CFP® Practice Question

A client has the following insurance coverage: Auto liability: $500,000 Homeowners liability: $500,000 Personal umbrella liability: $2,000,000 If the client is found legally liable for an automobile accident resulting in a $1,800,000 judgment, assuming no policy exclusions apply, approximately how much of the judgment would the umbrella policy cover? $500,000 $1,300,000 $1,800,000 $2,000,000 CLICK TO…

A client owns a large position in the common stock of her employer. The stock has appreciated substantially and now represents nearly 60% of her investment portfolio. What is the CFP® professional’s BEST recommendation? Continue holding the stock because selling would trigger capital gains tax. Increase purchases of the employer’s stock because of its strong…

In 2026, Robert wishes to maximize annual exclusion gifts without using any of his lifetime gift and estate tax exemption. He gives: $19,000 to his son $19,000 to his daughter $19,000 to each of his three grandchildren How much has Robert transferred free of gift tax and without using any of his lifetime exemption? $57,000…

A CFP® professional is reviewing a client’s investment portfolio. The client has the following accounts: Traditional IRA Roth IRA Taxable brokerage account Which of the following assets is generally MOST appropriate to hold in the Roth IRA? Municipal bonds A money market fund A diversified stock mutual fund expected to experience significant long-term appreciation Short-term…

Evelyn, age 76, must take a required minimum distribution (RMD) of $40,000 from her traditional IRA in 2026. She does not need the income and plans to donate $25,000 to a qualified charity. Which of the following strategies would MOST effectively reduce Evelyn’s adjusted gross income (AGI)? Take the full RMD and then claim a…

In 2026, a married couple filing jointly has modified adjusted gross income (MAGI) of $320,000, including $40,000 of net investment income. Assuming no other limitations apply, how much of their net investment income is subject to the 3.8% Net Investment Income Tax (NIIT)?  The NIIT threshold in 2026 is $250,000. $0 $20,000 $40,000 $70,000 CLICK…

Which of the following statements regarding a revocable living trust is CORRECT? Assets transferred to the trust are removed from the grantor’s taxable estate The trust provides income tax-free growth during the grantor’s lifetime The grantor retains control over trust assets and may amend the trust The trust avoids gift tax reporting because it is…

In 2026, a client donates publicly traded stock held for more than one year to a qualified charity. The stock has a fair market value of $50,000 and a cost basis of $12,000. Which of the following statements is CORRECT? The client may deduct only the $12,000 cost basis The client recognizes a $38,000 capital…

James (age 66) retires in 2026 and is evaluating how to fund his living expenses. He needs $80,000 after tax this year. His available assets include: Traditional IRA: $1,000,000 (all pre-tax) Roth IRA: $200,000 Taxable brokerage account: $300,000 (basis $200,000) Assume: Ordinary income tax rate: 24% Long-term capital gains tax rate: 15% No Social Security…

In 2026, a married couple makes a gift of $60,000 to their adult child. They elect to split the gift. How much of the gift will be considered a taxable gift?   $0 $22,000 $41,000 $60,000 CLICK TO REVEAL ANSWERExpandB is the answer.   In 2026, the annual gift tax exclusion is $19,000 per donor.…