- Accredited Financial Counselor Retirement and Estate Planning Flashcards

A client dies without a will. What legal process determines how their assets are distributed?

Answer: Probate court applies intestacy laws

When someone dies intestate, the probate court applies state intestacy laws dictating distribution based on a statutory hierarchy of heirs.

What is the primary advantage of a revocable living trust over a will?

Answer: Trust assets avoid probate, enabling faster and more private transfer to beneficiaries

A revocable living trust allows assets to pass directly to beneficiaries without going through probate court.

A client named their estate as beneficiary of their 401(k). Why is this problematic?

Answer: Assets passing through the estate are subject to probate, lose stretch distribution options, and are exposed to creditors

Naming the estate forces retirement assets through probate, eliminates stretch distribution options, and exposes assets to estate creditors.

What is the current federal estate tax exemption and what percentage of estates does it typically affect?

Answer: Approximately $13.6 million per person; less than 0.1%

The exemption is approximately $13.6 million per individual, meaning fewer than 0.1% of estates owe federal estate tax.

What is the difference between an estate tax and an inheritance tax?

Answer: An estate tax is levied on the total estate before distribution; an inheritance tax is levied on each beneficiary based on what they receive

An estate tax is on the total estate value; an inheritance tax is on individual beneficiaries based on amount received and relationship to the deceased.

A client wants to ensure their adult child with special needs receives an inheritance without losing government benefits. What should the counselor recommend?

Answer: Establish a special needs trust (supplemental needs trust)

A special needs trust holds assets for the beneficiary without counting as personal assets, preserving eligibility for means-tested benefits.