CFP Estate Planning Study Guide: Key Formulas & Rules

You've memorized the gift tax exclusion and the estate tax exemption. You feel pretty good about it. Then, a CFP® exam question hits you with a scenario involving a prior taxable gift from 2010, a jointly-owned vacation home with a sibling, and a surviving spouse who may or may not have filed for portability. Suddenly, the isolated rules aren't enough. The #1 reason sharp candidates stumble on estate planning questions isn’t forgetting a number; it’s failing to see how the entire system—gift tax, estate tax, and income tax basis—interlocks.

Key facts

• Official Topic: Principal Knowledge Topic 8: Estate Planning
• Exam Weighting: 10-17% of the CFP® exam (approximately 17-29 questions)
• Annual Gift Exclusion (2024): $18,000 per donee ($36,000 for married couples gift-splitting)
• Lifetime Gift & Estate Tax Exemption (2024): $13.61 million per individual
• Top Federal Estate Tax Rate: 40%
• Portability: A surviving spouse can use a deceased spouse's unused exclusion (DSUEA), but an estate tax return (Form 706) must be filed to make the election.

The Real Challenge of CFP® Estate Planning: It’s All Connected

Most study materials teach estate planning in neat, separate chapters: one for gifting, one for titling, one for trusts. The CFP Board, however, tests your ability to connect these dots under pressure. They want to see if you can think like a planner, not just a fact-checker. Try VoraPrep's free CFP practice questions to see exactly how these concepts are integrated.

A single scenario can weave together:

• Gifting Strategies: Did the decedent use their annual exclusion? Did they make taxable gifts that reduced their lifetime exemption?
• Property Titling: How was the house owned? JTWROS? Tenancy in Common? Community Property? The answer dramatically changes both the gross estate calculation and the cost basis for the heirs.
• Trusts: Was an irrevocable life insurance trust (ILIT) used? Is there a bypass trust from a prior deceased spouse?
• Post-Mortem Planning: Should the executor elect the Alternate Valuation Date (AVD)? Did the surviving spouse file for portability?

Mastering this section means moving from knowing the rules to understanding the consequences of each decision.

The Unified Credit: Your Estate Planning Master Key

The cornerstone of the federal transfer tax system is the Unified Credit. Think of it as a voucher that every individual gets from the IRS to apply against their gift and estate tax liability.

• The Amount: The credit is equivalent to the tax on the Basic Exclusion Amount (BEA). For 2024, the BEA is $13.61 million. This means you can transfer up to $13.61 million, either during your life or at death, without paying any federal transfer tax.
• How it Works: It's a "use it or lose it" system, but it's unified across your lifetime and at death. When you make a taxable gift (a gift over the annual exclusion), you don't typically write a check to the IRS. Instead, you file a gift tax return (Form 709) and use up a portion of your unified credit.
• The "Clawback": The amount of lifetime taxable gifts is added back to your taxable estate at death. This ensures your estate is taxed at the correct marginal rate. You then get the full unified credit for the year of death, which prevents double-taxing the gifted amount. This is a crucial concept many candidates miss.

The 2026 Sunset Provision: This is critical. The high exemption amount ($13.61M in 2024) is temporary, a result of the Tax Cuts and Jobs Act of 2017. Barring new legislation, on January 1, 2026, the exemption will revert to its pre-2018 level of $5 million, indexed for inflation (likely around $7 million). The exam expects you to be aware of this pending change and its massive implications for planning.

Portability: The "Deceased Spousal Unused Exclusion" (DSUEA)

Portability allows a surviving spouse to use any of their deceased spouse's unused exclusion amount. If a husband dies with a $13.61M exemption and only uses $3.61M, his surviving wife can "port" the remaining $10M over to her own exemption, giving her a total of $23.61M to use.

The #1 Portability Trap: It is not automatic. The executor of the first-to-die spouse's estate must file a Form 706 estate tax return to elect portability, even if no tax is due. The return is generally due nine months after death, with a six-month extension available. If they fail to file in time, the DSUEA is lost forever.

Walkthrough #1: The Single Decedent with a Non-Spouse Joint Owner

Let's put it all together. The exam won't ask you to fill out a tax form, but it will absolutely test your knowledge of this sequence.

Scenario: Sarah, a single individual, dies in 2024.

• Assets:
• Home (solely owned): $2,000,000 FMV
• Stock Portfolio: $12,000,000 FMV
• Vacation Cabin (owned as JTWROS with her brother, Tom): $500,000 FMV. Sarah contributed 100% of the purchase price.
• Life Insurance: $1,000,000 policy, owned by Sarah, with her son as beneficiary.
• Debts & Expenses:
• Funeral & Administrative Expenses: $200,000
• Mortgage on Home: $400,000
• Bequests:
• $1,000,000 to the American Red Cross (a qualified charity).
• Prior Gifts:
• In 2015, Sarah made a taxable gift of $1,000,000 to her son. She filed a gift tax return and used part of her unified credit at that time.

Let's calculate the estate tax due using 2024 figures (BEA = $13.61M).

Step 1: Calculate the Gross Estate This is everything the decedent owned or had an interest in.

• Home: $2,000,000
• Stock Portfolio: $12,000,000
• Life Insurance (she owned the policy): $1,000,000
• Vacation Cabin: $500,000
• The Common Trap: You see JTWROS and immediately think "50%". That's the rule for spouses. For non-spouses, the IRS's "consideration furnished" rule applies. 100% of the property's value is included in the estate of the first joint tenant to die, unless the surviving joint tenant can prove they contributed to the purchase price. Since Sarah paid 100%, 100% is included.
• Total Gross Estate: $15,500,000

Step 2: Calculate the Adjusted Gross Estate (AGE) Gross Estate minus deductions for expenses, debts, and losses.

• Gross Estate: $15,500,000
• Less: Funeral & Admin Expenses: ($200,000)
• Less: Mortgage Debt: ($400,000)
• Adjusted Gross Estate (AGE): $14,900,000

Step 3: Calculate the Taxable Estate AGE minus marital and charitable deductions.

• Adjusted Gross Estate: $14,900,000
• Less: Charitable Deduction: ($1,000,000)
• Taxable Estate: $13,900,000

Step 4: Calculate the Tentative Tax Base This is where prior gifts come back into the picture.

• Taxable Estate: $13,900,000
• Add: Adjusted Taxable Gifts (post-1976): +$1,000,000
• Tentative Tax Base: $14,900,000

Step 5: Calculate the Tentative Tax Apply the tax rates to the Tentative Tax Base.

• The tax on $14,900,000 (using the 2024 unified tax tables) is $5,866,800.
• (For exam purposes, you generally won't need to calculate this from a full table. They'll either provide the rates or, more likely, test the logic. The key is knowing that amounts over the exemption are taxed at 40%.)

Step 6: Subtract Credits This is where the unified credit saves the day.

• Tentative Tax: $5,866,800
• Less: Gift Taxes Payable on prior gifts: ($0, as the unified credit was used)
• Less: Applicable Credit Amount for 2024 (the tax on $13.61M): ($5,350,800)
• Net Estate Tax Due: $516,000

This step-by-step process is your roadmap. Our adaptive learning engine at VoraPrep can drill you with hundreds of variations on this calculation until it's second nature.

Walkthrough #2: The Surviving Spouse & Portability

Now let’s tackle a scenario involving a married couple, which introduces the marital deduction and portability.

Scenario: David dies in 2024, survived by his wife, Maria. They live in a separate property state.

• Assets:
• Brokerage Account (David's name only): $5,000,000 FMV
• Primary Residence (owned as JTWROS with Maria): $2,000,000 FMV
• Life Insurance: $1,000,000 policy on David's life, owned by an ILIT for the benefit of their children.
• Debts & Expenses:
• Funeral & Administrative Expenses: $100,000
• Will Provisions:
• David's will leaves $3,000,000 to a Bypass (Credit Shelter) Trust for Maria and the children. The remainder of his estate passes outright to Maria.
• Prior Gifts:
• David made no prior taxable gifts.

Step 1: Calculate David's Gross Estate

• Brokerage Account: $5,000,000
• Primary Residence: $1,000,000
• The Spousal Rule: Because David and Maria are spouses, the rule is simple: 50% of the JTWROS property value is included in the estate of the first to die, regardless of who contributed. So, 50% of $2M is included.
• Life Insurance: $0
• The ILIT Advantage: Because the policy was owned by a properly structured Irrevocable Life Insurance Trust (ILIT), the proceeds are not included in David's gross estate. This is a massive, and very testable, planning benefit.
• Total Gross Estate: $6,000,000

Step 2: Calculate David's Adjusted Gross Estate (AGE)

• Gross Estate: $6,000,000
• Less: Funeral & Admin Expenses: ($100,000)
• Adjusted Gross Estate (AGE): $5,900,000

Step 3: Calculate David's Taxable Estate

• Adjusted Gross Estate: $5,900,000
• Less: Marital Deduction: ($2,900,000)
• The property passing to Maria qualifies for the unlimited marital deduction. This includes the JTWROS home ($1M survivor's share) and the portion of the brokerage account not going to the Bypass Trust ($5M - $3M = $2M, but the AGE is only $5.9M, so $5.9M - $3M to trust = $2.9M to Maria).
• Taxable Estate: $3,000,000

Step 4: Calculate Estate Tax & DSUEA

• David's taxable estate is $3,000,000. This is well below his 2024 exemption of $13.61 million.
• Estate Tax Due: $0.
• Unused Exemption: $13,610,000 (David's BEA) - $3,000,000 (Used by Bypass Trust) = $10,610,000.
• The Crucial Action: Maria's planner must advise David's executor to file a Form 706 to elect portability. If they do, Maria's own $13.61M exemption will be increased by David's $10.61M DSUEA, giving her a total exemption of $24.22 million.

Basis Planning: The $1 Million Mistake You Can't Afford to Make

The difference between carryover basis and step-up basis is one of the most frequently tested and misunderstood concepts in estate planning.

• Step-Up in Basis (Inheritance): When someone inherits an asset, its cost basis is "stepped up" (or down) to the fair market value on the date of death. This is a huge tax benefit, as it erases all the unrealized capital gain that accrued during the decedent's lifetime.
• Carryover Basis (Gifting): When you receive a gift, you also receive the donor's original cost basis. If you sell the asset, you are responsible for the capital gains tax on all the appreciation since the original owner bought it.

Let's Make It Concrete: Your client, Bob, bought 1,000 shares of TechCorp stock in 1995 for $10,000. Today, it's worth $1,010,000. He wants his daughter, Jane, to have the money to buy a house.

• Option 1 (The Gift): Bob gifts the stock to Jane. Her cost basis is $10,000 (carryover basis). When she sells it for $1,010,000, she has a $1,000,000 capital gain. Assuming a 20% federal capital gains rate, she owes $200,000 in taxes.
• Option 2 (The Inheritance): Bob holds the stock until his death. Jane inherits it. Her cost basis is $1,010,000 (stepped-up basis). When she sells it for $1,010,000, her capital gain is $0. She owes $0 in taxes.

The difference in strategy is a $200,000 swing for Jane. This is a judgment-based question, not a simple definition lookup. It's why we focus on teaching you to think like the examiner at VoraPrep. For more on this, see our deep dive on Mastering Investment Planning for the CFP® Exam.

Essential Estate Planning Tools: Trusts, Powers, and Disclaimers

Beyond direct gifts and bequests, trusts are the primary tool for sophisticated estate planning.

Irrevocable Life Insurance Trusts (ILITs)

An ILIT is a trust created specifically to own a life insurance policy. When structured correctly, the death benefit passes to the beneficiaries completely free of estate tax. The key is that the decedent cannot have any "incidents of ownership" over the policy, such as the right to change beneficiaries or borrow against the policy.

To fund the annual premiums, the grantor makes gifts to the trust. To ensure these gifts qualify for the annual gift tax exclusion, the beneficiaries are given a temporary right to withdraw the funds, known as a Crummey power. The exam will test your knowledge that these powers are necessary to make the gift a "present interest."

Marital Deduction Trusts

When planning for married couples, especially in blended families or when one spouse is concerned about asset control, two trusts are indispensable:

Trust Type	Primary Purpose	Surviving Spouse's Rights	Estate Tax Impact
Bypass Trust	To use the first-to-die spouse's exemption. Assets "bypass" the survivor's estate.	Typically receives income; may have limited access to principal (HEMS standard).	Assets are taxed in the first spouse's estate (using their exemption). They are NOT included in the surviving spouse's estate upon their death.
QTIP Trust	To provide for the surviving spouse while controlling the ultimate disposition of assets.	Must receive all income for life, payable at least annually.	Qualifies for the marital deduction in the first spouse's estate (no tax). The remaining assets ARE included in the surviving spouse's estate.

The most common trap is confusing the two. Remember: Bypass uses the exemption now. QTIP defers the tax until the second death.

Qualified Disclaimers

A qualified disclaimer is an irrevocable refusal to accept a gift or bequest. If done correctly, the law treats it as if the disclaiming person never received the asset. This can be a powerful post-mortem planning tool. For a disclaimer to be valid, it must be in writing, made within 9 months of the decedent's death, and the disclaimant cannot have accepted any interest or benefits from the property.

Property Titling: How It Changes Everything

How an asset is owned dictates whether it goes through probate and how it's treated for tax purposes. This is not just trivia; it can alter the entire estate plan.

Property Titling Method	Key Characteristics	Impact on Probate	Estate Tax Inclusion	Income Tax Basis for Heirs -
Sole Ownership	One individual owns the property.	Goes through probate.	100% of the value is included in the owner's gross estate.	Receives a full step-up in basis to FMV at death. -
Joint Tenancy (JTWROS)	Two or more owners with rights of survivorship.	Avoids probate.	If spouses: 50% included. If non-spouses: 100% included unless the survivor can prove contribution.	The decedent's portion receives a step-up. The survivor's portion does not. (e.g., for spouses, 50% gets a step-up). -
Tenancy in Common	Shared possession. Interests may be equal or unequal. Inheritable.	Does NOT avoid probate. Decedent's interest passes via will or intestacy.	Decedent's proportionate share is included.	Only the decedent's share receives a step-up in basis. -
Community Property	Assets acquired by either spouse during marriage in community property states. Equal ownership interest.	Does NOT avoid probate unless held in a community property with right of survivorship deed or a trust.	Decedent's 50% interest is included.	BOTH halves (decedent's and survivor's) receive a full step-up in basis to FMV at death. This is a significant income tax advantage. -
Tenancy by the Entirety	Similar to JTWROS but only for married couples. Offers some creditor protection.	Avoids probate. Passes to surviving spouse.	50% included in decedent's gross estate.	50% receives step-up to FMV at death (decedent's share); survivor's 50% retains original basis. -

Frequently asked questions

How is portability tested on the CFP exam?

The CFP exam tests your ability to apply the portability of the Deceased Spousal Unused Exclusion (DSUEA). You'll need to know that the surviving spouse can use the decedent's unused lifetime exemption, but it requires a timely filed Form 706 estate tax return, even if no tax is due. Expect scenario questions where you must calculate the total available exemption for a surviving spouse.

What's the most important distinction between trusts for estate tax purposes?

For the exam, the key is control. Assets in a revocable living trust are included in the grantor's gross estate because the grantor retains control. Conversely, assets properly transferred to an irrevocable trust are generally excluded from the grantor's estate because they have given up control and ownership.

How does the gift tax annual exclusion differ from the lifetime exemption?

The annual gift tax exclusion is a per-person, per-year amount you can give away without filing a gift tax return or using your lifetime exemption (for 2024, this is $18,000). The lifetime exemption (unified credit) is a much larger, cumulative amount that shields taxable gifts—those exceeding the annual exclusion—and your estate from federal gift and estate tax. The exam will test your ability to apply both in a client scenario.

When can an executor use the Alternate Valuation Date (AVD)?

An executor can elect to use the AVD—valuing estate assets six months after the date of death—only if two conditions are met. First, the total value of the gross estate must decrease. Second, the amount of estate tax due must also decrease. If either condition is not met, the date-of-death value must be used.

What happens to the estate tax exemption in 2026?

Barring new legislation from Congress, the high estate tax exemption amount established by the Tax Cuts and Jobs Act will "sunset" on January 1, 2026. It will revert to the pre-2018 level of $5 million, indexed for inflation, which is projected to be around $7 million per person. This makes proactive planning with tools like ILITs and lifetime gifting critical for many more families.

Can I pay for someone's tuition or medical bills without it being a taxable gift?

Yes. Direct payments made on behalf of someone else for qualified educational tuition or medical expenses are not considered gifts for gift tax purposes. The key word is direct: you must pay the school or hospital directly, not give the money to the individual to pay the bill. There is no dollar limit on these payments.

What is the Generation-Skipping Transfer Tax (GSTT)?

The GSTT is a separate federal tax imposed on transfers to "skip persons"—typically grandchildren or anyone at least 37.5 years younger than the donor. It's designed to prevent wealthy families from avoiding an entire generation of estate taxes. Every individual has a lifetime GSTT exemption equal to the estate tax exemption ($13.61M in 2024).

How are Crummey powers tested on the exam?

The exam will test your understanding that Crummey powers are necessary to make contributions to an ILIT qualify for the annual gift tax exclusion. You need to know that they provide the beneficiary with a temporary "present interest" in the gifted funds, which is a requirement for the exclusion to apply.

What's the difference between a general and a limited power of appointment?

A general power of appointment gives the holder broad power to distribute trust assets to anyone, including themselves, their estate, or their creditors. Property subject to a general power is included in the power-holder's gross estate. A limited (or special) power of appointment restricts who can receive the property, typically excluding the holder, their estate, or their creditors. This avoids inclusion in the holder's estate.

Why would someone use a QTIP trust instead of leaving assets outright to their spouse?

A QTIP trust is essential for control, particularly in blended families. It ensures the surviving spouse is financially supported for life (they must receive all income) while allowing the first-to-die spouse to dictate who receives the remaining assets after the survivor's death (e.g., children from a first marriage). Leaving assets outright gives the surviving spouse total control to spend, gift, or bequeath the assets to anyone they choose.

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Official resources and references

• CFP Board: Principal Topics for the CFP® Exam - The official outline of what you're expected to know for the exam.
• IRS: Estate and Gift Taxes Page - The primary source for federal tax forms, publications, and current-year thresholds.
• U.S. Bureau of Labor Statistics: Personal Financial Advisors Outlook - Data on career prospects and salary expectations for financial planners.

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