Exam Tips and Other Notes

Question 1

Which college tax credits, account distributions and withdrawals cannot be combined (coordination rules)?

Answer 1

Cannot combine for same child, same expense:
- American Opportunity Credit (AOC)
- Lifetime Learning Credit (LLC)
- Coverdell withdrawal
- 529 (QTP) distribution

Question 2

Which college funding strategies can be combined without restrictions?

Answer 2

Educational gifts, earnings, UGMA/UTMA/2503(c) funds, PLUS Loans

Question 3

Fed Actions:
BEST and
Repo/Reverse Repo

Answer 3

BEST - Buy=Expansionary, Sell=Tighten

Repo - Repurchase or “Buy” - Expand
Reverse Repo - “Sell” - Tighten

Question 4

Discount Rate vs Fed funds rate

Answer 4

The federal reserve sets the discount rate

Banks determine the fed fund rate for what they will lend to each other

Typically, discount rate is the better answer. If discount rate is not available, then choose fed funds rate.

Question 5

Ch 7 Bankruptcy - Exempt property

Answer 5

• Homestead
• Limited amount of personal property and equity in a motor vehicle
• Wages due to head of family
• Pension and retirement plan rights (ERISA plans)
• Cash value of life insurance, proceeds of annuity contracts, disability benefits

Miscellaneous federal exemptions - civil service and railroad pensions, veterans benefits

Question 6

Ch 7 Bankruptcy - Not Cancelable Debts

Answer 6

G-CATS

• Government loans
• Child support
• Alimony
• Taxes
• Student loans

Basically, government or ex-spouse

Question 7

Implied Authority (Law of Agency, Insurance)

Answer 7

Is that which the public believes the individual holds and includes signage, rate books, etc.

Implied is actual authority that the agent has to carry out the principal’s business

Question 8

Express Authority (Law of Agency, Insurance)

Answer 8

Written, explicit direction from principal to agent

Question 9

Apparent Authority (Law of Agency, Insurance)

Answer 9

Arises out of negligence of the principal in allowing the agent to appear to have authority because of certain actions of the agent in the past. This typically affects terminated agents.

“A parent should supervise”

Question 10

Paula Stone spent nearly a year and a half completing the CFP education courses, and finally passing the exam. Upon submittal of her paperwork, the CFP board found cause to suspend issuance of the CFP certification for two years. Will the board publish such a suspension?

Answer 10

Yes, suspensions are automatically published

Question 11

Todd Hamm, CFP works for ABC Brokerage. ABC sells only commission base proprietary products. Todd is assigned a commission goal for the year and ABC’s bonus is paid on exceeding that goal. Without that bonus, the payout is less than Todd’s living expenses. A new investment product is being promoted by ABC to try to lock up a client’s total investment account by giving the client airline miles, low interest credit cards, and below market mortgage loans. What should Todd do?

Answer 11

Enter into agreements with all his clients disclosing compensation arrangements for the company’s proprietary products

Question 12

On the test, what is the maximum home equity line amount available?

Answer 12

FMV minus debt (100% of your equity)

Question 13

Tammy Jones, CFP, is meeting with a new client. What is the first step he should take?

A. Give the client his firms brochure.
B. Provide the client with written disclosure of all material information.
C. Ask the client for a written agreement as to his understanding of the planning process.
D. Review the client and objectives.

Answer 13

B. Provide the client with written disclosure of all material information.

Answer B is the first step. Answer D is the second step. The question does not indicate that Tommy is a Registered Investment Advisor, so A does not apply.

Question 14

Why, Alan Alligator is a CFP professional, who operates his own financial planning firm. He has just been engaged by Mr. and Mrs. Thomas to provide financial pinning services. Which of the following items of information may provide to the Thomases either in writing or orally.

A. Material conflicts of interest.
B. The firms privacy policy.
C. Compensation to Alan and his firm.
D. Alan’s bankruptcy history, if any.

Answer 14

A. Material conflicts of interest.

The CFP board specifies it when a CFP professional is providing financial planning services, the material conflicts relating to the planner, and the firm may be provided either in writing or orally. The firm must provide in writing, how it will be compensated by the client, the terms of the engagement with the client and its Privacy Statement. It must also disclose in writing its services and any bankruptcy or disciplinary history relating to the firm or its principals.

Question 15

Which of the following elements of the CFP® Code of Ethics is designed to dovetail with the steps in the financial
A. The seven Principles
В. The fifteen Duties
C. The Practice Standards
D. The fitness Standards

Answer 15

C. The Practice Standards

The practice standards, which are part of the CFP boards code of ethics are designed to address the responsibilities of the CFP professional as he performs each step of the financial planning process

Question 16

Patsy Planner is proud of her success in passing the CFP® Exam. She has five years of experience in financial services but had declared bankruptcy five years after graduating from college fifteen years ago. Would she be considered to be a CFP® Professional at that point?

A. No, because she must complete the ethics declaration and satisfy the CFP Board’s fitness standards.
B. Yes, because she has completed the CFP® Exam successfully.
C. Yes, because she has not declared bankruptcy twice.
D. No, because she does not have ten years of experience in financial services.

Answer 16

A. No, because she must complete the ethics declaration and satisfy the CFP Board’s fitness standards.

Merely completing the CFP® Exam successfully does not entitle the successful candidate to use the CFP® Marks.
Patsy must complete the Application for CFP® Certification. In the certification application, she must agree to abide by CFP Board’s Terms and Conditions. The conditions require Patsy to agree to comply with, and to be bound by, CFP Board’s Code of Ethics and Standards of Conduct as they are currently presented and as modified in the future. The application further requires Patsy to sign the Ethics Declaration, which contains a series of questions that require her to disclose information that is relevant to the fitness standards that required of CFP® Professionals.

Patsy must further pass the CFP Board’s Background Check. The Board will review Patsy’s responses on the Ethics Declaration, any regulatory disclosures that are available, including regulatory databases such as FINRA’S BrokerCheck and the SEC’s Investment Adviser Public Database, and public records.

Ultimately the Board will review the results of the background check and determine whether Patsy’s conduct satisfies the fitness standards for candidates for CFP® certification.

Question 17

What agency regulates brokerage companies?

Answer 17

FINRA - the SEC regulates brokerage companies through FINRA

Question 18

Which of the following is true concerning a pro forma statement?

A. It illustrates the sources and amounts of gross income received by the client.
B. Illustrates the solvency ratio of the client.
C. Illustrate future financial statements are expected to show.
D. It illustrates what has occurred in the past.

Answer 18

C. Illustrate future financial statements are expected to show.

A pro forma statement projects the expected result of the next year or longer

Question 19

Sandy has earned her Series 6 and all applicable state license. She may not sell which of the following investments?

A. Variable annuity.
B. Variable life insurance.
C. Mutual fund traded on a major exchange.
D. UIT (initial offering).

Answer 19

C. Mutual fund traded on a major exchange.

Mutual funds do not trade on stock, exchanges, but closed-end funds do. To sell closed-end funds, Sandy needs a Series 7 license. A Series 6 license allows a representative to sell an initial UIT offering.

Question 20

College funding options

Answer 20

UGMA/UTMA: Subject to Kiddie Tax for children under age 24.

EE Education Bonds: Parents own bonds, so will not work in a UGMA/UTMA

Coverdell Education Savings Plan (ESA): Limited to $2,000/year contribution total

Section 529 Plan (QTP):
- Available in 2 types: College Saving or Prepaid Tuition
- $17,000 contribution per year per child times 5 years $85,000

Question 21

American Opportunity Credit (AOC)

Answer 21

• $2,000 + 25% of next $2,000 of expenses (max $2,500 tax credit)
• MAGI Phase outs on tax sheet
• First four years of college only

Question 22

Funding Strategies in College Years

Answer 22

”Wealthy”
Parent Loan Undergraduate Students
Wealthy parents are a PLUS

Poorish (less than $60k)
- Pell Grants
- Supplemental Education Opportunity Grant
- Subsidized Stafford Student Loans

Question 23

Lifetime Learning Credit

Answer 23

• $2,000 max
• Any higher learning institution (undergrad, grad, continuing ed)
• MAGI Phase outs on tax sheet

Question 24

Coverdell ESAs

Answer 24

• Eligible for grades K through 12 expenses as well as college
• Contribution limits are phased out for higher-income contributors.
• Assets not used for educational expenses cannot be reclaimed irrevocable gift).
• $2,000 per year total limit (not per donor), and no 5-year averaging is available.
• Contributions may not be made after the beneficiary is age 18.
• Account must be distributed upon the beneficiary reaching age 30.
  Generally considered an asset of the parent (even if the parent is not the donor).
• Student loan payments not allowed.

Question 25

Dump Sheet Item #1 - Yield Ladder

Answer 25

DISCOUNT BOND Y - **Y**ield to Call M - Yield to **M**aturity C - **C**urrent Yield A - —Nominal Yield **Annual** Coupon Rate C - **C**urrent Yield M - Yield to **M**aturity Y - **Y**ield to Call PREMIUM BOND

Question 26

Tax Treatment of TIPS

Answer 26

- The investor is taxed annually on the interest payment plus the appreciation in face value. - The increase in face value is only nominal or "phantom" income that is not collectable until the bond is sold or matures. However, this income is taxable in the year it is accrued. TIPS interest is not subject to state and local taxes. TIPS create partially Phantom Income - interest is received now and is taxable now - The increase in face value is phantom (but it increases the basis)

Question 27

How many payments per year and bond calculations?

Answer 27

Two

Question 28

REIT Types and Definitions

Answer 28

**Equity REITs** invest mainly in operating rental properties (for growth). The net income from the property (rents less operating expenses) should exceed the REIT's borrowing costs, producing income for the shareholders. **Mortgage REITs** invest mainly in mortgages and construction loans. The interest earned on the mortgages and construction loans should exceed the REIT's borrowing costs. Mortgage REITs are highly leveraged. They make their income from the "spread" between the lending rate and borrowing rate. Inflation is bad for mortgage REITs.

Question 29

REIT Tax Rules to Achieve Conduit Status

Answer 29

75/15/90/20 75% income must come from real estate investments - 15% can come from securities, like GNMAs If min 90% of net investment income or more, it only pays tax on the undistributed portion. **If fails to distribute 90%, then all the net investment income is taxable to the REIT as an entity** **Qualified Business Income (QBI/199A) deduction of up to 20% of that income.** - Because REITs generally operate as pass-through arrangements

Question 30

Taxability of Covered Call (Lapse/Exercise)

Answer 30

**Lapse** - Premium received is short-term gain. **Exercise** - Premium received is added to the sale price (becomes long-term gain if underlying security was held more than 12 months; otherwise, short-term gain).

Question 31

Funding strategies in graduate degree years

Answer 31

- Fulbright scholarship - Stafford loan - 529 distribution or Coverdell withdrawal (same coordination rules as above above apply)

Question 32

Tax Equivalent Yield shortcut

Answer 32

Interest TEY = —————————————— 1 - (the taxes you don’t pay)

Question 33

Tax Form Schedules

Answer 33

**Schedule A** - “Allowances” - Itemized Deductions **Schedule B** - “Bank” - Ordinary Divs and Taxable Interest **Schedule C** - “Career” - Business Income **Schedule D** - “Gains=delightful, Losses=dreadful” - Cap Gains/Losses **Schedule E** - “Real **E**state”

Question 34

Gross Income Inclusions - Wages, Salaries, Tips

Answer 34

Inclusions pay for a TRIP TO CUBA T - Taxable interest R - Real estate I - IRA distributions P - Pensions/Punitive Damages T - Taxable SS O - Ordinary Divs C - Capital Gains/Losses U - Unemployment Inclme B - Business Income/Loss A - Alimony pre-2019

Question 35

Gross Income Exclusions

Answer 35

IMG CWC Inheritance Muni Bond Interest Gifts Child Support Workers comp Compensatory Damages

Question 36

Adjustments FOR/TO AGI “Above the Line”

Answer 36

SMASH KITE S - Self-employed health insurance M - Moving Expenses (active military) A - Alimony Paid (pre-2019) S - Student Loan Interest (up to $2500) H - HSA Contributions K - Keogh or SEP Contributions I - IRA Contributions T - Tax - 1/2 of SE Tax (0.07065%) E - Early Withdrawal Penalties

Question 37

Deductions FROM AGI “Below the line”

Answer 37

Med Fed Chair MINT SALT C - Charitable Giving U - Unreimbursed medical, dental, LTC (> 7.5% AGI) T - Tax (SALT up to $10k) I - Interest Paid (mortgage, margin) G - Government Declared Disaster (Federal)

Question 38

Dump Sheet Item #2 - Financial Planning Process

Answer 38

Uber Is A Drunk Person’s Immediate Motor vehicle U - **Understand** the client’s personal and financial circumstances I - **Identify** and select goals A - **Analyze** clients current course of action and potential alternatives D - **Develop** the financial planning recommendations P - **Present** the financial planning recommendations I - **Implement** the financial planning recommendations M - **Monitor** progress and update

Question 39

Dump Sheet #3 - Checkpoint Times

Answer 39

Q1 - 90 minutes (100 if a case) Q2 - Do not submit until you are fully rested (lunch clock will start) Q3 - 90 minutes (100 if a case)

Question 40

Duration vs Yields

Answer 40

Duration is inversely related to yields (like Bond prices are inversely related to yields) - Yields go up, duration goes down - Yields go down, duration goes up

Question 41

Duration of Zero Coupon Bond

Answer 41

Duration = Maturity No reinvestment risk

Question 42

Capital Market Line

Answer 42

Applies only to portfolios, not single securities Risk is based on Standard Deviation (variability) Capital market line improves on efficient frontier because it includes the risk free rate and leverage **Intersection of CML and Axis** - the Risk Free rate or Rf. 100% T Bills (0 standard deviation) **Point A** - (bottom left, between Rf and tangent) - combination of risk free and risky assets **Point B** - (middle) Tangent of the CML, the optimal risky portfolio, the Markowitz Efficient Frontier **Point C** - (top right) 100% risky assets leveraged with margin

Question 43

Markowitz Model (Efficient Frontier)

Answer 43

**Efficient Frontier** On the curve - Highest Return per risk assumed **Inefficient** (attainable) Inside the curve. Attainable but not on the efficient frontier **Not Feasible** (unattainable) Outside the curve. Low risk and high return are unlikely over time **Indifference Curves** Each investor has one - Low Risk investors have STEEP curves - High Risk have SHALLOW curves - The point where the indifference curves meets the efficient frontier is the optimal portfolio for that investor

Question 44

Security Market Line

Answer 44

Risk vs Return of an asset (for a stock or portfolio) Risk is based on Beta (volatility) Does not matter if diversified or not Formula is same as required rate of return - AKA the CAPM (capital asset pricing model): - r = r_f + (Er_f - r_f) B Expected return must exceed required return to recommend buying

Question 45

Anomalies to EMH

Answer 45

- P/E effect - Small-firm effect - January effect - Neglected-firm effect - Value line

Question 46

Fundamental Analysis

Answer 46

Can include research of such factors as interest rates, gross domestic product, inflation, unemployment and inventories Can also include analysis of balance sheets, income statements, and past company performance

Question 47

Ratio Analysis

Answer 47

Comparing ratios of a company to determine future price movements Two ways to do this: - Compare individual ratios for a firm over a period of time or established norms for firm - Compare the individual firms ratios to an industry average

Question 48

Technical analysis (active)

Answer 48

“active” means timing and selection Most analysis applies to short or inter term Technical analysis is not concerned about the financial position of the company MID BAM Technical approaches: - Dow Theory - Barrons confidence index - Mutual fund cash position - Advance/decline line - Moving Average (200 day) - Investment advisor opinions

Question 49

When to use Alpha, Treynor, Sharpe

Answer 49

RATS R² over 60 Alpha (Jensen) Treynor ——————— Sharpe (R² under 60) Mixed R² - “Grab something Sharpe”

Question 50

Ex-Dividend Date

Answer 50

Much purchase before this day to receive a dividend **Monday** - Purchase Stock **Tuesday** - Ex-Dividend Date **Wednesday** - Date of Record

Question 51

Can you buy options on margin?

Answer 51

No

Question 52

Margin Maintenance Formula

Answer 52

1 - Initial Margin purchase——————————— X price of 1 - Maintenance Margin stock

Question 53

What does Active Participant mean?

Answer 53

- Qualified Plan, both DB plans and DC plans. - exam will most likely say, they are an "active participant" in a plan. **457's don't count as "plans"** - so if both spouses participate in 457s, then it's as if they are NOT plan participants at all - deduct their IRA contributions without regard to their AGI (i.e. they could make a $1,000,0000,000/yr and they could deduct their IRA contribution)

Question 54

Roth RMD Rules

Answer 54

Roth IRAs do not require withdrawals until after the death of the owner. Designated Roth accounts in a 401(k) or 403(b) plan are subject to the RMD rules for 2022 and 2023. However, for 2024 and later years, RMDs are no longer required from designated Roth accounts.

Question 55

What indexes are value-weighted

Answer 55

S&P 500, Russell 2000, EAFE, Nasdaq

Question 56

What indexes are NOT value weighted?

Answer 56

Dow Jones - price weighted Wilshire 5000 - cap weighted Value Line - Equal weighted

Question 57

Quick Calculation of Duration

Answer 57

1. Use the given information (I, N, FV, Coupon) to calculate current value of the bond (not the stated value in the question). **Write that down at PV1** 2. Decrease given interest-rate by one. Recalculate the present value. **Write that down as PV2** 3. Calculate (PV2 - PV1) —————- = Duration Estimate PV1

Question 58

The question asks which stock is riskier

Answer 58

Do not pick the highest beta. It is looking for the return for unit of risk. Divide average return over beta and pick the highest one.

Question 59

What is a Yankee bond?

Answer 59

A dollar denominated bond issued in the US by foreign banks and corporations

Question 60

What is a bankers acceptance?

Answer 60

They are used to provide financial backing for import/export transactions. With maturity inot exceeding 270 days, they are money market securities.

Question 61

Which of the following corporate reports are required to be filed with the SEC? - Corporate Annual Report - 10Q - 10K - Form 1120

Answer 61

Form 10-K which must contain certain required financial information is submitted to the SEC as is the 10-Q that provides quarterly reporting. The Annual Report is sent to stockholders. Form 1120 is the corporate federal tax return.

Question 62

Buy-Sell Agreement Stock Redemption (Entity Purchase) For the purposes of this example, assume the following: - The business, HF, Inc. has two equal owners, Howie and Frank - Basis is $1,000 each - The current FMV of HF, Inc. is $1,000,000 - Two $500,000 life insurance policies on the two owners' lives

Answer 62

**Method** The corporation agrees to purchase the stockholder's interest for $500,000 using life insurance **Practicality** Practical with multiple owners **Life insurance owner and beneficiary** The corporation is the owner and beneficiary of the policies on lives of each shareholder **Life premiums** Nondeductible **Result when Howie dies** - $500,000 income tax free to corporation, company buy stock - Frank's basis is $1,000 - Frank now owns 100% **Rights of creditors** Life insurance can be attached **Result if Frank sells the company for $1,000,000** Gain is $999,000 ($1,000,000 less basis of $1,000)

Question 63

Buy-Sell Agreement Cross-Purchase (Stockholder Purchase)

Answer 63

**Method** One stockholder agrees to purchase a deceased stockholder's interest for $500,000 using life insurance **Practicality** Cumbersome with multiple owners **Life insurance owner and beneficiary** Life insurance generally is required by each shareholder on the lives of the other shareholders **Life premiums** Nondeductible **Result when Howie dies** - $500,000 income tax-free to Frank, he buys stock - Frank gets step-up in basis on shares purchased of $500,000 - Frank now owns 100% **Rights of creditors** Life insurance cannot be attached **Result if Frank sells the company for $1,000,000** Gain is $499,000 ($1,000,000 less basis of $1,000 plus shares purchased of $500,000)

Question 64

Income Tax Calculation

Answer 64

**[Gross Income]** Less adjustments (above the line) for AGI **[Adjusted Gross Income - AGI]** Less deductions (below the line) from AGI **[Taxable Income]** Multiplied by appropriate tax rates **[Taxable Calculation]** Less credits plus other taxes **[Tax Liability]** Less quarterly payments and withholding **[Net Tax Due or Refund]**

Question 65

Partnership Loss Rules

Answer 65

**Publicly Traded Partnership** - **Income:** Comes out of Partnership and Taxable as Portfolio income - **Loss:** Stays in partnership. NO NETTING **Nonpublic Partnership** - Losses can be taken up to income against OTHER NONPUBLIC PARTNERSHIPS

Question 66

2503(b) trust (bad boy)

Answer 66

Gift of a **future** interest - interest distributions only - must use applicable credit to fund - income payout may be subject to kiddie tax - **IRS considers the income to be a gift of present interest (qualifying for the annual exclusion) and the remainder interest (corpus) to be a gift of a future interest (no annual exclusion).**

Question 67

UGMA

Answer 67

Gift of a **present** interest Subject to kiddie tax rules - must be funded with cash-type assets (i.e., EEs, securities, mutual funds) - normally distributed at age 18 - can be included in custodian's estate - cannot be testamentary The gift property is transferred in the name of one adult acting "as custodian for (minor's name) under the (state name) Uniform Gifts to Minors Act. Commonly permissible gift property under UGMA includes securities, cash, life insurance, and annuities. In most UGMA states, real property cannot be held in a UGMA account (only 2 UGMA states remain).

Question 68

UTMA

Answer 68

Gift of a **present** interest Subject to kiddie tax rules - can be funded with any type of asset including real estate - normally distributed at age 21 - can be included in custodian's estate - can be testamentary The major difference between UGMA and UTMA rules is the types of property interests that may be held. UTMA allows any property interest to be transferred, including real estate, partnership interests, patents, royalty interests, and intellectual property. The UTMA allows custodian gifts at death by permitting a fiduciary (executor or trustee) to establish a custodianship if authorized in a governing will or trust.

Question 69

2503 (c) trust (children)

Answer 69

Gift of a **present** interest Trust rate (37% ≥ $13K+) - can be funded with any type of asset - normally distributed at age 21 - costs to set up and maintain (legal and accounting) - can be included in grantor/ trustee's estate

Question 70

Section 529 college savings plan

Answer 70

Gift of a **present** interest - invested in specific funds - flexible distributions - lump sum gift up to $85,000 - Donor can retain control. - K-12 - $10K per year - $10K toward student loans/person

Question 71

Inherited IRA RMDs (owner dies before BRD)

Answer 71

Spouse only beneficiary - Roll over IRA assets to his/her IRA and take distributions based on his/her own required beginning date - Keep the assets in the owner's IRA and take distributions (starting when owner would have reached 73) based on the spouse's life expectancy Non-spouse individuals [child(ren), grandchildren) other individuals, qualified trust] - Take distributions within 10 years (stretch eliminated)

Question 72

Inherited IRA RMDs (owner dies after BRD)

Answer 72

Spouse only beneficiary - Roll over IRA assets to his/her IRA and take distributions based on his/her own required beginning date - Keep the assets in the owner's IRA and take distributions based on the longer of: 1. Spouse's single life expectancy 2. No beneficiaries (see below) Non-spouse individuals [child(ren), grandchildren) other individuals, qualified trust] - Take distributions within 10 years (stretch eliminated)

Question 73

Split-dollar Plan - Endo**R**sement Method

Answer 73

EndoRsement method - Employe**R** is the owner. - Employee is not a shareholder. Death or policy surrender - Employer retains **cash value** of the policy (or premiums paid if greater). - Employee's beneficiary gets balance of death benefit. EndoRsement method Employer pays premium. V Premiums paid or cash value V Refunded at death or surrender

Question 74

Split-dollar Plan - Collateral A**SS**ignment Method

Answer 74

Collateral aSSignment method - Employee is owner. - Employee is Shareholder. - Employee aSSigns the policy. Death or policy surrender - Employer receives premiums paid. - Employee gets balance of cash value (surrender), or beneficiary gets balance of death benefits. Employee is charged with Table 2001 insurance cost. V Balance of any death benefits V Beneficiary receives income tax free.

Question 75

Life insurance inclusion in the decedent's estate (When Decedent is insured (You))

Answer 75

You own the policy and die. - Death benefit is included in your estate. Your spouse owns your policy. a. You gift to her/him and die within three year of transfer. - Death benefit is included in your estate (3-year rule). b. You gifted it to her/him, and never changed the beneficiary (your estate). - Death benefit is included in your estate.* *probate too You **sold** your policy - Nothing is included in your estate (no 3-year rule).

Question 76

Life insurance inclusion in the decedent's estate (Someone else insured (Your spouse))

Answer 76

You own the policy on your spouse.* - Replacement cost is included in your estate (term - unused premium: whole life - interpolated terminal reserve plus unearned premium) (no 3-year rule). *probate You gifted your spouse's policy to your daughter. - Nothing included in your estate (no 3-year rule).

Question 77

Post-Mortem elections for Estate Liquidity Section 303 stock redemption

Answer 77

Business **must** be incorporated (**closely held stock**). 2. Value of stock must exceed 35% of decedent's adjusted gross estate. Amount of stock redeemed as capital gain **cannot exceed the sum of the estate taxes plus administrations expenses.**

Question 78

Post-Mortem elections for Estate Liquidity Installment payment of estate taxes (6166)

Answer 78

Safe Answer 1. Property must be in a sole proprietorship, partnership, or corporation. (Aggregation is allowed if more than 20% interest in each business.) 2 Interest must be carried on as of the day of death. 3. Value of businesses) must exceed 35% of decedent's adjusted gross estate. 4. During first 4 years (of 14 years) can pay interest only on taxes due 5. The interest rate will be 2% on the first $1,000,000 (indexed to $1,750,000 in 2023). 6. The 2% is not deductible.

Question 79

Post-Mortem elections for Estate Reduction Special use valuation (2032A)

Answer 79

1. Real estate used for farming or a closely held business 2. Several rules to qualify: - 50% of the gross estate must consist of real and personal property **- 25% of the gross estate must consist of real property.** 3. $750,000 reduction in decedent's gross estate ($1,310,000 in 2023) 4. Must be qualified use: 5-out-of-8 rule before death / 10 years after death

Question 80

“Decline the Client”

Answer 80

Typically a wrong answer unless illegal activity

Question 81

Always eliminate ________ answers

Answer 81

Wrong

Question 82

RTFA and RTFQ

Answer 82

Exam will give good sounding non-answers AFTQ too!

Question 83

Quick Calc $100,000 mortgage at 6%

Answer 83

$600/mo

Question 84

Question too easy?

Answer 84

You are more likely to miss a question you **think** you know, because you went too fast

Question 85

“IRA” Means _________ IRA

Answer 85

Traditional

Question 86

Life Insurance Death Benefit Type

Answer 86

Unless stated otherwise, always assume Type 1/A (DB only, no cash value added)

Question 87

In your mind, always add this word before “marital deduction”

Answer 87

UNLIMITED marital deduction

Question 88

Assume taxpayer is _________, unless stated otherwise

Answer 88

Single

Question 89

If taxpayer is married, always assume married filing ________ unless stated otherwise

Answer 89

JOINTLY

Question 90

Always assume __________________ property unless stated otherwise

Answer 90

Common law. They will tell you it’s community property

Question 91

CDs are always considered ___________

Answer 91

Bank CDs (not brokered), unless otherwise stated. **No interest rate risk**

Question 92

Bonds always have ____ payments per year and a par of _______

Answer 92

2 - even **zero coupon** bonds $1000

Question 93

Dividends are always considered ________________ and taxed as ________________ unless otherwise stated

Answer 93

ORDINARY (not qualified) ORDINARY INCOME (not cap gains)

Question 94

Assume a “REIT” is always exchange traded or OTC

Answer 94

Don’t assume non-traded REIT unless stated (rare)

Question 95

“______________ the client” is often a good answer

Answer 95

Educate

Question 96

When evaluating retirement plan options. You are acting from the perspective of the ________

Answer 96

Boss/owner

Question 97

For plan selection: - “Stable cash flow” means _________ - “Vary year to year” means __________

Answer 97

“Stable” -> pension “Varies” -> profit sharing or DC plan

Question 98

Default age of an individual in CFP world is _____. Unless stated.

Answer 98

35, assume early w/d penalties

Question 99

Do not assume ________ income. AGI does not mean ________

Answer 99

Earned

Question 100

If they don’t say “part of an employer plan” or “active participant” assume they are ____________________

Answer 100

Not an active participant

Question 101

“Taxed as… 1. “Compensation” 2. “Ordinary Income” 3. “Capital Gain”

Answer 101

1. Comp: Ord. Income Tax + FICA/FUTA 2. Ord Inc: Ord. Income Tax (no FICA/FUTA) 3. Cap Gain - Short Term: Ord. Income Tax (no FICA/FUTA) - Long Term: Capital Gains Rates (no FICA/FUTA)

Question 102

“Salary Continuation Plan”

Answer 102

- This is group disability insurance - Premiums are paid by employer - If no tax to employee, benefits taxable later - 162’s are taxable now, tax free later

Question 103

MECs - Modified Endowment Contracts

Answer 103

For test purposes; - ALL single premium insurance are MECs - **Once a MEC, ALWAYS a MEC**

Question 104

“Endowment” life insurance contracts are always a __________ answer

Answer 104

Wrong

Question 105

“Hope” as an answer is ______ a strategy

Answer 105

NOT

Question 106

“Paid up” means your insurance is paid for how long?

Answer 106

Forever

Question 107

Insurance: Dividend vs Nonforfeiture

Answer 107

“Stop paying” -> nonforfeiture “Additional benefit” -> dividend “Settlement” -> money to beneficiaries (cash/annuity options)

Question 108

Exam assumes all annuities are _______________

Answer 108

Annuitized

Question 109

Exam prefers _______ rate mortgages over _________

Answer 109

Fixed; Variable

Question 110

Don’t assume mortgage refinance points are ___________; can be paid _____________

Answer 110

- rolled into the loan - out of pocket

Question 111

Exam Tip from Brad

Answer 111

Cash flow is king -> then focus on adequate life insurance coverage (huge focus at even the hint of a family with children) -> then move to personal liability and umbrella coverage ensuring underlying limits on the cars and home meet the umbrella minimum

Question 112

Dynasty trust

Answer 112

- a "B" trust that benefits multiple future generations - simple trust - Gift of Future interest unless Crummey provisions In certain states, a dynasty trust, free of estate, gift, and GST taxes, can last for the lives in being plus 21 years and 9 months (rule against perpetuities) or as long as local law allows. - Beneficiary interests are limited to life estates.

Question 113

Dump Sheet #4 - Estate Flow Chart

Answer 113

GE AGATE TB TT NET Minus Minus Plus Minus Minus GE AGE TE TB TT NET

Question 114

Ch 7 - Bankruptcy *exempt property*

Answer 114

C - Car H - house I - insurance (life/annuity) P - personal property (limited) P - paycheck (head household) P - pensions/plan (ERISA)