Final Stuff to Memorize

Question 1

7 Steps of the Financial Planning Process

Answer 1

Acronym: U.I.A.D.P.I.M:
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U: Understand Clients Personal and Financial Circumstances
* obtain qualitative and quantitative information about client
* use the information to assess the current sitution
* MUST furnish copy of ADV
I: Identify and Selecting Goals
* Ask or help define goals and slect assumptions/ estimates
* Select and Prioritize client goals; discuss unreasonable goals (MUST discuss unreasonable goals in this step)
A: Analyze clients current course of
action and alternatives
* Analyze current course of action (advantages/ disadvantages)
* Analyze alternative courses of action
D: Develop financial planning Recommendations
* select 1 or more recommendations designed to maximize clients goals and objectives
P: Present Financial Planning Recommendations
* Start by asking if there have been changes since last meeting
I: Implement Financial Planning Recommendations
* Address implementation responsibilities (who is responsible)
* Identify/ Recommend Products and services to meet goals
M: Monitor the plan
* Periodically meet to evaluate performance and update
* Establish who has monitoring responsibilities of the plan
* CLIENT RESPONSIBILITY: to notify cfp of changes
* CFP RESPONSIBILITY: Update the plan recommendations

Question 2

Social Security Survivorship Benefits

Answer 2

When Decedent is FULLY insured (40 quarters):
1. Children under 18 are always covered (19 or under if CURRENTLY in highschool)
2. Spouse if Caretaker of children under 16 (Called “Child in Care” benefits)
3. Spouse age 60 or older if worker is fully insured
4. Dependent parents age 62 or older if worker is fully insured. (paying for over 1/2 support)
5. Ex spouse if they were married for over 10 years AND SHE IS AGE 60 OR OLDER (taking care of kids does not matter)
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When Decedent is Currently Insured
1. Spousal benefit ONLY if caring fro a child under age 16
2. Benefits to a child under 18 (19 if in highschool/ secondary)
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Odd Rules:
1. When decedent is fully insured and survived by a disabled child, their benefits TERMINATE when they marry an able bodied person
2. If a widow remarries at or below age 50, they WILL NOT BE ENTITLED to collect on deceased spouse

Question 3

Duties Owed to Clients

Answer 3

Acronym: F-D.I.P

F: Fiduciary Duty
1. Duty of Loyalty:Place the interests of the Client above the interests of the CFP
2. Duty of Care: must act with the care, skill, prudence, and diligence that a prudent professional would exercise in light of the Client’s goals, risk tolerance, objectives, and financial and personal circumstances
3. Duty to Follow Client Instructions
D: Diligence
1. Must provide professional services and in a TIMELY Manner
2. Be Thorough with the client
I: Integrity
1. Honesty; Candor;
2. NEVER: scheme; deceit; fraud….difference of opinion is ok
P: Professionalism
1. Treat Clients; prospects; and others with dignity and respect

Question 4

Tax on Z-Coupon Bond Interest

Answer 4

Steps to Calculate Imputed Interest:
Step 1: (1000) / (1+IR)^N = Value at Purchase
Step 2: Value at year 2 = (1000) / (1+IR)^N-1
Step 3: (Value at Purchase) - (Value at Year 2) = amount taxable in year 2

Question 5

Traditional IRA Deduction Rules

Answer 5

If NEITHER Client is an Active Participant:
* NO AGI PHASEOUT LIMIT
* Can deduct full $6,000 (under 50) or $7,000 (over 50)

If 1 Spouse is ACTIVE and 2nd Spouse IS NOT:
* AGI PHASEOUT = ROTH contribution phaseout
* Can deduct full $6,000 or $7,000 if under phaseout

If BOTH Spouses are Active Participants:
* AGI Phaseout Limit = Lower T. IRA Phaseout
* Can deduct full $6,000 or $7,000 if under phaseout

Deductible Amount if Phaseout is BETWEEN AGI:
1. (Contribution $) X [(AGI - Bottom Limit) / (10k or 20k)]
2. (Contribution) - (Above Number) = Deductible Amount

Question 6

Important Tax Sections:
1. Section 83b
2. Section 121
3. Section 179
4. Section 303
5. Section 2032A

Answer 6

Section 83b: For Restricted Stock:
* Election to pay O.I Tax on restricted stock NOW and NOT pay tax when it vests (even if appreciated)

Section 121: Sale of Personal Residence:
* 250k or 500k capital gain exemption for sale of primary residence

Section 179: New Business Equipment Offset Earnings:
* You can offset earnings UP TO 1.08 million if new business equipment was purchased during the year

Section 303: Large Shareholder Estate Stock Redemption:
* Allows the closely held company to purchase decedent’s stock with no capital gain treatment to decedent estate

Section 2032A: Special Use Valuation (Farm)
* Reduces Gross Estate that has a sizeable farm because value of property is reduced

Question 7

7 Steps TIPS

Answer 7