[CFP, Estate] 6, Will Provisions

How These Clauses Impact Inheritance and Taxes – Explained Simply!

Author

Ran Chen
March 19, 2025

Mastering Will Provisions: Survivorship & Disclaimer Clauses 📜

How These Clauses Impact Inheritance and Taxes – Explained Simply!

🎯 Why These Clauses Matter for CFP Exam

Understanding will provisions—especially survivorship and disclaimer clauses—is crucial for both estate planning and your success in the CFP exam. These seemingly straightforward clauses can dramatically change inheritance outcomes and tax implications. Let's dive deep, make it crystal clear, and help you ace this part of the exam!

🔍 Breaking Down the Main Concepts

1. Survivorship Clauses ⏳

A survivorship clause requires a beneficiary to survive the decedent by a specified period (usually 30 to 180 days) to inherit assets. If the beneficiary dies within this period, the estate is distributed as if the beneficiary predeceased the decedent.

Purpose:

  • Reduces complications in asset distribution.

  • Prevents assets from being unnecessarily subjected to probate multiple times.

Example:

  • Robert's will contains a 120-day survivorship clause. He passes away on January 1st. His beneficiary, Emily, dies on April 10th (100 days later). Because Emily didn't meet the survivorship period, she does not inherit Robert’s assets. Instead, assets pass to the contingent beneficiary.

Tax Implication:

  • Assets passing directly to a surviving spouse qualify for the marital deduction.

  • If the spouse doesn't survive the specified period, this deduction is lost, possibly increasing estate taxes.

2. Disclaimer Clauses 🙅‍♂️

A disclaimer clause allows beneficiaries to legally refuse inheritance. The assets then pass to the next eligible beneficiary or contingent beneficiary as outlined by the will.

Purpose:

  • Beneficiaries might disclaim inheritance to avoid additional taxes or because they have sufficient assets.

  • Enables strategic estate planning for tax optimization.

Example:

  • Sarah inherits $1 million from her aunt. However, Sarah is already wealthy and would prefer her children to receive the inheritance. She formally disclaims her inheritance. Now, the $1 million passes directly to her children, potentially reducing Sarah's own taxable estate.

Tax Implication:

  • Must be made within 9 months of the decedent's death.

  • Disclaiming assets avoids inclusion in the disclaimant's taxable estate.

🚨 Common Mistakes to Avoid

Here’s what exam candidates often get wrong:

Common Mistake ❌

Correct Understanding ✅

Forgetting the survivorship period's impact on marital deductions.

Recognize that failing the survivorship period cancels marital deduction, increasing taxes.

Believing disclaimers can be selective (choosing only desirable assets).

Disclaimers must generally be unconditional and complete for a specific asset.

Misunderstanding disclaimers as taxable gifts.

Correct disclaimers aren't gifts; no gift taxes apply when done properly.

Confusing survivorship period with probate timeline.

Survivorship period affects beneficiary eligibility, not probate timelines directly.

🧠 Quick Review Table

Feature

Survivorship Clause ⏳

Disclaimer Clause 🙅‍♂️

Key Function

Requires beneficiaries survive a certain time period post-death.

Allows beneficiaries to reject inheritance.

Estate Impact

Reduces probate complications.

Redirects asset flow to alternative beneficiaries.

Tax Impact

Affects marital deductions.

Potentially reduces taxable estate.

Time Frame

Usually 30-180 days post-death.

Must disclaim within 9 months of death.

🎓 CFP Exam Tip to Remember

💡 Remember: Survivorship clauses are about timing. Disclaimer clauses are about choice. For the CFP exam, always clearly differentiate between these clauses’ estate distribution and tax consequences.

🔗 Ready for More?

To explore more detailed explanations, podcasts, and engaging videos about estate planning topics and CFP exam prep strategies, visit:

👉 Open Exam Prep 👈

Happy studying! 📖✨