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Learned In Practice > Deck 4 > Flashcards

Deck 4 Flashcards

1
Q

Are premiums on ‘key person’ life insurance deductible as a business expense?

A

No.

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2
Q

Is a CRAT included in gross estate?

A

Yes, the charitable remainder is then deducted under charitable deductions.

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3
Q

Can you qualify for the marital deduction if you’re separated (not divorced) at death?

A

Yes.

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4
Q

What is portability?

What’s the catch with portability?

A

Keeping the lifetime exclusion of your deceased spouse.

You can only use it on the most recently deceased spouse.

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5
Q

How does the “deemed contribution rule” and the “actual contribution rule” work in JTWROS?

A

The deemed contribution is 50% if the property is left to your spouse, even if you paid for all of it by yourself.

If you leave it to anyone else it’s the actual contribution rule. This determines what is included in your gross estate.

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6
Q

If you someone leaves you a house and you sell it between the date of death and the AVD, what amount goes into the gross estate?

A

The sale price.

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7
Q

What type of insurance settlement is a pure life annuity?

A

It stops at the end of the recipient’s life. If you want a remainder benefit you need “Life Income Period Certain”

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8
Q

If you surrender a life insurance policy, and the surrender value is greater than your premiums paid, how is the difference taxed?

A

Ordinary income.

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9
Q

What is the minimum group size for group term life?

Are medical exams always necessary?

Can coverage amounts be based on salary?

A

The minimum size is 10, unless extenuating circumstances are met.

Medical exams are NOT always necessary.

Coverages are usually based on salary.

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10
Q

What is the difference between “reduced paid up insurance” and “paid up additions”?

A

Reduced paid up insurance is a forfeiture option.

Paid up additions is a dividend option.

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11
Q

What is an “irrevocable beneficiary” of a life insurance policy?

What rights does that person have?

A

An irrevocable beneficiary is court-ordered. The beneficiary has all the rights of the policy owner, and can’t borrow from the cash accumulation of the policy w/o written consent of the IB.

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12
Q

How are withdrawals made from a MEC?

A

LIFO. It loses the FIFO benefit of an LI policy.

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13
Q

What does “highly rated” mean in LI?

What are the implications?

A

“Highly rated” means in poor health.

Term insurance will be very expensive.

Permanent insurance will be cheaper.

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14
Q

Can you convert group permanent insurance to term?

A

No.

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15
Q

What is decreasing in “decreasing term” LI?

A

The amount of coverage.

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16
Q

Can term insurance be converted to cash value w/o evidence of insurability?

A

Yes, it’s a feature of many term policies.

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17
Q

What are “direct recognition” programs in LI?

A

Any amount of cash that is removed from the policy is reflected in the dividends and interest paid on the policy.

When you borrow from the policy, the insurer reduces the cash value by the loan amount and calculates interest and dividends based on that.

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18
Q

If an LI contract is a MEC, is the death benefit taxable to the beneficiary?

A

No

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19
Q

Non-forefeiture rights of policy holders guarantee what?

A

Cash value.

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20
Q

What is an “unbundled premium” in life insurance?

A

A premium that allows the policy holder to adjust the death benefit and corresponding premium, such as with universal life.

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21
Q

What is the lowest investment grade bond in Moody’s?

S&P?

A

Baa for Moody’s

BBB for S&P

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22
Q

What are debenture bonds?

What are equipment trust certificates?

A

Debentures are unsecured debt.

Equipment trust certificates are secured by the equipment they’re being used to finance.

23
Q

What are income bonds and high yield bonds?

A

Income bonds are unsecured, issued by financially troubled firms.

High yields are lower quality than investment grade and pay more interest.

24
Q

Do lower coupon bonds have more volatility than higher coupons?

A

Yes.

25
Q

What happens to losses in 1244 (small business) stock?

What is the tax loss on non-business bad debt?

A

Ordinary income loss.

ST capital loss.

26
Q

Is municipal bond income included in gross income?

A

No.

27
Q

What are the two choices for withholding tax amount?

A

100% of last year’s liability

90% of this year’s liability.

28
Q

How does the IRA phase out work for couples where one earns a lot and the other doesn’t earn that much?

A

Usually the higher earning person will be phased out and the lower won’t.

29
Q

If you’re blind, do you have to file to claim the deduction for blindness?

A

Yes

30
Q

What are the two standard deduction options for a dependent?

A

The greater of earned income + 350 or 1100

31
Q

What is a qualified dividend?

What is its benefit?

A

A qualified dividend means you owned the stock for 60 days.

The dividend is then taxed at CG rates rather than OI rates.

32
Q

What is the maximum allowable Keogh contribution for 2021?

Why isn’t it $19,500?

A

It’s $58,000.

It’s not $19,500 because it’s for Keogh’s are for self-employed, so the amount has to equal employer contribution.

33
Q

Do 401k hardship rules allow for a withdrawal without the 10% penalty?

A

No. Hardship is not one of the exceptions to the 10% penalty.

34
Q

How much stock must an ESOP own after initial purchase?

A

30%

35
Q

How much vesting do safe harbor 401k plans require?

A

100%

36
Q

How does a cash balance plan define its benefit to employees?

How does a defined benefit plan?

A

DB plan = monthly income for life.

CB plan = $ amt. at retirement.

37
Q

What is the total amount you can defer to a 401k if you have two of them?

A

$19,500, not counting the catch-up provision. You can’t defer double the amount just because you have 2 plans.

38
Q

What is the maximum disparity permitted under permitted disparity?

A

Double the contribution rate up to 5.7%

39
Q

Can ESOP’s integrate with SS?

Is there a cap on the interest deduction they can take?

A

No and no.

40
Q

Are 401k deferrals subject to SS and Medicare tax?

A

Yes.

41
Q

What must a top-heavy DC plan do?

A

Provide a 3% contribution to non-keys.

Provide same contribution % as keys if > 3%

42
Q

If you’re creating a sculpture for a charity, which of the following can you deduct:

  • your materials?
  • your studio rental cost?
  • your time?
  • your model’s fee?
A

Only your materials, and your model’s fee.

43
Q

How do you do mortgage problems on the calculator?

A

Calculate N and I as monthly.
Loan amount = PV,
0 = FV.

To get principle and interest date for say the 5th month, enter 1 input 5, OS, AMORT.
Use the = sign to toggle b-t interest, principle paid, and remaking balance.

P. 75 in book.

44
Q

What is the most flexible HMO model?

What model is Kaiser?

What is the same about the Group and Network Models?

A

The IPA model is the most flexible.

Kaiser is an example of the Staff Model.

The Group and Network Models are the same thing.

45
Q

What is interest rate risk?

How can a bond holder eliminate it?

A

The risk that you’ll have to sell your bond when the price has fallen due to rising interest rates.

This is eliminated by holding your bond to maturity.

46
Q

Which bonds have the greatest reinvestment rate risk?

A

The ones with the highest coupon rates and the highest price.

47
Q

Do energy sector funds have political risk?

A

Yes.

48
Q

Does roof repair add to basis?

Does roof replacement?

Does painting?

A

Roof repair does not.

Replacement does.

Painting does not.

49
Q

Can you sell specific identifiable shares of a mutual fund?

A

Yes.

50
Q

Does a sale of loss property to a related party create a double basis for the buyer even if they pay FMV?

A

Yes!

51
Q

When community property is left to a spouse, how much of it steps up to FMV?

A

All of it.

52
Q

When you gift loss shares to a related party, do you have a deductible loss?

A

No.

53
Q

When do you make a calculation with key employees as opposed to HC ones?
What % do you use?

A

When you’re trying to decide if your plan is top heavy. You use 60%.

54
Q

What are the 3 types of key employee?

A
  1. > 5% owner.
  2. > 1% owner, makes > $150k.
  3. Officer who makes > 185k.

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