July 2025 CFP® Exam Question Roundup

00:00:08 Jerry Mee 

Hello everyone, and welcome back to another awesome episode of the BIF Bites Podcast. I’m your host, Jerry Mee, joined as always by my co-host, Adam Scherer. How’s it going, Adam? 

00:00:20 Adam Scherer 

It’s wonderful, Jerry. It’s one of the best times of the year, wouldn’t you agree? 

00:00:29 Jerry Mee 

Absolutely. It’s our most requested and long-awaited episode series, Questionpalooza — and it’s back again. 

00:00:40 Adam Scherer 

That’s right. Before each CFP exam cycle, we host Questionpalooza where we quiz each other on CFP-style questions, break down why certain answers are correct, and discuss exam strategies and cues. It’s a great way to learn and test your readiness. 

00:01:12 Jerry Mee 

This cycle, we’re doing things differently. Instead of one long episode, we’re releasing six shorter, bite-sized episodes back to back. So you’ll get a new Questionpalooza episode every day for the next several days. 

00:01:39 Adam Scherer 

Exactly. Think of it as timed-release questions. 

00:01:45 Jerry Mee 

We’re doing it this way because it aligns with what we recommend in the BIF Review during the final prep phase — focus on one topic per day, review questions, and reinforce weaker areas. 

00:01:54 Adam Scherer 

Right. In our eight-week schedule, we intentionally leave time at the end for what we call “Home Stretch Prep.” Each day, students focus on a single topic; reviewing notes, practicing questions, and tightening up their understanding. That’s the inspiration for this mini-series. It allows us to go deep on one topic per episode and help listeners build focus and momentum. 

00:03:10 Jerry Mee 

Exactly. We’re trying something new, so let us know what you think. Sometimes experimenting leads to the best strategies. 

00:03:24 Adam Scherer 

All right, let’s dive in. Today’s topic is General Principles, and tomorrow is the 4th of July,  happy 4th, Adam! 

00:03:38 Adam Scherer 

Happy 4th to you too, Jerry. 

00:03:40 Jerry Mee 

We’ll be skipping tomorrow’s episode for the holiday, then resuming daily through the start of the CFP exam cycle. 

00:03:51 Adam Scherer 

Perfect. So let’s get started with General Principles. Jerry, you’re in the hot seat for this one. According to the Code of Ethics and Standards of Conduct, which of the following best illustrates the duty of care? 

1. A financial planner must ensure that portfolio design throughout the client engagement aligns with the risk tolerance questionnaire obtained during onboarding. 

1. A financial planner should conduct a thorough analysis of a client’s financial situation before making any recommendations. 

1. A financial planner’s obligation to follow all legal and reasonable client instructions surrounding financial decisions. 

1. Financial planners should follow their firm’s guidelines for client engagement and document all substantive communications. 

00:05:17 Jerry Mee 

This is a great example of why people underestimate the Code of Ethics and Standards of Conduct. It all seems like common sense until you’re faced with tricky, similar-sounding answers. Most students who don’t pass the exam tend to score lowest in this section. 

Let’s use process of elimination. Option A is wrong — not because aligning with a risk tolerance questionnaire is bad, but because it lacks flexibility. Real-world portfolio planning often reveals nuances that the questionnaire alone doesn’t capture. So A is out. 

Now B, C, and D all sound reasonable, but we need the best fit. Option D about documenting communications is true but doesn’t specifically reflect the duty of care. It’s more about compliance and recordkeeping. 

Option C — following all legal and reasonable client instructions — is also a duty, but it’s explicitly the duty to follow client instructions, not duty of care. 

That leaves B — conducting a thorough analysis of the client’s financial situation before making recommendations. That’s directly from the CFP handbook definition of duty of care. 

00:10:19 Adam Scherer 

Excellent breakdown, Jerry. This is a classic example of how similar duties can blur together. As you pointed out, the phrasing can throw people off, and it’s easy to lose sight of what’s actually being asked. Always revisit the question itself if you get lost in the options. 

Duty of care questions are tricky because they often mix in language from other duties like confidentiality, diligence, or following client instructions. And yes, option D was tough — it’s easy to think “document everything” applies to every duty. 

00:11:56 Jerry Mee 

Exactly. If you picked D, I wouldn’t blame you. It’s very close. 

00:12:07 Adam Scherer 

Right, and you might think documenting everything shows you’re taking care of your client — but the CFP Board’s definition is specific. You have to know their standard, not just your firm’s. 

00:12:23 Jerry Mee 

That’s another common mistake. Firms might define “duty of care” differently, but on the exam, you need the CFP Board’s interpretation — which is B. It’s literally in the handbook. 

00:12:51 Adam Scherer 

If you haven’t reviewed the Code of Ethics recently, do it before exam day. Think of duty of care as “know your client.” You can’t serve them well without fully understanding their situation first. This is about taking the time to gather facts and tailor recommendations appropriately. 

And if you need a refresher, check out the video that Jerry and Mike made on the BIF YouTube channel — it’s a full walkthrough of the Code and Standards document. 

00:14:04 Jerry Mee 

Yes, that video goes page by page through the document and highlights what’s most important for the exam. Definitely worth a watch. 

00:14:16 Adam Scherer 

Perfect follow-up after this episode. 

00:14:20 Jerry Mee 

Hope everyone has a great General Principles study day. Don’t sleep on the Code of Ethics - review it, do some questions, and keep practicing. Have a great 4th of July, and we’ll see you in the next episode. 

00:14:39 Adam Scherer 

Happy 4th, everyone. See you soon. 

00:00:08 Jerry Mee 

Hello everyone, and welcome back to another awesome episode of the BIF Bites Podcast. 

00:00:14 Jerry Mee 

It’s Jerry and Adam in the house once again, coming at you with day two of Questionpalooza. You know, I just realized, Adam, we’re like an official festival now. We’re a multi-day festival. Watch out Bonnaroo, watch out Coachella, we’ve got the six-day Questionpalooza festival. 

00:00:36 Adam Scherer 

And who’s the headliner for day two, Jerry? 

00:00:39 Jerry Mee 

Everyone’s favorite, with the dulcet tones of Kenny G. We’ve got insurance on the docket for today. Put on that elevator music and break out your insurance textbooks. 

00:00:53 Adam Scherer 

This episode is dedicated to all the music lovers. 

00:00:58 Jerry Mee 

If it’s not music, it’s not music. 

00:01:05 Adam Scherer 

Well, Jerry, this is you again. You are on the main stage of Questionpalooza. 

00:01:14 Jerry Mee 

Let’s do it. Give me your insurance question. 

00:01:21 Adam Scherer 

Here we go. In the context of property insurance, which of the following scenarios would most likely be excluded under a standard HO5 homeowners insurance policy? 

1. Damage caused by a burst pipe in the kitchen. 

1. Theft of personal belongings from a locked car parked in the driveway. 

1. Structural damage resulting from an earthquake. 

1. Fire damage to the living room caused by a faulty electrical appliance. 

00:02:12 Jerry Mee 

Okay, we’ve got some good options here. I really like this question because it’s testing several areas of insurance knowledge. Right away, this is one of those topics where you just have to know it. If you know it, you know it, and if you don’t, there’s not much room to reason it out. 

The first thing you need to know is the HO policies. We’ve got HO3, HO5, HO6, and HO8. You just have to memorize what each one covers. The two most important are HO3 and HO5. 

00:03:10 Adam Scherer 

One hundred percent. Although I’ve got to say, I’m in a new house, Jerry. 

00:03:17 Jerry Mee 

Oh, an HO8? 

00:03:20 Adam Scherer 

Yes, I’m living in an HO8 now, which means I’ll probably have to replace things according to historical standards. 

00:03:34 Jerry Mee 

For our listeners who aren’t aware, HO8 is the policy for historic homes. There are often historic society rules that prevent modern updates or safety upgrades. 

00:03:57 Adam Scherer 

Exactly. And just as a note to listeners, we’re finding that things built back in the day weren’t quite the same as today. There’s no vent for my dryer, for example. 

00:04:08 Jerry Mee 

Thomas Edison himself probably did the wiring in your house. 

00:04:15 Adam Scherer 

That sounds about right. 

00:04:18 Jerry Mee 

The CFP Board loves to throw HO8 questions on the exam because it’s a fun fact. For most modern homes, though, HO3 and HO5 are the key policies. 

HO3 is basic and HO5 is broad. HO5 is the better policy, but better also means more expensive. 

00:04:45 Jerry Mee 

Knowing that, we can eliminate a couple of answers right away. Option A, damage caused by a burst pipe, would be covered under HO5. So that’s not our answer. The same goes for D, fire damage caused by a faulty appliance. Also covered. 

That leaves us with B and C. 

00:05:46 Jerry Mee 

The tricky part is that many people would pick B, theft of personal belongings from a locked car. They’d assume that because it involves a car, it falls under auto insurance. That’s not true. 

Your car insurance would cover the theft of the car itself, but your homeowners policy covers the personal items inside the car. So B would be covered under HO5. 

What isn’t covered is C, structural damage resulting from an earthquake. Earthquakes and sinkholes fall under the category of earth movement, which is excluded from standard homeowners policies. You would need an additional rider or separate earthquake insurance for that. 

00:07:34 Adam Scherer 

Plate tectonics are not covered. 

00:07:37 Jerry Mee 

Exactly. 

00:07:41 Adam Scherer 

That’s a great example, and I’m glad you brought it up. Earthquakes and other natural events are common testing points for the insurance section. 

00:07:50 Jerry Mee 

Right, so here’s a quick rundown of typical exclusions found in standard home insurance policies. These include earthquakes, floods, war, nuclear hazard, intentional loss, neglect, wear and tear, pet damage, infestation such as termites or rodents, mold or rot, pollutants, and government action such as property seizure. 

00:08:56 Adam Scherer 

That last one is the worst. 

00:09:00 Jerry Mee 

Nothing will make you a libertarian faster than getting your house seized through eminent domain. 

00:09:06 Adam Scherer 

That sounds about right, especially in New Hampshire. 

00:09:25 Adam Scherer 

Listeners, take notes. That’s a great flashcard list. Rewind a bit if you need to write it down. 

00:09:44 Jerry Mee 

Here’s another quick tip. The difference between HO3 and HO5 is important. HO3 is a named perils policy, which means it only covers the risks listed on the policy. HO5 is open perils, which means it covers everything except what is specifically excluded. 

HO3 is cheaper but offers less protection. HO5 covers more, unless the policy explicitly says otherwise. It’s better protection overall. 

00:10:34 Adam Scherer 

That’s the kind of coverage I’d want too. As a homeowner, knowing what’s not covered is often more reassuring than assuming you’re covered for everything. 

00:11:05 Jerry Mee 

Exactly. And you can then decide what you want to add coverage for. If your HO5 excludes hurricanes and you live in Florida, you can get a separate hurricane policy. 

00:11:37 Adam Scherer 

True, although you might have to hope it’s still affordable. But for exam purposes, this type of exclusion question is exactly what you need to master. 

00:11:48 Adam Scherer 

Great question for day two, Jerry. That one hit a lot of key points. 

00:11:57 Jerry Mee 

Yes, tip of the day is memorize. Insurance is one of those topics where you just need to know what’s included and excluded. There’s no way around it. 

00:12:17 Adam Scherer 

Agreed. And one last note on studying. Don’t get lost in the weeds on minor policy limits. You don’t need to memorize every dollar amount or sub-limit. Focus on the main exclusions and coverage types. 

00:13:10 Adam Scherer 

Think about what matters to the client. They care more about whether the house is protected, not whether their furs or silverware are insured up to a specific amount. 

00:13:28 Jerry Mee 

Exactly. You might remember that furs have $2,500 of coverage, but that’s unnecessary for the exam. At most, you might need to know that coverage B is usually 20% of coverage A. 

00:13:52 Adam Scherer 

Agreed. 

00:13:55 Adam Scherer 

All right, Jerry, that wraps it up for today. 

00:13:56 Jerry Mee 

That does it for day two. I hope everyone hits the books for insurance today and makes good flashcards. They’ll help you a lot on exam day. 

00:14:08 Adam Scherer 

Looking forward to day three. Keep studying. 

00:14:12 Jerry Mee 

Let’s do it. 

00:00:08 Jerry Mee 

Hello everyone, and welcome back to day four of Questionpalooza. It’s Jerry and Adam back again, crossing into the second half of the festival. I’m yielding the stage to you now, Adam. You’re taking the mic for the next three days of topics. 

00:00:31 Adam Scherer 

Thanks, Jerry. I’m ready to drop some knowledge and help our students tackle some tricky material. We’ve got tax today, followed by retirement and estate. The back half of the festival runs deep, but we’ll keep it practical and focused on the most testable points. I’m excited to finally take the big stage. 

00:01:04 Jerry Mee 

Let’s do it. And we’re kicking off with your favorite topic—tax planning. 

00:01:12 Adam Scherer 

Best day of the festival already. 

00:01:15 Jerry Mee 

The true headliner is always halfway through. All right, Adam, here’s your question: When does an employer receive a tax deduction with incentive stock options (ISOs)? 

1. When the ISOs are granted
2. When employees exercise their ISOs
3. The employer receives no tax deduction for ISOs
4. When employees sell their ISO shares after meeting the holding requirements

00:02:05 Adam Scherer 

Deep breath. This is one of those quick-hitter tax planning questions where you either know it or you don’t. ISOs tend to cause confusion, so we’ve distilled them to the essentials. From a tax standpoint, you just need to know the consequences at each stage: grant, exercise, and sale. 

This question focuses on the employer side, and the answer is simple—employers receive no tax deduction for ISOs. So option C is correct. 

00:03:31 Adam Scherer 

In the BIF Review, we often compare ISOs with non-qualified stock options (NQSOs) because contrast helps you remember. Employers do not get deductions for ISOs, but they do for NQSOs. For NQSOs, the employer deducts the bargain element—the spread between exercise price and fair market value—when the employee exercises. That distinction is key. 

00:04:55 Adam Scherer 

Beyond that, what’s most testable with ISOs are the holding period requirements. To qualify for favorable tax treatment, you need to meet both: hold the shares at least one year from the exercise date and at least two years from the grant date. If both are met, it’s a qualifying disposition and you get long-term capital gains treatment. If not, it becomes a disqualifying disposition and is taxed like a non-qualified option. 

Also, know how ISOs tie into the Alternative Minimum Tax (AMT). That’s been tested frequently. 

00:05:38 Jerry Mee 

That’s a great breakdown. I’d also call this a “trust your gut” question. 

00:05:47 Adam Scherer 

Absolutely. 

00:05:48 Jerry Mee 

When I first read “When does an employer receive a tax deduction with ISOs?” my gut reaction was, “Wait, do they even get one?” That hesitation is the clue. If something feels off, it’s probably because it’s not true. ISOs don’t generate employer deductions, and that’s exactly what this question is testing. 

00:06:20 Adam Scherer 

Perfectly said. 

00:06:22 Adam Scherer 

And for exam day, trust your instincts on conceptual questions like this. I don’t know about you, Jerry, but for me these one-off “you either know it or you don’t” questions caused more anxiety than the longer, multi-step ones. 

00:06:42 Jerry Mee 

Totally agree. And part of that is because of how they’re written. It’s almost like the CFP Board is trying to trick you. The question doesn’t ask, “Does the employer receive a deduction?” It assumes it’s true and asks “When.” That phrasing makes you second-guess yourself, but the key is recognizing that the premise is false. Employers don’t get a deduction. 

00:07:26 Adam Scherer 

Great advice. Trust your gut on conceptual test questions like this—but in real life, do not trust your gut on taxes. Always contact a tax professional. 

00:07:40 Jerry Mee 

Exactly. In the real world, when federal jail time might be involved, don’t trust your instincts. 

00:07:49 Adam Scherer 

Right. Speak to a CPA or qualified tax professional. But for the exam, remember, you’re not expected to be a CPA or tax preparer. The CFP Board wants you to understand how taxes intersect with financial planning at a high level, not to know every rule in the Internal Revenue Code. 

00:08:34 Adam Scherer 

That perspective will help you avoid spiraling down rabbit holes. You don’t need to know every detail—just the key rules and applications. ISOs are one of those areas where you should know the holding requirements and the AMT implications. 

00:09:12 Jerry Mee 

Exactly. The main takeaway is to understand the taxation points for both ISOs and NQSOs. If you know when they’re taxed and at what rates, nine out of ten questions on this topic become easy wins. 

00:09:24 Adam Scherer 

Well said. 

00:09:26 Jerry Mee 

All right, that wraps it up for today. We’ll see you all tomorrow. 

00:09:31 Adam Scherer 

Take care, everyone. 

00:00:08 Jerry Mee 

Hello everyone and welcome back. Is it day five, Adam? I’ve lost track. The festival has been spinning, and I’ve entered the blur phase. 

00:00:20 Adam Scherer 

Yes, we’re in day five and definitely starting to feel it. But hey, we’ve got arguably the most important topic ahead of retirement planning. By weighting alone, this one carries the most points, so we need to rally and bring our best. 

00:00:40 Jerry Mee 

Everyone rally. Time to get your second wind. Let’s give it our all for retirement planning. 

00:00:47 Adam Scherer 

Here we go. I have to say, though, if Questionpalooza were a real music festival, a five-day stretch would be a marathon. Woodstock was what, two days? 

00:01:04 Jerry Mee 

Most are two to three. I’ve been to Bonnaroo, Lollapalooza, and Boston Calling, and I can tell you, five days would push me past my limit. Honestly, at my age now, one day might be my limit. I go to Boston Calling and by two o’clock, I’m ready to go home. 

00:01:27 Adam Scherer 

I’m not even that adventurous, Jerry. I’m more of a “have dinner before the show, start at six, home and in bed by nine” kind of guy. 

00:01:37 Jerry Mee 

That’s what you have to do for Boston Calling since it’s in the city. Have dinner near the venue, sit outside, and you can hear the music from the patio. You don’t even need a ticket—and you can still go home early. 

00:01:52 Adam Scherer 

That’s a great hack. Put that on your to-do list after you get that preliminary pass. 

00:01:59 Jerry Mee 

Exactly. Come to Boston, skip the ticket, and enjoy the music. 

00:02:07 Adam Scherer 

All right, let’s get to the good stuff. We’ve got a short but relevant one today. 

00:02:12 Jerry Mee 

Definitely. Let’s dive right in. What is the correct tax treatment of stock acquired through an Employee Stock Purchase Plan, or ESPP, that meets IRS requirements? 

1. All gains are immediately taxable as ordinary income when shares are purchased.
2. The discount from fair market value is taxed as ordinary income, and any subsequent appreciation is taxed as capital gains.
3. All gains are treated as capital gains regardless of holding period.
4. The entire transaction is tax-free until the shares are sold.

00:03:10 Adam Scherer 

E—send it to the CPA. 

00:03:13 Jerry Mee 

Exactly. That’s what I do in my firm. 

00:03:18 Adam Scherer 

Same here. But unfortunately, that’s not one of the answer choices, so we’ll work with what we’ve got. 

00:03:32 Jerry Mee 

You know, my favorite student message is when someone says, “I think the answer should be this,” and I ask, “Which option is that? D? E? F?” And they say, “Oh, it’s not one of them.” Then it’s not an option; you can’t pick it. 

00:03:57 Adam Scherer 

Exactly. And that happens more often than people think. It shows you’re thinking critically, but during the exam, you have to play by the rules. We’re your CFP Sherpas, here to guide you up the right path. 

00:04:31 Adam Scherer 

So, ESPPs—Employee Stock Purchase Plans—are offered through employers. They let employees buy company stock at a discount, usually up to 15%, twice a year. You can purchase up to $25,000 worth of employer stock annually. It’s a great benefit and very common. 

00:05:38 Adam Scherer 

This is technically a retirement planning question with a tax component. You’ll often see that crossover. From a tax perspective, you need to know there are two layers of appreciation here. You don’t get to have your cake and eat it too—you can’t take the discount and also get all the gains taxed favorably. 

00:06:13 Adam Scherer 

So let’s eliminate C, which says all gains are capital gains. That sounds too good to be true. 

00:06:22 Jerry Mee 

And that’s because it is. It’s similar in concept to NUA, but not the same. The CFP Board loves to include tricky answers that mix similar-sounding programs with completely different tax rules. 

00:06:43 Adam Scherer 

Right. ESPPs are separate from those. Think of them as employee benefits managed through payroll or HR, kind of like enrolling in a 401(k). 

00:07:16 Adam Scherer 

And as far as the IRS goes, they rarely let you double-dip. You might get a benefit on the front end, but not again on the back end. So here’s how it works: the discount you receive is treated as ordinary income, and any appreciation after that point is treated as capital gain. 

00:08:02 Adam Scherer 

The spread between fair market value and your discounted purchase price is taxed at your marginal income rate. Any growth after that depends on how long you hold it - less than 12 months is short-term, over 12 months is long-term. 

00:08:47 Adam Scherer 

That’s the key: B is correct. The discount is ordinary income, and the later appreciation is capital gain. 

00:09:06 Adam Scherer 

Ideally, you hold long enough to benefit from long-term capital gains, which are generally lower than your ordinary income tax rate. 

00:09:28 Adam Scherer 

Now, this isn’t quite the “triple tax advantage” we talk about with HSAs. That’s the real unicorn of tax benefits, but it’s still a solid deal. 

00:09:43 Adam Scherer 

So again, correct answer: B. The discount is ordinary income, and any appreciation afterward is capital gains. You don’t need to memorize the IRS requirements, just know how the tax treatment works. 

00:10:16 Jerry Mee 

Exactly. It’s similar in structure to how you’d handle non-qualified stock options. The first band is ordinary income, and after that, capital gains based on the holding period. 

00:10:30 Adam Scherer 

Yes, that’s a perfect way to look at it. 

00:10:40 Jerry Mee 

I explain it to students like this: the company gives you a 15% discount on stock. From the IRS’s perspective, that discount is like the company sliding cash across the table and telling you to use it to buy stock. So that portion is taxed as ordinary income. 

00:11:08 Adam Scherer 

Exactly. And ideally, your capital gains make the overall tax impact pretty reasonable. 

00:11:37 Adam Scherer 

In practice, ESPPs come up often because they apply to regular employees, not just high-level executives like ISOs do. Anyone working full time might have access to an ESPP, and when they ask how it’s taxed, this is exactly what they mean. 

00:12:25 Jerry Mee 

Right, and from a company perspective, it’s a cost-effective benefit. They don’t have to hand out cash bonuses, they offer a stock discount instead, which boosts employee investment and can even help their stock price. 

00:12:56 Adam Scherer 

Exactly. It’s a win-win. 

00:13:00 Adam Scherer 

So this question is a great example of how tax knowledge strengthens your retirement planning strategy. This topic carries one of the highest weightings on the CFP exam at around 18%. 

00:13:27 Jerry Mee 

Yes, definitely above 15%. It’s one of the heaviest sections, so if you’re in your home stretch and don’t know where to focus, start with the heavily weighted topics. 

00:13:49 Adam Scherer 

Exactly. Study in order of weighting from highest to lowest. That’s how you make the most of your prep time. 

00:13:54 Jerry Mee 

Perfect strategy. Well, tomorrow’s the final day of Questionpalooza. As they say, there’s no avoiding death and taxes—and since we’ve covered taxes, that means we’re wrapping things up with estate planning. 

00:14:10 Adam Scherer 

Let’s just hope we make it to tomorrow to talk about it. Estate planning is confusing but so important. Jerry gave me a sneak peek of the topic, and there’s a lot of good stuff in store. 

00:14:36 Adam Scherer 

This has been an awesome festival. Looking forward to closing it out tomorrow. 

00:14:42 Jerry Mee 

Same here. See you then. 

00:00:08 Jerry Mee 

Hello everyone and welcome back. It is day six, the final day of our Questionpalooza week, and we are wrapping it all up with estate planning, Adam. 

00:00:23 Adam Scherer 

That’s right. We have reached the final stop on the Questionpalooza tour, and today’s topic is estates. Estate planning can be intimidating for many financial planners because most do not handle deep estate work in practice, and that makes sense. 

00:00:48 Jerry Mee 

It’s a hard topic. Clients do not want to talk about dying, and honestly, no one does. It is definitely one of the hardest subjects to approach in real client conversations. 

00:01:00 Adam Scherer 

One of the few times clients feel truly motivated to get their estate planning done is when they have children and travel overseas. The fear of “what happens if something goes wrong” often pushes them to act. But there are many reasons to get estate planning in order. 

00:01:29 Adam Scherer 

We actually talked about this before in our episode “Estate Planning for Everyone.” 

00:01:35 Jerry Mee 

Yes, exactly. Because most family arguments happen after a death in the family. I have seen so many families torn apart over small things, like who gets grandma’s glass elephant collection. Even my parents have been very intentional about splitting everything evenly between my brother and me. 

00:02:02 Jerry Mee 

They converted their home into a two-family house so that one of us gets each side when they pass. They want zero conflict. That takes a lot of planning. 

00:02:23 Adam Scherer 

That makes things easier for everyone emotionally and administratively. When a plan is in place, the estate is clear and current. When it is not, and it goes intestate, the state decides how assets are distributed—and that is never ideal. 

00:03:04 Adam Scherer 

But today we are focusing on more advanced estate planning concepts. 

00:03:09 Jerry Mee 

Yes, this one is for high-net-worth clients. 

00:03:19 Jerry Mee 

So, here is the question: Which of the following intra-family transfer strategies would be most effective for a business owner who wants to maintain management control while transferring maximum ownership to their children each year with minimal gift tax consequences? 

1. Preferred stock recapitalization with annual gifting of common shares
2. Inter vivos gifting trust with retained income rights
3. Family limited partnership (FLP)
4. Gift leaseback arrangement with an irrevocable trust

00:04:14 Adam Scherer 

I do not know, maybe B for “bye bye,” because I do not want to touch this one. 

00:04:21 Jerry Mee 

Yes, I remember seeing a similar question on my CFP exam and thinking, “I didn’t study this section enough.” Those are tough. 

00:04:35 Adam Scherer 

That’s a good point. When you’re stuck, use your foundational knowledge. If you at least understand the concepts, you can often eliminate wrong answers logically. 

00:05:06 Adam Scherer 

Each of these options represents a way to transfer assets within a family, often tied to succession planning or gifting, two major estate planning themes. 

00:05:31 Jerry Mee 

Right, and that’s why this question is geared toward high-net-worth clients. Annual gifting is limited to $19,000 per recipient, so we’re talking about families with larger estates or businesses looking to move significant assets to the next generation. 

00:06:07 Adam Scherer 

Exactly. With that in mind, I’m eliminating B, the inter vivos gifting trust with retained income rights. Inter vivos just means “during life.” It is used to reduce the size of an estate through lifetime gifts. But the question specifically asks about maintaining management control, and this structure doesn’t do that. 

00:07:50 Jerry Mee 

Agreed. Retaining only income rights means giving up control, so that option is out. 

00:08:08 Adam Scherer 

Here’s a general test-taking tip: if an answer looks overly complicated or stuffed with jargon, it’s often there to distract you. Trust your instincts. The CFP Board rarely makes the most confusing answer the correct one. 

00:09:13 Jerry Mee 

Exactly. And if you see buzzwords like “inter vivos gifting trust,” pause and translate them. They’re usually describing something simpler than it sounds. 

00:09:41 Adam Scherer 

Next, let’s talk about D, the gift leaseback arrangement with an irrevocable trust. This is typically used when a business gifts property—like real estate or equipment—to a family member or trust and then leases it back. The lease payments are deductible to the business and income to the recipient. 

00:10:41 Adam Scherer 

That works well for tangible assets like property or machinery, but not for company shares. So that one’s out. 

00:10:56 Jerry Mee 

Right. You can’t lease shares of stock. This setup only makes sense if we’re talking about equipment or other business assets, not ownership stakes. 

00:11:33 Adam Scherer 

Exactly. So that leaves A and C: preferred stock recapitalization and family limited partnership. 

00:12:39 Adam Scherer 

Preferred stock recapitalization divides ownership into voting preferred shares and non-voting common shares. The owner keeps voting control while gifting the non-voting shares to children over time. That does fit the question’s conditions. 

00:13:14 Adam Scherer 

But the FLP—family limited partnership—checks every box. You form a partnership, put the business into it, and assign ownership between general and limited partners. The general partners retain management control while gifting limited partnership interests to children over time. 

00:14:55 Adam Scherer 

The advantage is valuation discounts. Because FLP shares are not publicly traded, they are valued lower for gift tax purposes, which means you can transfer more ownership under the annual exclusion limit. It’s an efficient way to pass wealth while keeping control. 

00:15:48 Adam Scherer 

So the correct answer is C, Family Limited Partnership (FLP). It maintains management control, allows systematic ownership transfer, and minimizes gift tax consequences. 

00:16:01 Jerry Mee 

Agreed. That’s spot on. 

00:16:07 Adam Scherer 

Make sure to review these advanced strategies: SCIN (Self-Canceling Installment Note), sale leaseback, and gift leaseback. All are covered in BIF Review Volume 3. 

00:16:39 Adam Scherer 

Most students don’t complain about estate planning after that section, because it’s focused, clear, and not overwhelming. 

00:17:01 Adam Scherer 

And with that, I’m closing my set for Questionpalooza. No encores. 

00:17:13 Jerry Mee 

Excellent. We’re just days away from the CFP exam. Any final advice, Adam? 

00:17:34 Adam Scherer 

Yes. Start focusing on the mental side. Visualize success, stay grounded, and trust what you’ve learned. You’ll be surprised by how much you know on exam day. 

00:18:02 Jerry Mee 

I’ll give a practical tip: bring extra batteries for your calculator. Every exam cycle, someone’s calculator dies mid-test. Don’t be that person. Bring spares or a backup calculator. 

00:18:30 Adam Scherer 

Great advice. 

00:18:33 Adam Scherer 

Well, Jerry, how do we close a six-day festival of CFP questions? 

00:18:40 Jerry Mee 

I’m taking a nap. 

00:18:45 Adam Scherer 

That sounds perfect. 

00:18:51 Jerry Mee 

Best of luck to everyone on your exam. We can’t wait to hear all the success stories. 

00:19:00 Adam Scherer 

That’s the best part of the job. 

00:19:03 Jerry Mee 

That wraps up this special week. We’ll be back in about a week and a half with our regular BIF Podcast schedule. 

00:19:17 Adam Scherer 

Looking forward to it. Thanks, Jerry. 

00:19:24 Jerry Mee 

Take it easy, everyone.