made one-half by each, doubling the annual exclusion; both spouses must consent and a gift tax return is filed.

For a gift to qualify for the annual exclusion, what type of interest must the donee receive?

A present interest — an immediate, unrestricted right to use, possess, or enjoy the property. Gifts of future interests do not qualify for the annual exclusion.

What is the unlimited gift tax exclusion for tuition and medical payments?

Under IRC §2503(e), amounts paid directly to an educational institution for tuition or directly to a medical provider for care are not taxable gifts, with no dollar limit and in addition to the annual exclusion.

Why are lifetime gifts of appreciating property generally tax-efficient?

Future appreciation is removed from the donor's estate, and the gift tax is 'tax-exclusive' (paid on the amount given) whereas the estate tax is 'tax-inclusive,' making lifetime gifting cheaper on a transfer-tax basis if the donor survives 3 years.

How is the donee's income tax basis in a lifetime gift determined?

Carryover basis — the donee generally takes the donor's adjusted basis (for gain). For loss, basis is the lesser of donor's basis or FMV at the gift date; the holding period also carries over.

What is the 2026 basic exclusion amount (applicable exclusion) for gift and estate tax?

$15{,}000{,}000 per individual under the 2025 law (OBBBA), indexed for inflation, with a top transfer tax rate of 40\%.

How does the unified credit relate to the applicable exclusion amount?

The applicable (unified) credit is the tax computed on the applicable exclusion amount; it offsets gift and estate tax dollar-for-dollar so no tax is due until cumulative taxable transfers exceed the exclusion.

What is portability of the exclusion (DSUE)?

A surviving spouse may add the Deceased Spousal Unused Exclusion amount to their own exclusion; it must be elected by filing a Form 706 estate tax return at the first spouse's death. Portability does not apply to the GST exemption.

State the formula for the federal estate tax base (taxable estate).

$$\text{Taxable Estate} = \text{Gross Estate} - (\text{debts} + \text{funeral/admin expenses} + \text{marital deduction} + \text{charitable deduction})$$ Adjusted taxable gifts are then added to compute the tentative tax base.

What is the unlimited marital deduction?

An unlimited deduction (gift and estate) for qualifying transfers to a U.S.-citizen spouse, deferring all transfer tax until the second spouse's death; terminable interests generally do not qualify unless a QTIP election is made.

What special device is required to obtain a marital deduction for a non-U.S.-citizen spouse?

A Qualified Domestic Trust (QDOT), because the unlimited marital deduction is otherwise denied to a non-citizen surviving spouse.

List items commonly included in the gross estate under IRC §2031–2044.

Solely owned property, the decedent's share of jointly owned property, life insurance with incidents of ownership or payable to the estate, gift taxes paid within 3 years, retained-interest transfers (§2036–2038), general powers of appointment, and QTIP property.

What is the alternate valuation date and when can it be elected?

Assets may be valued 6 months after the date of death (IRC §2032) instead of the date of death, but only if the election both decreases the gross estate and decreases the estate tax. Property sold/distributed before 6 months is valued at that date.

What is the Generation-Skipping Transfer (GST) tax designed to prevent?

It prevents wealthy families from avoiding a layer of transfer tax by skipping a generation (e.g., transferring directly to grandchildren); it imposes a flat tax at the highest estate tax rate (40\%) in addition to gift/estate tax.

Define a 'skip person' for GST purposes.

A person two or more generations below the transferor (e.g., a grandchild), or a trust in which all beneficial interests are held by skip persons.

Name the three types of GST taxable events.

Direct skip (transfer directly to a skip person), taxable termination (a non-skip interest in a trust ends, leaving only skip persons), and taxable distribution (a trust distribution to a skip person).

What is the GST exemption amount in 2026 and is it portable?

It equals the basic exclusion amount, $15{,}000{,}000 (indexed) per transferor in 2026. Unlike the estate exclusion, the GST exemption is NOT portable between spouses.

What is the GST 'predeceased ancestor' (predeceased parent) exception?

If the skip person's parent (who was a descendant of the transferor) is already deceased, the skip person moves up a generation and the transfer is not treated as a generation-skipping transfer.

What valuation discounts commonly apply to closely held business interests?

A minority (lack of control) discount and a lack of marketability discount, which reduce the value of a non-controlling, non-publicly-traded interest for transfer tax purposes.

What is the special-use valuation under IRC §2032A?

It allows qualifying farm or closely held business real estate to be valued at its actual (current-use) value rather than highest-and-best-use, subject to a maximum reduction cap (indexed) and recapture if use changes within a set period.

Compare a cross-purchase and an entity (stock-redemption) buy-sell agreement.

In a cross-purchase, the remaining owners individually buy the departing owner's interest (each owns policies on the others); in an entity/redemption plan, the business itself buys the interest (the company owns the policies). Cross-purchase gives surviving buyers a stepped-up basis.

What does IRC §6166 provide for estates with a large closely held business interest?

It permits installment payment of the federal estate tax attributable to a closely held business over up to 14 years (interest-only for the first 4, then up to 10 annual principal payments), if the business exceeds 35\% of the adjusted gross estate.

What is a Grantor Retained Annuity Trust (GRAT) and why is it used?

An irrevocable trust where the grantor retains a fixed annuity for a term, then the remainder passes to beneficiaries at a discounted gift value; it leverages appreciation above the IRC §7520 rate. If the grantor dies during the term, trust assets are pulled back into the estate.

How does a Charitable Remainder Trust (CRT) work?

The grantor (or named beneficiary) receives an income stream for life or a term (≤20 years), then the remainder passes to charity. It provides a current income tax charitable deduction for the present value of the remainder and avoids capital gains on contributed appreciated assets. A CRAT pays a fixed annuity; a CRUT pays a fixed percentage of annually revalued assets.

How does a Charitable Lead Trust (CLT) differ from a CRT?

A CLT pays the income stream to charity first for a term, then the remainder passes to non-charitable beneficiaries (often family) — the reverse of a CRT — leveraging a discounted gift to heirs.