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ACT 2020 > Chapter 14: Professional Financial Planning > Flashcards

Chapter 14: Professional Financial Planning Flashcards

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SAT® Prep flashcards
1
Q

3 Sections or stages of financial planning for humans

A

Early adult years
Middle adult years
Later adult years

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2
Q

Early adult years

A

saving for families should parents die prematurely, child education or paying off mortgages

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3
Q

Middle Adult Years

A

Saving for retirement

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4
Q

Later Adult Year

A

Estate planning, wills , transfer of property and wealth

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5
Q

Professional Financial Planning Steps (5)

A
  1. Motivate and Educate Clients
  2. Collect Information
  3. Develop Goals
  4. Implement Plans
  5. Review & Update Plans
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6
Q

Motivate and Educate Clients Stage

A

overcome tendencies to avoid completing financial plan

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7
Q

3 tendencies to avoid financial planning

A
  1. lack of knowledge
  2. not knowing where to start
  3. not understanding importance
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8
Q

Collect Information Stage

A

collect info about client etc net worth, cash flow, develop cash budget and spendings, house hold income from parents, family needs

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9
Q

cash budget(3)

A

heart of financial plan
plan development from tax returns and book records
estimate future needs

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10
Q

adjusted cost basis (4)

A

net cash outflow for purchased property -> purchase price and expense -> client attitude towards risk -> risk return trade off

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11
Q

Develop goals stage

A

short, middle, long term,
consider all sources of wealth and expenditure (rank)

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12
Q

Saving plan

A

fund expenses and obtain financial goals= investment strategy

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13
Q

Asset Allocation Plan:

A

What % of assets are held in low vs high risk investments

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14
Q

Implement plan stage

A

implement first budget and plan

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15
Q

Review and Update plans

A

plans change etc jobs, kids, raises bonuses, divorce, challenges

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16
Q

Early Adult Years

A

calculating life insurance needs for family

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17
Q

Period Characteristics: Early

A

first job, marriage, children, accumulation of debt

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18
Q

Needs based (Life Insurance) purchase

A

life insurance purchased in amount equal to difference between assets required to complete financial plan and assets available

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19
Q

Permanent policies or cash value life insurance

A

life insurance policy with savings feature, premiums affordable later

20
Q

Permanent needs

A

not function of time as exists at all ages etc burial fund, estate planning, court, attorney

21
Q

Term

A

not a long period of time and no savings element

22
Q

Temporary need

A

projected end, meet for portion of time

23
Q

Assets available to meet needs (4)

A

social security, employee group life, home equity, investment savings

24
Q

Tax advantage funding

A

produces more funds than non-tax

25
Q

529 Plan

A

contributor owns account, owner selects investment strategies and can make changes after one year

26
Q

Middle Adult Years

A

Retirement

27
Q

Period Characteristics: Middle

A

children independent, mortgages repaid, families accumulating savings

28
Q

what is the shift during the stage

A

from premature death to retirement, participate in social security, employee pension

29
Q

Retirement Planning and Problem to solve steps (6)

A
  1. Estimate length of life & health status
  2. forecast amount and sources of pre and post retirement income
  3. predict amount and type of retirement expenses
  4. age when retiring
  5. gauge impact of inflation post retirement
  6. anticipate possibility of dependent child, parent or both
30
Q

Late Adult Years

A

transferring wealth to lower generations etc estate planning

31
Q

estate planning

A

transfer of wealth, logical and economic transfer of asset with owners desires

32
Q

Will

A

legal document in which a person directs the disposal of assets at death

33
Q

probate

A

name for legal (court supervised) process of transferring property at a person’s death

34
Q

intestate

A

person dies without a will

35
Q

trust

A

legal arrangement allowing person, trustee, to manage property for the benefit of another person, beneficiary

36
Q

Life Insurance Trust

A

What attorneys call a trust funded with life insurance proceeds

37
Q

what is the cash in life insurance trust used for

A

purchase assets from the estate at set prices

38
Q

survivor life insurance and when is beneficiary paid

A

insure two loves under one contract, beneficiary paid after second death

39
Q

3 reason for business to purchase life insurance

A
  1. benefits for employees
  2. protect firm through use of life insurance
  3. Aid in business transfer of ownership
40
Q

benefits for employee

A

group life

41
Q

Key employee life insurance and who is owner , beneficiary and insured

A

protect a firm from the lose of a important individual etc president or ceo, and the resulting financial problems

beneficiary and owner is business and insured is key individual

42
Q

split dollar life insurance

A

employer and employee part of premium for insurance policy with savings feature

43
Q

buy and sell agreement

A

used to transfer ownership when owner of business dies

44
Q

2 forms of buy and sell agreement

A

cross purchase plan or entity plan

45
Q

cross purchase plan

A

each partner (shareholder) can purchase life insurance on every other partner (shareholder)

46
Q

Entity plan

A

partnership (corporation) can purchase insurance on each parter (shareholder) -> smaller number of policies

ACT 2020 (12 decks)

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