LLQP Life Insurance · Component 1.1 · 35% of the exam
A client with a spouse owns appreciated shares. On his death, if the shares pass to his spouse:
- AThe shares must be sold within a year, since a spouse cannot hold appreciated securities inherited from a deceased spouse
- BThe shares are exempt from tax forever, since a transfer to a spouse removes the accrued gain from the tax system
- CCapital gains tax is due immediately on the deceased's final return, whoever receives the shares
- The shares roll over to the spouse at cost, deferring the tax until the spouse disposes of them or dies
Correct answer: D) The shares roll over to the spouse at cost, deferring the tax until the spouse disposes of them or dies
The spousal rollover defers the deemed disposition to the surviving spouse's death (or earlier sale). The tax does not disappear; it moves to the second death, which is why joint last-to-die insurance is used to fund it.
Why the other options are wrong
- AThere is no forced sale.
- BThe tax is deferred, not eliminated.
- CWith a spousal rollover, tax is deferred, not immediate.
Exam tip
Spousal rollover = deferral to the second death. That timing drives the choice of joint last-to-die coverage.
Common mistake
Telling a client the rollover makes the gain tax-free.
What this tests
CISRO competency component 1.1 — Assess the client's needs and situation — which is weighted at 35% of the Life Insurance module. Written against the published curriculum.
More from component 1
- A client's existing policies were all sold by another agent who has left the business. The reviewing agent should:
- A client supports an adult child with a permanent disability who will never be self-sufficient. In the needs analysis this is:
- A self-employed client's income fluctuates widely year to year. When determining the income to replace, the agent should:
- A 58-year-old client plans to retire at 65 and has a pension that will pay a survivor benefit. How does time to retirement affect the life insurance need?
- Which of the following is a capital expense arising at death, rather than an ongoing income need?
- A client is the sole income earner in a household with a stay-at-home spouse and two young children. The greatest risk that life insurance on the client addresses is:
Practice the whole Life Insurance module
Timed sets weighted like the exam, and review of every question you miss. Free to start.