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CFP Book 1 - General Financial Planning Principles, Professional Conduct, and Regulation (og - EXTENSIVE) > Chapter 5 > Flashcards

Chapter 5 Flashcards

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1
Q

Several financial institutions offer various forms of checking and savings accounts including:

A

a. Commercial banks

b. Savings and loan associations

c. Mutual savings banks

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2
Q

Any person or entity can have FDIC insurance on a deposit. A depositor does not have to be…

(Federal Deposit Insurance Corporation (FDIC) insurance)

A

a U.S. citizen or even a resident of the United States

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3
Q

Federal deposit insurance protects (fill in the blank). Deposits that are (fill in the blank) are not insured.

(Federal Deposit Insurance Corporation (FDIC) insurance)

A

Blank 1: deposits that are payable in the United States
Blank 2: only payable overseas

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4
Q

The following are not covered by FDIC insurance (3 things)

(Federal Deposit Insurance Corporation (FDIC) insurance)

A

Securities,
mutual funds and similar investments,
treasury securities (bills, notes, and bonds) purchased by an insured depository institution on a customer’s behalf

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5
Q

The following entities are not protected by federal deposit insurance:

(Federal Deposit Insurance Corporation (FDIC) insurance)

A

Creditors (other than depositors) and shareholders of a failed bank or savings association

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6
Q

When received by a qualifying financial institution, the following types of deposits are insured:

(Federal Deposit Insurance Corporation (FDIC) insurance)

A

savings deposits,
checking deposits,
deposits in NOW accounts, and time deposits (including certificates of deposit, or CDs),
Cashier’s checks,
money orders,
officer’s checks,
and outstanding drafts

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7
Q

Certified checks, letters of credit, and traveler’s checks for which an insured depository institution is primarily liable are also insured when…

(Federal Deposit Insurance Corporation (FDIC) insurance)

A

issued in exchange for money or its equivalent or for a charge against a deposit account

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8
Q

Deposits in different qualified institutions are insured…

(Different qualified institutions)

A

separately

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9
Q

If an institution has one or more branches, the main office and all branch offices are considered to be…

(Different qualified institutions)

A

one institution

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10
Q

Thus, deposits at the main office and at branch offices of the same institution are (fill in the blank) when calculating coverage…

(Different qualified institutions)

A

added together

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11
Q

Financial institutions owned by the same holding company but separately chartered are…

(Different qualified institutions)

A

separately insured

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12
Q

The FDIC presumes that…

(Different qualified institutions)

A

funds are owned as shown on the deposit account records of the insured depository institution

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13
Q

The maximum FDIC-insured amount of a depositor is…

(Maximum FDIC-insured amount)

A

$250,000

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14
Q

(Fill in the blank) is included when calculating insurance coverage.

(Maximum FDIC-insured amount)

A

Accrued interest

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15
Q

Deposits maintained in different categories of legal ownership are (fill in the blank). Accordingly, a depositor can have more than $250,000 of insurance coverage in a single institution if the…

(Maximum FDIC-insured amount)

A

Blank 1: separately insured
Blank 2: funds are owned and deposited in different ownership categories.

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16
Q

The most common categories of ownership are…

(Maximum FDIC-insured amount)

A

single (or individual) ownership, joint ownership, and trust accounts

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17
Q

Separate insurance is also available for funds held for…

(Maximum FDIC-insured amount)

A

retirement and business purposes

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18
Q

FDIC coverage for retirement accounts (e.g., IRAs) that an individual has on deposit at an FDIC-insured institution is the dollar amount…

(Maximum FDIC-insured amount)

A

$250,000

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19
Q

Federal deposit insurance is not…

(Federal deposit insurance)

A

determined on a per-account basis

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20
Q

A depositor cannot increase FDIC insurance coverage by…

(Federal deposit insurance)

A

dividing funds owned in the same ownership category among different accounts within the same institution

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21
Q

The type of account (whether checking, savings, CD, outstanding official checks, or other form of deposit) has (fill in the blank).

(Federal deposit insurance)

A

no bearing on the amount of insurance coverage

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22
Q

A single (or individual) ownership account is an account owned by (fill in the blank).

(Single Ownership Accounts)

A

one person

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23
Q

Single ownership accounts include:

(Single Ownership Accounts)

A
  • accounts in the owner’s name;
  • accounts established for the benefit of the owner by agents, nominees, guardians, custodians, or conservators;
  • and accounts established by a business that is a sole proprietorship
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24
Q

All single ownership nonretirement accounts established by, or for the benefit of, the same person are (fill in the blank).

(Single Ownership Accounts)

A

added together

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25
Q

Single Ownership accounts are insured up to the (fill in the blank) maximum.

(Single Ownership Accounts)

A

$250,000

26
Q

Single ownership accounts include:

(Single Ownership Accounts)

A
  • savings accounts,
  • CDs,
  • NOW accounts,
  • checking accounts,
  • and money market deposit accounts
27
Q

If an individual owns and deposits funds in his own name but then gives another person the right to withdraw funds from the account…

(Single Ownership Accounts)

A

the account will generally be insured as a joint ownership account

28
Q

The Uniform Gift to Minors Act is a state law that…

(The Uniform Gift to Minors Act)

A

allows an adult to make an irrevocable gift to a minor.

29
Q

Funds given to a minor under the Uniform Gift to Minors Act are held in the name of…

(The Uniform Gift to Minors Act)

A

a custodian for the minor’s benefit.

30
Q

The funds are added to (fill in the blank), and the total is insured up to a maximum of…

(The Uniform Gift to Minors Act)

A

Blank 1: any other single ownership accounts of the minor
Blank 2: $250,000

31
Q

A joint account is an account owned by…

(Insured joint account conditions)

A

two or more individuals

32
Q

Joint accounts are insured (fill in the blank) if certain conditions are met.

(Insured joint account conditions)

A

separately from single ownership accounts

33
Q

All co-owners must be natural persons. Legal entities such as corporations or partnerships are…

(Insured joint account conditions)

A

not eligible for joint account deposit insurance coverage

34
Q

Each co-owner must have a…

(Insured joint account conditions)

A

right of withdrawal on the same basis as the other co-owner

35
Q

a. If co-owners have different signature rights over the account, this is…

(Insured joint account conditions)

A

not considered a right of withdrawal on the same basis

36
Q

b. If a co-owner’s right to withdraw funds is limited to a specified dollar amount, the funds in the account will…

(Insured joint account conditions)

A

be allocated between the co-owners according to their withdrawal rights and insured as single ownership funds

37
Q

Each co-owner must have personally signed a…

(Insured joint account conditions)

A

deposit account signature card

38
Q

a. Requirement need not be satisfied if the account is…

(Insured joint account conditions)

A

a certificate of deposit or a deposit obligation evidenced by a negotiable instrument

39
Q

b. Requirement need not be satisfied if the account is maintained by…

(Insured joint account conditions)

A

an agent, nominee, guardian, custodian, or conservator (but the deposit must in fact be jointly owned)

40
Q

The interests of each individual in all joint accounts she owns at the same FDIC-insured depository institution are…

(Insured joint account conditions)

A

added together

41
Q

a. They are insured up to…

(Insured joint account conditions)

A

the $250,000 maximum

42
Q

b. Each person’s interest (or share) in a joint account is…

(Insured joint account conditions)

A

deemed equal unless otherwise stated on the deposit account records

43
Q

Community property laws do not affect deposit insurance coverage. In states recognizing this form of ownership…

(Insured joint account conditions)

A

an account in the sole name of one spouse will be insured as the single ownership account of that spouse.

44
Q

Separately, a qualifying joint account in the names of both spouses will be insured as a…

(Insured joint account conditions)

A

joint account

45
Q

A deposit account held in two or more names that does not qualify for joint account deposit insurance coverage is treated as (fill in the blank). As such, each owner’s interest is (fill in the blank).

(Insured joint account conditions)

A

Blank 1: being owned by each named owner as an individual, corporation, partnership, or unincorporated association,as the case may be, according to each co-owner’s actual ownership interest.
Blank 2: added to any other single ownership accounts

46
Q

Or, in the case of (fill in the blank), to
other accounts of such entity, and the total is insured up to $250,000….

(Insured joint account conditions)

A

a corporation, partnership, or unincorporated association

47
Q

Funds deposited by a corporation, partnership, or unincorporated association are FDIC insured up to a maximum of…

(Business Accounts)

A

$250,000

48
Q

Funds deposited by a corporation, partnership, or unincorporated association are insured…

(Business Accounts)

A

separately from the personal accounts of the stockholders, partners, or members

49
Q

To qualify for this coverage, the entity must be….

(Business Accounts)

A

engaged in an independent activity. Independent activity means that the entity is operated primarily for some purpose other than to increase deposit insurance

50
Q

Funds owned by a business that is a sole proprietorship are treated as….

(Business Accounts)

A

the individually owned funds of the person who is the sole proprietor.

51
Q

Consequently, funds deposited in the name of the sole proprietorship are…

(Business Accounts)

A

added to any other single ownership accounts of the sole proprietor, and the total is insured to a maximum of $250,000

52
Q

The total amount insured across all retirement accounts (e.g., traditional IRA) held at a single institution is limited to…

(Retirement Accounts)

A

$250,000

53
Q

Accounts must be in…

(Retirement Accounts)

A

bank investment products, not securities

54
Q

Generally, $250,000 of coverage is afforded per…

(Revocable Trust Accounts)

A

owner, per beneficiary (subject to specific limitations and requirements).

55
Q

The $250,000 per (fill in the blank) applies only up to (fill in the blank, it’s a dollar amount) of total coverage for any one person’s revocable trust.

(Revocable Trust Accounts)

A

Blank 1: beneficiary coverage
Blank 2: $1,250,000

56
Q

If the assets in the trust are worth less than or equal to (fill in the blank, dollar amount), the FDIC will assume that the life interest of each beneficiary is valued at (fill in the blank, dollar amount)…

(Revocable Trust Accounts)

A

Blank 1: $1,250,000
Blank 2: $250,000

57
Q

If the assets in the trust are worth more than (fill in the blank, dollar amount) (and there are more than five named beneficiaries), the FDIC coverage is (fill in the blank), limited to (fill in the blank) per beneficiary…

(Revocable Trust Accounts)

A

Blank 1: $1,250,000
Blank 2: the greater of $1,250,000 or the aggregate of all beneficiaries’ proportional interests
Blank 3: $250,000

58
Q

An irrevocable trust will qualify for up to…

(Irrevocable trust accounts)

A

$250,000 in coverage for the combined interests of contingent beneficiaries

59
Q

Additional coverage up to $250,000 per beneficiary may apply based upon the…

(Irrevocable trust accounts)

A

actuarial value of trust benefits for each individual beneficiary

60
Q

In what cases would coverage not apply (2 total)?

(Irrevocable trust accounts)

A

If the beneficiary’s interest is a contingent interest
If the beneficiary’s interest is subject to the possibility that the trustee may divert assets away from that beneficiary

61
Q
A

CFP Book 1 - General Financial Planning Principles, Professional Conduct, and Regulation (og - EXTENSIVE) (7 decks)

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