Foundations Of Financial Planning: An Overview Flashcards
1
Q
According to a 2004 consumer survey conducted by the CFP Board of
Standards, the top reason why people begin financial planning is to
(A) accumulate capital
(B) purchase or renovate a home
(C) build a retirement fund
(D) generate current income
A
(C) build a retirement fund
2
Q
Which of the following financial advisors using the financial planning process would be considered to be practicing multiple-purpose financial planning?
(A) A multiline insurance agent who sells life, health, property, and liability
insurance to a client
(B) A personal finance counselor who shows a client how to set up and live within a budget
(C) A stockbroker who advises a customer to buy shares of common stock in the “XYZ” Company
(D) A banker who opens a trust account for the benefit of a customer’s
handicapped child
A
(A) A multiline insurance agent who sells life, health, property, and liability
insurance to a client
3
Q
Trends creating opportunities for advisors engaged in financial planning include which of the following?
I. Longevity among Americans is increasing.
II. The financial environment is becoming more stable.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
A
(A) I only
4
Q
Which of the following statements correctly describe(s) a characteristic of
comprehensive financial planning in its purest form?
I. The managing advisor’s compensation is usually a combination of fees and commissions.
II. The plan is created by the managing advisor and his or her team of specialists in a single planning engagement.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
A
(B) II only
5
Q
Financial advisor activities considered to be part of step 4 (develop and present
a plan) in the financial planning process include all the following EXCEPT
(A) obtaining the client’s approval of the plan
(B) presenting alternative plan strategies to the client
(C) writing a report for the client that describes the plan
(D) reviewing the plan to see that it is performing satisfactorily
A
(D) reviewing the plan to see that it is performing satisfactorily
6
Q
The results of the 2008 Retirement Confidence Survey conducted by the
Employee Benefits Research Institute showed all the following EXCEPT that
(A) health care costs have become a big issue for retirees
(B) retirement planning is up but still not high
(C) overall retirement confidence increased significantly
(D) retirement savings levels for most workers are modest
A
(C) overall retirement confidence increased significantly
7
Q
Insurance is used most efficiently in dealing with risk situations involving losses that are both
(A) low frequency and low severity
(B) low frequency and high severity
(C) high frequency and low severity
(D) high frequency and high severity
A
(B) low frequency and high severity
8
Q
A variable universal life (VUL) policy differs from a universal life (UL) policy in which of the following ways?
(A) A VUL policy provides for a flexible premium after the first year.
(B) A VUL policy permits partial withdrawals from its cash value.
(C) A VUL policy permits the policyowner to decrease the death benefit at
any time.
(D) A VUL policy allows the policyowner to direct the investment of the
cash value.
A
(D) A VUL policy allows the policyowner to direct the investment of the
cash value.
9
Q
If the daily benefit for institutional care in a long-term care insurance policy is $250 and the benefit period is 1,095 days (or 3 years), the policy’s pool of money would be
(A) $91,250
(B) $182,500
(C) $273,750
(D) $821,250
A
(C) $273,750
10
Q
For insurance and financial planning purposes, risk is defined to mean the
(A) possibility of financial loss
(B) uncertainty of financial loss
(C) probability of financial loss
(D) cause of financial loss
A
(A) possibility of financial loss
11
Q
Umbrella liability policies typically exclude which of the following types of losses?
I. Damage to the insured’s own property
II. Personal injury in the form of libel and slander
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
A
(A) I only
12
Q
Which of the following statements concerning Coverage B (other structures) of homeowners insurance policies is (are) correct?
I. Coverage B is found in all homeowners forms.
II. All losses to other structures are settled on an actual cash value basis.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
A
(D) Neither I nor II
13
Q
Which of the following statements concerning Part B (medical payments coverage) of the Personal Auto Policy (PAP) is (are) correct?
I. Medical expenses of the named insured and/or family members are covered if they are struck by a motor vehicle.
II. Medical expenses of persons other than the named insured and family members are covered if they are injured while in a covered auto.
(A) I only
(B) II only
(D) Neither I nor II
A
(C) Both I and II
14
Q
Loss control techniques typically available to individuals and families include all the following EXCEPT
(A) loss prevention
(B) retention
(C) risk avoidance
(D) loss reduction
A
(B) retention
15
Q
To handle the risk that continues to exist after the operation of the law of large numbers, insurers rely on all the following techniques EXCEPT
(A) writing different lines of insurance
(B) reinsuring part of their business
(C) approving more claim payments
(D) holding minimum amounts of surplus
A
(C) approving more claim payments
16
Q
The first part of step 2 in the financial planning process involves all the
following activities EXCEPT
(A) identifying the client’s concerns related to various pure risks
(B) measuring the potential losses associated with identified pure risks
(C) determining the client’s goals in dealing with his or her pure risk concerns
(D) helping the client prioritize his or her competing goals
A
(B) measuring the potential losses associated with identified pure risks
17
Q
In 2007, a study by the U.S. Chamber of Commerce found that the average
payment by employers for employee benefits was equal to what percent of
payroll?
(A) 16.9 percent
(B) 24.0 percent
(C) 42.7 percent
(D) 50.0 percent
A
(C) 42.7 percent
18
Q
Employer contributions for dependent life insurance are considered de minimis
(by the IRS) and not taxable to the employee if the amount of the coverage on the dependent does not exceed
(A) $2,000
(B) $5,000
(C)$7,000
(D) $10,000
A
(A) $2,000
19
Q
The cost of continuing coverage under COBRA may be passed on to the employee or dependent but cannot exceed what percent of the cost to the plan for a similarly situated active employee?
(A) 100 percent
(B) 102 percent
(C) 105 percent
(D) 108 percent
A
(B) 102 percent
20
Q
Comprehensive legal expense insurance plans typically provide coverage for which of the following types of legal services?
(A) cases that have contingent fees
(B) actions involving the employer
(C) class-action suits
(D) civil actions
A
(D) civil actions
21
Q
Characteristics that distinguish HMOs from traditional medical expense
contracts include which of the following?
I. HMOs provide for the delivery of medical services.
II. HMOs emphasize control of medical expenses.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
A
(C) Both I and II
22
Q
Which of the following statements concerning the tax treatment of employees
under a partially contributory group long-term disability income insurance plan is (are) correct?
I. Employer contributions result in no taxable income to the employees.
II. Benefits attributable to employer contributions are received tax free by
employees.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
A
(A) I only
23
Q
Which of the following statements concerning point-of-service (POS) plans is (are) correct?
I. The typical POS plan provides for a lower degree of managed care than most PPOs.
II. A POS plan is a hybrid arrangement that combines aspects of a traditional HMO and a PPO.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
A
(B) II only
24
Q
All the following statements concerning flexible spending accounts (FSAs) are correct EXCEPT:
(A) FSAs allow employees to fund certain benefits on a before-tax basis by electing to take a salary reduction.
(B) FSAs can be used for medical and dental expenses not covered by the employer’s plan and for dependent-care expenses.
(C) FSAs can be used by themselves or incorporated into a more comprehensive cafeteria plan.
(D) FSA funds not used during the year or grace period are returned to the
employees or credited to next year.
A
(D) FSA funds not used during the year or grace period are returned to the
employees or credited to next year.
25
Group medical expense plans containing coordination-of-benefits (COB) provisions have established all the following priorities for determining which
plans pay benefits EXCEPT:
(A) Coverage as a retired employee is primary to coverage as an active employee.
(B) Coverage as an employee is usually primary to coverage as a dependent.
(C) If a child lives in a two-parent household, the plan of the parent whose birthday falls earlier in the calendar year is primary.
(D) If a child does not live with both parents, the plan of the parent with custody of the child is primary in the absence of a court order specifying otherwise.
(A) Coverage as a retired employee is primary to coverage as an active employee.
26
Group term insurance contracts often provide additional insurance benefits in
the form of all the following coverages EXCEPT
(A) supplemental life insurance
(B) accidental death and dismemberment insurance
(C) dependent life insurance
(D) long-term disability income insurance
(D) long-term disability income insurance
27
Jack owns some tax-exempt municipal bonds that provide him with a current yield of 5 percent. If Jack is in the 28 percent marginal income tax bracket what is his equivalent fully taxable yield from the bonds?
(A) 4.91 percent
(B) 5.50 percent
(C) 6.12 percent
(D) 6.94 percent
(D) 6.94 percent
28
Which of the following statements concerning the Securities Investor Protection Act of 1970 is correct?
(A) It requires advisors to register with either the SEC or the state, depending on the amount of assets under management.
(B) It sets u a corporation that is patterned after the FDIC, with the objective of protecting customer property.
(C) It is designed to regulate the various securities markets, as we securities traded in these markets.
(D) It is designed to require investment companies to provide adequate disclosure to their shareholders.
(B) It sets u a corporation that is patterned after the FDIC, with the objective of protecting customer property.
29
Which of the following major categories of investment companies operate only as open end funds?
(A) index funds
(B) bond funds
(C) common stock funds
(D) mixed portfolio funds
(A) index funds
30
Bill owns stock that currently sells for $60 per share and pays an annual dividend of $4 per share. If Bill is in the 28 percent marginal income tax bracket, what is his after-tax current yield from the stock?
(A) 3.4 percent
(B) 3.9 percent
(C) 4.8 percent
(D) 5.6 percent
(C) 4.8 percent
31
Components of the interest rate risk include which of the following?
I. Business (default) risk
II. Reinvestment rate risk
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(B) II only
32
```
Which of the following statements concerning an open-end investment
company is (are) correct?
```
I. Its shares are traded in the stock market like those of large corporations.
II. It issues a given number of shares at formation and rarely, if ever, issues additional shares.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(D) Neither I nor II
33
Which of the following statements concerning holding periods for common stock investments is (are) correct?
I. Short holding periods, such as one year or less, may produce negative total returns.
II. Individually owned stocks should generally have planned holding periods of at least 10 years.
(A) I only
(B) II only
(C) Both land II
(D) Neither I nor II
(A) I only
34
All the following statements concerning the ownership of liquid assets are correct EXCEPT:
(A) Liquid assets tend to have the lowest expected rates of return.
(B) Owning liquid assets provides flexibility for emergency purposes.
(C) There are often substantial opportunity costs to owning liquid assets.
(D) There typically is a sizable risk in owning liquid assets.
(D) There typically is a sizable risk in owning liquid assets.
35
Reasons for the popularity of investment companies include all the following
EXCEPT:
(A) Each share in an investment company benefits from the pooled diversification of the portfolio.
(B) The wide diversity of investment companies allows an investor to select the portfolio that best suits his or her objectives.
(C) Investment companies typically perform better than the market average because they have no fees.
(D) Investment companies have professional managers that select and continuously monitor the portfolio's securities.
(C) Investment companies typically perform better than the market average because they have no fees.
36
All the following are considered cash equivalents EXCEPT
(A) American Depositary Receipts (ADRs)
(B) nonnegotiable certificates of deposit (CDs)
(C) money market deposit accounts (MMDAs)
(D) U.S. Treasury bills (T-bills)
(A) American Depositary Receipts (ADRs)
37
The floor for casualty loss deductions is set at what percentage of the taxpayer's adjusted gross income (AGI)?
(A) 2 percent
(B) 7.5 percent
(C) 10 percent
(D) 12 percent
(C) 10 percent
38
During the past taxable year, Susan sold some common stock she had held for several years and incurred a capital loss of $6,000. Susan had no capital gains during the year, and her other income for the year was $60,000. How much of the capital loss can Susan deduct for the taxable year?
(A) None
(B) $3,000
(C) $5,000
(D) $6,000
(B) $3,000
39
Which of the following tax law doctrines is most useful in determining when an item of income is taxable?
(A) Shotgun doctrine
(B) Assignment of income doctrine
(C) Constructive receipt doctrine
(D) Economic benefit doctrine
(C) Constructive receipt doctrine
40
Which of the following statements concerning tax credits is (are) correct?
I. A $100 tax credit provides the taxpayer the same benefit as a $100 deduction.
II. A $200 tax credit is worth more to a taxpayer in the 35 percent bracket than to one in the 15 percent bracket.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(D) Neither I nor II
41
Which of the following statements concerning federal income tax rates is (are) correct?
I. The highest marginal tax rate for an individual taxpayer is 35 percent.
II. An individual taxpayer's effective tax rate is always higher than his or her marginal tax rate.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
42
Which of the following types of business entities is (are) considered a pass-through entity under the federal income tax laws?
I. a partnership
II. an S corporation
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
43
All the following statements concerning the standard deduction are correct
EXCEPT:
(A) The amount of the standard deduction depends on the taxpayer's filing status.
(B) The standard deduction is classified as an above-the-line deduction.
(C) The taxpayer may choose to itemize deductions instead of taking the standard deduction.
(D) The standard deduction amounts are indexed annually for inflation.
(B) The standard deduction is classified as an above-the-line deduction.
44
All the following statements concerning the alternative minimum tax (AMT) for individual taxpayers are correct EXCEPT:
(A) The taxpayer pays the AMT amount if the AMT is greater than the regular tax.
(B) It is a separate and parallel income tax system to the regular system.
(C) The computational process for determining the AMT is different from that used in determining the regular tax.
(D) It permits taxpayers to deduct the same items that they deduct for regular tax purposes.
(D) It permits taxpayers to deduct the same items that they deduct for regular tax purposes.
45
All the following statements concerning personal and dependency exemptions are correct EXCEPT:
(A) A taxpayer may claim the standard deduction in addition to his or her exemptions.
(B) The amount of the exemption(s) is subtracted from gross income in the process of determining adjusted gross income.
(C) The exemption amount changes annually by way of an inflation adjustment.
(D) A taxpayer is permitted to claim a dependency exemption for each qualified individual he or she supports.
(B) The amount of the exemption(s) is subtracted from gross income in the process of determining adjusted gross income.
46
All the following assets may be treated as Sec. 1231 assets for federal into tax purposes EXCEPT
(A) common stock in the taxpayer's investment portfolio
(B) machinery used in the taxpayer's business
(C) the building in which the taxpayer's business is located
(D) land used in the taxpayer's business
(A) common stock in the taxpayer's investment portfolio
47
Which of the following correctly describes the unit-benefit formula found in defined benefit pension plans?
(A) It directly ties the participant's pension benefit to both service and salary.
(B) It bases the participant's pension benefit on final-average salary only.
(C) It provides each participant with the same pension benefit.
(D) It provides each participant with a flat benefit amount for each year of service.
(A) It directly ties the participant's pension benefit to both service and salary.
48
Which of the following types of retirement plans is qualified?
(A) a SIMIPLE plan
(B) a 401(k) plan
(C) a SEP plan
(D) a 403(b) plan
(B) a 401(k) plan
49
Which of the following types of retirement plans is a defined-benefit plan designed to look like a defined-contribution plan?
(A) a target-benefit pension plan
(B) a stock bonus plan
(C) an ESOP
(D) a cash-balance pension plan
(D) a cash-balance pension plan
50
Which of the following statements concerning a 403(b) plan is (are) correct
I. It allows deferrals in the form of a salary reduction chosen by the employee.
II. It can be used in conjunction with most other retirement plans.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
51
Which of the following statements concerning a Roth IRA is (are) correct?
I. Contributions can be made even after the owner attains age 70 1/2.
II. Distributions must begin no later than when the owner attains age 70 1/2.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
52
Which of the following statements concerning a money-purchase pension plan is (are) correct?
I. A money-purchase pension plan is a type of defined-benefit plan.
II. Compensation considered in the contribution formula is limited to a maximum of $100,000.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(D) Neither I nor II
53
Which of the following statements concerning qualified plans is (are) correct?
I. Distributions can be rolled into an IRA.
II. A SEP is a qualified plan that uses an IRA,
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
54
All the following statements concerning SIMPLE plans are correct EXCEPT:
(A) Assets cannot be invested in life insurance or collectibles.
(B) Participants are allowed to borrow from their accounts.
(C) Participants must be fully vested in all benefits at all times.
(D) Any type of business entity can establish a SIMPLE plan.
(B) Participants are allowed to borrow from their accounts.
55
All the following statements concerning defined-benefit plans are correct EXCEPT:
(A) Plan contributions are not allocated to individual employee accounts.
(B) The employer assumes the risk of preretirement inflation and investment performance.
(C) The costs associated with a defined-benefit plan are unpredictable.
(D) The law specifies the maximum allowable annual contribution that can be made for an employee.
(D) The law specifies the maximum allowable annual contribution that can be made for an employee.
56
All the following statements concerning a reverse mortgage are correct EXCEPT:
(A) It typically is available only when the home is the borrower's principal residence.
(B) If property values erode, the lender may end up with a loss.
(C) It typically is available regardless of the borrower's age.
(D) It does not have to be repaid as long as the borrower lives in the home.
(C) It typically is available regardless of the borrower's age.
57
The most complete ownership interest one can have in property is a
(A) fee simple estate
(B) life estate
(C) tenancy by the entirety
(D) future interest
(A) fee simple estate
58
A life insurance policy death benefit paid to a named beneficiary is an ex of a transfer of property by operation of
(A) will
(B) law
(C) contract
(D) intestacy
(C) contract
59
A power of appointment over property that gives the holder the broad power to transfer the property to virtually any recipient is referred to as a
(A) special power of appointment
(B) general power of appointment
(C) legal power of appointment
(D) reversionary power of appointment
(B) general power of appointment
60
Which of the following statements concerning the gift tax annual exclusion is (are) correct?
I. It is available only for gifts to close relatives of the donor.
II. It is available only for gifts that provide the donee with a future interest.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(D) Neither I nor II
61
Which of the following statements concerning the use of charitable lead trusts is (are) correct?
I. They allow donor clients to give remainder income interests to charities.
II. They provide donor clients with immediate income and gift or estate tax deductions for their donations.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(B) II only
62
Which of the following trusts created to receive annual exclusion gifts for minors require(s) income to be distributed at least annually to (or for the use of) the minor?
I. A Sec. 2503(b) trust
II. A Sec. 2503(c) trust
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
63
The federal gift tax applies only if which of the following elements is (are) present?
I. There is a completed transfer and acceptance of the property.
II. The transfer of the property is for less than full and adequate consideration.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
64
The generation-skipping transfer tax (GSTT) applies to all the following of transfers EXCEPT a(n)
(A) taxable termination
(B) direct skip
(C) taxable distribution
(D) indirect skip
(D) indirect skip
65
All the following statements concerning a revocable trust are correct EXCEPT
(A) The creation involves a transfer that is a completed gift.
(B) It avoids the publicity, delay, and expense of probate.
(C) It becomes irrevocable at the grantor's death.
(D) Its creation has no effect on the grantor's gross estate.
(A) The creation involves a transfer that is a completed gift.
66
All the following statements concerning a durable power of attorney are correct
EXCEPT:
(A) It takes effect immediately upon execution.
(B) It can be designed for use in making medical care decisions.
(C) It becomes inoperative if the principal is incapacitated.
(D) It can replace or complement a revocable trust.
(C) It becomes inoperative if the principal is incapacitated.
67
As of this year, Brad, aged 35, has 36 quarters of coverage under the Social Security program. These quarters were all earned in the last 40 quarters. What is Brad's insured status under the program?
(A) He is currently, fully, and disability insured.
(B) He is disability insured, but neither fully nor currently insured.
(C) He is currently and fully insured, but not disability insured.
(D) He is currently insured, but neither fully nor disability insured.
(A) He is currently, fully, and disability insured.
68
Which of the following statements concerning Social Security disability benefits is correct?
(A) Benefits are subject to a waiting period and commence one year after a disability begins.
(B) Benefits are payable as long as the disabled worker is unable to perform his or her regular job.
(C) Benefits are payable as long as the disabled worker is considered to be currently insured.
(D) Benefits cease at full retirement age but are replaced by comparable Social Security retirement benefits.
(D) Benefits cease at full retirement age but are replaced by comparable Social Security retirement benefits.
69
Which of the following persons will have his or her Social Security benefits reduced or terminated because of the earnings test?
(A) A widow, aged 39, who receives survivors benefits and has annual income of $24,000 from a full-time job.
(B) A child, aged 12, who receives survivors benefits and has a monthly annuity income of $1,000 from a settlement option of her father's life insurance policy.
(C) A retired worker, aged 73, who earns $14,000 annually from part-time employment.
(D) A retired worker, aged 64, who receives $18,000 annually from investment income.
(A) A widow, aged 39, who receives survivors benefits and has annual income of $24,000 from a full-time job.
70
Which of the following statements concerning monthly Social Security benefit for the family members of a 67-year-old retiree receiving full retirement benefits is correct?
(A) The 60-year-old spouse of the retired worker is eligible to receive 75 percent of the worker's PIA.
(B) The 15-year-old daughter of the retired worker is eligible to receive percent of the worker's PIA.
(C) The 22-year-old son of the retired worker is eligible to receive 75 percent of the worker's PIA if he stays in college.
(D) The 87-year-old mother of the retired worker is eligible to receive 50 percent of the worker's PIA if she is a dependent.
(B) The 15-year-old daughter of the retired worker is eligible to receive percent of the worker's PIA.
71
Which of the following statements concerning insured status under Social Security is (are) correct?
I. A currently insured worker must have credit for at least 4 quarters of coverage out of the last 12-quarter period.
II. A fully insured worker must be currently insured and have credit for at least 50 quarters of coverage over his or her work life.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(D) Neither I nor II
72
Which of the following statements concerning Social Security benefits is (are) correct?
I. Social Security benefits are increased automatically in accordance with increases in the CPI.
II. If a person is eligible for more than one type of Social Security benefit, only the higher benefit is paid.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
73
Which of the following statements concerning the financing of Social Security is (are) correct?
I. The Social Security tax rate for self-employed persons is one-half of the combined tax rate for employees and employers.
II. The Social Security wage base on which taxes are paid increases annually based on changes in the national level of wages.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(B) II only
74
Part A of Medicare provides benefits for all the following types of expenses
EXCEPT
(A) inpatient hospital services
(B) hospice care
(C) physicians' and surgeons' fees
(D) home health care visits
(C) physicians' and surgeons' fees
75
All the following are types of Medicare Advantage plans used with Part C of
Medicare EXCEPT
(A) preferred-provider organization (PPO) plans
(B) private fee-for-service (PFFS) plans
(C) health maintenance organization (HMO) plans
(D) supplementary (medigap) insurance plans
(D) supplementary (medigap) insurance plans
76
Basic benefits required to be in all medigap insurance policies include all the
following EXCEPT the
(A) Part A copayment for the 61st through the 90th day of hospitalization
(B) Part A copayment for the 21st through the 100th day of skilled-nursing facility care
(C) Part B percentage participation for Medicare-approved charges for physicians' and medical services
(D) payment for the first 3 pints of blood each year
(B) Part A copayment for the 21st through the 100th day of skilled-nursing facility care
77
Step 6 (implementing the recommendation(s)) of the financial planning process is where the advisor
(A) reviews changes in the client’s circumstances and the financial environment
(B) identifies the strengths and weaknesses in the client’s present financial condition
(C) does fact-finding by gathering considerable information from the client
(D) motivates and helps the client acquire all the necessary financial products and services
(D) motivates and helps the client acquire all the necessary financial products and services
78
Which of the following typically is the most expensive benefit for employers to provide?
A medical expense insurance
B life insurance
C disability income insurance
D dental insurance
A medical expense insurance
79
Which of the following types of retirement plans can be adopted only by tax-exempt organizations and public schools?
A. 403(b) plans
B. SEPs
C. SIMPLEs
D. 401(k) plans
A. 403(b) plan
80
This year Pete has unreimbursed medical expenses totaling $9,500. If Pete has an adjusted gross
income (AGI) of $80,000 and he itemizes deductions, how much of the medical expenses will he be allowed to deduct for income tax purposes?
A. $1,600
B. $3,500
C. $6,000
D. $9,500
B. $3,500
81
Tom wants to buy a life insurance policy that will give him some flexibility in changing the death benefit after policy issue. He also wants a policy with flexible premiums. Which of the following types of life insurance would you recommend?
A traditional whole life
B variable life
C universal life
D 20-year level term
C universal life
82
The most important specialization in financial planning, based on the number of people affected is:
A education planning
B divorce planning
C closely held business planning
D nontraditional family planning
A education planning
83
Sandra receives interest semiannually from a $1,000 bond she owns and gives it to her son, Brett.
Which of the following tax doctrines explains why Sandra is required to pay income tax on the interest income even though Brett actually receives it?
A constructive receipt doctrine
B shotgun doctrine
C fruit-and-tree doctrine
D economic benefit doctrine
C fruit-and-tree doctrine
84
Bob is moving into a condominium that he bought, and he wants a homeowners insurance policy
to protect the unit and its contents. As Bob’s insurance advisor, which of the following homeowners forms would you recommend that he buy?
A HO-2
B HO-4
C HO-6
D HO-8
C HO-6
85
Which of the following forms of jointly owned property becomes part of the probate estate at an owner’s death?
A property owned as a tenancy by the entirety
B property owned as a joint tenancy with right of survivorship
C property owned as community property
D property owned as a tenancy in common
D property owned as a tenancy in common
86
The Social Security and Medicare programs are important to financial advisors and their clients
for which of the following reasons?
I. The most significant insurance expense for most individuals is their FICA contributions to these programs.
II. These programs form the foundation on which employee benefits and individual insurance plans are built.
A I only
B II only
C Both I and II
D Neither I nor II
C Both I and II
87
Which of the following statements regarding the use of insurance for risk financing is (are) correct?
I. Insurance involves the transfer of risk to an insurance company for a relatively small premium.
II. The use of insurance is especially appropriate when both the frequency and severity of the loss are high.
A I only
B II only
C Both I and II
D Neither I nor II
A I only
88
Which of the following statements regarding long-term disability income plans is (are) correct?
I. Most long-term disability income policies provide benefits of 90 to 100 percent of the insured’s earnings.
II. Long-term disability income plans are commonly called sick-pay plans.
A I only
B II only
C Both I and II
D Neither I nor II
D Neither I nor II
89
Which of the following statements regarding a testamentary trust is (are) correct?
I. It is created under the will of a testator.
II. It becomes part of a deceased’s nonprobate estate.
A I only
B II only
C Both I and II
D Neither I nor II
A I only
90
Which of the following statements regarding tax credits is (are) correct?
I. They are expense items that reduce the amount of a taxpayer’s income subject to taxation.
II. They are beneficial to a taxpayer but not as valuable as deductions of an equal amount.
A I only
B II only
C Both I and II
D Neither I nor II
D Neither I nor II
91
Which of the following statements regarding a worker’s primary insurance amount (PIA) under Social Security is (are) correct?
I. It is the primary amount a worker’s beneficiary receives as a lump-sum because of the worker’s death.
II. It is the amount on which monthly income for a worker’s eligible dependents is based.
A I only
B II only
C Both I and II
D Neither I nor II
B II only
92
Which of the following statements regarding coverage to supplement Medicare is (are) correct?
I. Only about 5 to 10 percent of Medicare recipients have some type of coverage to supplement Medicare.
II. The NAIC adopted 10 standard Medigap plans that require specified basic benefits.
A I only
B II only
C Both I and II
D Neither I nor II
B II only
93
Sam is a financial advisor who always uses the financial planning process when dealing with clients. In which of the following situations would Sam be practicing single-purpose financial
planning?
I. when he sells key-person life insurance to a single client who owns a small business
II. when he assists a single client with the client’s income, gift, and estate tax planning
A I only
B II only
C Both I and II
D Neither I nor II
A I only
94
The growth of employee benefits stems from all of the following factors EXCEPT
A falling employee productivity
B increasing urbanization
C cost advantages
D government legislation
A falling employee productivity
95
All of the following are types of governmental debt securities EXCEPT
A revenue bonds
B general obligations
C agency bonds
D convertible bonds
D convertible bonds
96
All of the following are considered roadblocks to retirement saving EXCEPT
A unexpected expenses
B frequent employment changes
C a large inheritance
D inadequate insurance coverage
C a large inheritance
97
All of the following are methods for measuring an investment’s return EXCEPT
A current yield
B nominal rate of return
C holding-period return
D approximate yield
B nominal rate of return
98
All of the following are examples of nonprobate property that is transferred to the deceased’s beneficiary by operation of law EXCEPT
A life insurance proceeds payable to a beneficiary
B property held jointly with survivorship rights
C property held in a revocable living trust
D a joint securities account with survivorship rights
A life insurance proceeds payable to a beneficiary
99
Expenses that tend to increase for new retirees include all of the following EXCEPT
A utilities and telephone costs
B medical and dental costs
C entertainment and dining costs
D income and property taxes
D income and property taxes
100
Determining whether a particular investment is suitable for a client requires the financial advisor to consider all of the following the client’s EXCEPT
A goals for making the investment
B possibility of inheriting a large sum of money
C psychological attitudes toward risk taking
D capacity to sustain a financial loss
B possibility of inheriting a large sum of money
101
All of the following statements regarding long-term care insurance premiums are correct EXCEPT
A The longer the elimination period selected for a policy, the lower will be the policy’s
premium.
B Most insurers offer a premium discount if both spouses purchase coverage from the
company.
C Inflation protection is provided with no increase in premium for most policies.
D The longer the maximum benefit period selected for a policy, the higher will be the policy’s premium
C Inflation protection is provided with no increase in premium for most policies.
102
Match each statement below with the step in the 6-step financial planning process to which it relates.
This step is where the advisor does fact-finding:
```
(A) Establish and define the advisor-client relationship.
(B) Determine goals and gather data.
(C) Analyze and evaluate the data.
(D) Develop and present a plan.
(E) Implement the plan.
(F) Monitor the plan.
```
(B) Determine goals and gather data.
103
Match each statement below with the step in the 6-step financial planning process to which it relates.
This step is where the advisor reviews changes in the client’s circumstances and the financial environment:
```
(A) Establish and define the advisor-client relationship.
(B) Determine goals and gather data.
(C) Analyze and evaluate the data.
(D) Develop and present a plan.
(E) Implement the plan.
(F) Monitor the plan.
```
(F) Monitor the plan.
104
Match each statement below with the step in the 6-step financial planning process to which it relates.
This step is where the advisor identifies the strengths and weaknesses in the client's present financial condition:
```
(A) Establish and define the advisor-client relationship.
(B) Determine goals and gather data.
(C) Analyze and evaluate the data.
(D) Develop and present a plan.
(E) Implement the plan.
(F) Monitor the plan.
```
(C) Analyze and evaluate the data
105
Match each statement below with the step in the 6-step financial planning process to which it relates.
1-4. This step is where the advisor motivates and helps the client acquire all the necessary financial products and services:
```
(A) Establish and define the advisor-client relationship.
(B) Determine goals and gather data.
(C) Analyze and evaluate the data.
(D) Develop and present a plan.
(E) Implement the plan.
(F) Monitor the plan.
```
(E) Implement the plan.
106
Which of the following would an advisor do in the "implement the plan" step of the
selling/planning process?
(A) Review the changes in the client's circumstances and the financial environment.
(B) Identify the strengths and weaknesses in the client's present financial condition.
(C) Gather considerable information from the client via a fact finder.
(D) Motivate and help the client acquire all necessary financial products and services.
(D) Motivate and help the client acquire all necessary financial products and services.
107
Which of the following statements regarding the findings of independent studies conducted on retirement planning is correct?
(A) An overwhelming number of pre-retirees currently consult with a financial advisor.
(B) There is a strong need for professional help when it comes to retirement planning.
(C) Most people have planned well without the help of a financial advisor.
(D) Social Security is positioned well to provide people with a comfortable retirement.
(B) There is a strong need for professional help when it comes to retirement planning.
108
Which of the following situations represents a speculative risk?
(A) the possibility of a new car getting into an accident
(B) the possibility of a person needing medical care at a hospital
(C) the possibility of losing a wage-earner's income due to his or her death
(D) the possibility of a house appreciating or depreciating in market value
(D) the possibility of a house appreciating or depreciating in market value
109
Ted is moving into an unfurnished apartment that he just rented. He wants a homeowners policy to protect his personal property. As Ted's financial advisor, which of the following homeowners forms would you recommend that he buy?
(A) HO-2
(B) HO-4
(C) HO-6
(D) HO-8
(B) HO-4
110
Which of the following types of total-disability definitions contained in disability income policies is most beneficial for an insured?
(A) own occupation definition
(B) own occupation for 2 years, then any suitable occupation
(C) own occupation for 5 years, then any suitable occupation
(D) any occupation for the insured's reasonably suited definition
(A) own occupation definition
111
Trends creating opportunities for advisors engaged in financial planning include which of the following?
I. impact of technology in the financial services industry
II. enduring stability of financial conditions in the economy
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
112
Which of the following is (are) reasons people begin financial planning?
I. building a retirement fund
II. home purchase/renovation
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
113
Which of the following statements regarding whole life insurance is (are) correct?
I. The cost per thousand for any given issue age is cheaper for whole life than for term policies.
II. Whole life insurance is appropriate when there is a permanent need for coverage.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(B) II only
114
Which of the following statements regarding Part D (coverage for damage to your auto) of an auto insurance policy is (are) correct?
I. The two primary coverages are "collision" and "other-than-collision."
II. "Other-than-collision" coverage used to be called "comprehensive."
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
115
Which of the following statements regarding homeowners insurance is (are) correct?
I. The client should buy flood insurance 24 hours before a possible flood.
II. Earthquake coverage is generally included in the basic coverage of any policy.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(D) Neither I nor II
116
All of the following are obstacles that prevent consumers from gaining control of their
financial destinies EXCEPT
(A) the lack of financial knowledge among consumers
(B) the tendency for consumers to spend beyond their incomes
(C) the absence of tax incentives to save rather than spend disposable income
(D) the natural human tendency to procrastinate
(C) the absence of tax incentives to save rather than spend disposable income
117
All of the following are stages of the financial planning pyramid approach for developing a comprehensive financial plan over a period of time EXCEPT
(A) allocating and diversifying investments
(B) managing retirement and the estate
(C) growing investments
(D) guarding against uncertainty
(A) allocating and diversifying investments
118
All of the following advisors are engaged in financial planning EXCEPT
(A) an income-tax preparer who suggests that a client establish an IRA
(B) a real estate agent who refers a client to a life insurance agent
(C) a multiline insurance agent who sells life and health insurance and mutual funds
(D) a financial planner who charges a fee for his or her services
(B) a real estate agent who refers a client to a life insurance agent
119
All of the following statements regarding annuities are correct EXCEPT
(A) Life annuities guarantee a lifetime income for the annuitant.
(B) Annuities can be purchased on a qualified or nonqualifed basis.
(C) The variable annuity's underlying investment portfolio is typically common stocks.
(D) Immediate annuities can be used to accumulate a retirement nest egg.
(D) Immediate annuities can be used to accumulate a retirement nest egg.
120
Life insurance can be used to fund all of the following needs EXCEPT
(A) to accumulate funds for children's education
(B) to repay debts
(C) to replace income lost due to a disability
(D) to settle expenses associated with burial
(C) to replace income lost due to a disability
121
Which of the following statements regarding traditional major medical plans is correct?
(A) They restrict insureds to specific physicians and hospitals.
(B) They limit reimbursement to reasonable and customary charges.
(C) They are typically less expensive than managed care plans.
(D) They negotiate deep discounts with physicians and hospitals.
(B) They limit reimbursement to reasonable and customary charges.
122
Dental expenses are paid on a reasonable-and-customary basis (subject to any exclusions or limitations in the contract) under this type of dental plan.
(A) scheduled plan
(B) nonscheduled plan
(C) nonqualified plan
(D) combination plan
(B) nonscheduled plan
123
Markita quits her job at ABC Company to start her own business. Under COBRA, she will be eligible to extend her current group health plans for up to
(A) zero months
(B) 12 months
(C) 18 months
(D) 36 months
(C) 18 months
124
Preferred provider organizations (PPOs) typically differ from HMOs in which of the
following ways?
I. Employees are not required to use the practitioners or facilities that contract with the PPO.
II. The preferred providers are generally paid on a fee-for-service basis as their
services are used.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
125
Which of the following statements regarding taxation of employee benefits is (are) correct?
I. The cost of providing benefits is generally tax deductible for the employer.
II. Taxation is consistent from benefit to benefit.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
126
Which of the following statements regarding the taxation of disability benefits is (are)
correct?
I. All benefits paid from fully contributory plans are taxable income to the
employee.
II. All benefits paid from noncontributory plans are received by the employee tax
free.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(D) Neither I nor II
127
Which of the following statements regarding an employer-sponsored health savings
account (HSA) is (are) correct?
I. Contributions can be made by the employee and the employer in the same year.
II. Distributions from HSAs for qualified medical expenses are made tax-free.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
128
Comprehensive legal expense insurance plans typically provide coverage for all of the
following types of legal services EXCEPT
(A) class-action suits
(B) name changes
(C) IRS audits
(D) adoptions
(A) class-action suits
129
All of the following statements regarding the taxation of group term life insurance are
correct EXCEPT
(A) Premiums are taxable income for key employees if the plans are considered
discriminatory.
(B) Death proceeds are generally paid to beneficiaries with no income tax consequences.
(C) Employer contributions for dependent life coverage are not taxable to the employee if
benefits are de minimis.
(D) Self-funded plans have the same tax consequences as an insured plan.
(D) Self-funded plans have the same tax consequences as an insured plan.
130
All of the following are additional benefits sometimes included in accidental death and dismemberment insurance EXCEPT
(A) daily flat amount for days an employee is hospitalized due to an accident
(B) rehabilitation benefits for an injured employee
(C) monthly income benefits for an employee who is permanently disabled
(D) monthly income benefits for an employee who becomes a para- or quadraplegic
(A) daily flat amount for days an employee is hospitalized due to an accident
131
Harry owns some municipal bonds that provide him with a tax-exempt yield of 4 percent. If Harry is in the 20 percent marginal income tax bracket, what is his equivalent fully taxable yield from the bonds?
(A) 3.20 percent
(B) 4.80 percent
(C) 5.00 percent
(D) 20.00 percent
(C) 5.00 percent
132
Jasmine owns stock that currently sells at $100 per share and pays an annual dividend of $4 per share. If Jasmine is in the 20 percent marginal income tax bracket, what is her after-tax current yield from the stock?
(A) 0.80 percent
(B) 3.20 percent
(C) 4.00 percent
(D) 4.20 percent
(B) 3.20 percent
133
Which of the following is a privilege that provides preferred stockholders a preferential position relative to common stockholders?
(A) Preferred stockholders have the right to receive dividends before dividends are paid out to the common stockholders.
(B) Preferred stockholders have the right to maintain their relative voting power by purchasing shares of any new issues of common stock.
(C) Preferred stockholders generally have the right to elect the board of directors.
(D) Preferred stockholders vote on issues such as mergers and stock splits.
(A) Preferred stockholders have the right to receive dividends before dividends are paid out to the common stockholders.
134
The net asset value of a mutual fund is equal to
(A) number of shares outstanding/(total assets + total liabilities)
(B) number of shares outstanding/(total assets — total liabilities)
(C) (total assets + total liabilities)/number of shares outstanding
(D) (total assets — total liabilities)/number of shares outstanding
(D) (total assets — total liabilities)/number of shares outstanding
135
Which of the following statements regarding an investment's expected return and risk is (are) correct?
I. An asset with a wide range of possible returns is considered a risky investment.
II. Investing is based on a reasoned consideration of expected return and the risk
associated with that return.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
136
Which of the following characteristics accurately describe(s) the investment nature of corporate debt instruments?
I. They have short maturities.
II. They have good liquidity.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(D) Neither I nor II
137
Investment risk is caused by which of the following?
I. purchasing power risk
II. nominal return risk
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
138
All of the following statements regarding asset allocation models are correct EXCEPT
(A) They are portfolio recommendations of asset categories.
(B) They emphasize the category and percentage to be placed in each category.
(C) They provide specific assets in which clients should invest.
(D) They are most effective when they reflect a client's risk-tolerance level.
(C) They provide specific assets in which clients should invest.
139
All of the following are ways to reduce exposure to identity theft EXCEPT
(A) use a post office box or locked mailbox to receive mail
(B) carry all of your credit cards with you at all times
(C) opt out of pre-approved credit card offers
(D) shred any documents with personal information
(B) carry all of your credit cards with you at all times
140
All of the following are ways to minimize debt EXCEPT
(A) avoid carrying a balance on credit cards
(B) create an emergency fund of 3 to 6 months of income
(C) create and follow a financial position statement
(D) shop around for big-ticket items
(C) create and follow a financial position statement
141
Helen has unreimbursed medical expenses totaling $7,000. If Helen's adjusted gross
income (AGI) is $40,000 and she itemizes deductions, how much of the medical expenses will she be allowed to deduct for income tax purposes?
(A) $3,000
(B) $4,000
(C) $6,475
(D) $7,000
(B) $4,000
142
Marco owns a rental property but the income goes to his grandson. Most likely, Marco will be taxed on the income based on the
(A) fruit-and-the-tree doctrine
(B) assignment-of-income doctrine
(C) constructive-receipt doctrine
(D) economic-benefit doctrine
(A) fruit-and-the-tree doctrine
143
Which of the following statements regarding the income tax implications of a divorce is correct?
(A) Alimony payments are not taxable to the recipient.
(B) Alimony payments are not tax deductible to the payer.
(C) Child support payments are taxable to the recipient.
(D) Child support payments are not tax deductible to the payer.
(D) Child support payments are not tax deductible to the payer.
144
Taxpayers must generally include which of the following in their gross incomes?
I. gifts and inheritances
II. workers' compensation benefits
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(D) Neither I nor II
145
Which of the following statements regarding "tax-preference items" is (are) correct?
I. They provide a taxpayer with greater tax benefits than regular deductions.
II. They are items deductible for regular tax but face different rules under the alternative minimum tax (AMT).
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(B) II only
146
Which of the following business would be classified as a taxable entity?
I. C corporation
II. S corporation
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
147
All of the following statements regarding itemized deductions are correct EXCEPT
(A) All itemized deductions are below-the-line deductions.
(B) A taxpayer can either itemize deductions or claim the standard deduction.
(C) Itemized deductions are claimed on Schedule B.
(D) The standard deduction amounts are indexed annually for inflation.
(C) Itemized deductions are claimed on Schedule B.
148
All of the following statements regarding tax credits are correct EXCEPT
(A) Tax credits are more beneficial to the taxpayer than deductions of an equal amount.
(B) A tax credit is a dollar-for-dollar reduction of the actual tax payable.
(C) The main tax credits are credits for children.
(D) Tax credits are itemized on Schedule A.
(D) Tax credits are itemized on Schedule A.
149
All of the following are categories of a taxpayer's filing status EXCEPT
(A) married taxpayer filing jointly
(B) married head of household
(C) married taxpayer filing separately
(D) single taxpayer
(B) married head of household
150
All of the following are pass-through entities for federal income tax purposes EXCEPT
(A) C corporations
(B) limited liability companies (LLCs)
(C) S corporations
(D) partnerships
(A) C corporations
151
Which of the following correctly describes the unit-benefit formula found in defined-
benefit pension plans?
(A) It directly ties the participant's pension benefit to both service and salary.
(B) It bases the participant's pension benefit on final average salary only.
(C) It provides each participant with the same pension benefit.
(D) It provides each participant with a flat benefit amount for each year of service.
(A) It directly ties the participant's pension benefit to both service and salary.
152
Which of the following is a method for determining retirement income that assumes that the standard of living enjoyed during the years just prior to retirement will be the
determining factor for the standard of living during retirement?
(A) expense method
(B) capital-utilization method
(C) capital-retention method
(D) replacement-ratio method
(D) replacement-ratio method
153
Which of the following statements regarding contributions to traditional IRAs is correct?
(A) Contributions may be used to buy life insurance policies.
(B) Contributions may be deductible or nondeductible.
(C) Contributions may be commingled with a taxpayer's other assets.
(D) The maximum contribution is 15 percent of the taxpayer's income.
(B) Contributions may be deductible or nondeductible.
154
Which of the following statements regarding target-benefit pension plans is correct?
(A) It is a defined-benefit plan.
(B) Investment risk falls on the employer.
(C) A defined-benefit formula is used to determine the annual contribution.
(D) Actuaries are not utilized at all in these types of plans.
(C) A defined-benefit formula is used to determine the annual contribution.
155
Which of the following expenses tend to decrease for retirees?
I. mortgage payments
II. medical and dental costs
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
156
Which of the following statements regarding defined-contribution plans (is) are correct?
I. The employer assumes the preretirement inflation and investment risks.
II. All contributions are allocated to the accounts of individual employees.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(B) II only
157
Which of the following statement(s) regarding Roth IRAs is (are) correct?
I. Contributions are not deductible.
II. Qualifying withdrawals are not subject to income tax.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
158
Nonqualified retirement plans are potentially subject to all of the following problems EXCEPT
(A) somewhat inflexible withdrawal provisions
(B) the forfeiture or loss of benefits
(C) nondiscrimination rules that limit benefit amounts
(D) the threat of immediate taxation that would reduce the benefit amount
(C) nondiscrimination rules that limit benefit amounts
159
All of the following statements regarding money-purchase pension plans are correct EXCEPT
(A) It is a type of defined-contribution plan.
(B) The employer's annual contributions are mandatory.
(C) Participants have individual accounts.
(D) Benefits are stated as a formula usually based on years of service.
(D) Benefits are stated as a formula usually based on years of service.
160
All of the following statements regarding simplified employee pension plans (SEPs) are correct EXCEPT
(A) Contributions must generally be allocated as a level percentage of compensation.
(B) The allocation formula may be integrated with Social Security.
(C) All employer contributions are 100 percent vested.
(D) Annual employer contributions are always required.
(D) Annual employer contributions are always required.
161
Which of the following provides the holder the ability to transfer property to a limited class of potential recipients?
(A) power of appointment
(B) power of attorney
(C) durable power of attorney
(D) Special power of appointment
(D) Special power of appointment
162
Jointly owned property becomes part of the probate estate at an owner's death if the
property interest is titled as which of the following?
(A) tenancy by the entirety
(B) community property
(C) joint tenancy with right of survivorship
(D) tenancy in common
(D) tenancy in common
163
Which of the following can be an advantage to owning property as joint tenants with rights of survivorship (JTWROS)?
(A) Under most state laws, property cannot be reached by creditors of an individual joint tenant.
(B) When one tenant dies, the property passes directly to the surviving joint tenant.
(C) The deceased tenant's estate can use property passing to the surviving tenant to pay taxes, debts, or expenses.
(D) JTWROS can always be created without being subject to a gift tax liability.
(B) When one tenant dies, the property passes directly to the surviving joint tenant.
164
Which of the following statements regarding estate tax planning with AB trust arrangements is (are) correct?
I. The A, or marital, trust receives all assets not placed in the B trust.
II. The B, or family, trust is subject to estate taxation when the surviving spouse dies.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
165
Which of the following statements regarding a durable power of attorney is (are) correct?
I. It takes effect immediately upon execution.
II. It can replace or complement a revocable trust.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
166
Which of the following is referred to as an advance medical directive?
I. durable power of attorney for health care
II. living will
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
167
All of the following statements regarding tenancy by the entirety are correct EXCEPT
(A) It is a property interest restricted solely to spouses.
(B) It is joint ownership of the property with rights of survivorship.
(C) The property is subject to disposition by the will of the deceased spouse.
(D) Tenancy by the entirety is severed automatically upon divorce.
(C) The property is subject to disposition by the will of the deceased spouse.
168
All of the following statements regarding planning for state death taxes are correct
EXCEPT
(A) Some states do not tax property held jointly by an individual at the time of his or her death.
(B) State death taxes are typically inconsequential and do not require any advanced planning.
(C) Life insurance owned individually by an insured is often not taxable if payable to a
named beneficiary.
(D) Some states provide for no marital deduction for individually owned property
transferred to a surviving spouse.
(B) State death taxes are typically inconsequential and do not require any advanced planning.
169
A revocable trust would be useful in all of the following situations EXCEPT
(A) The client does not want life insurance death benefits to be subject to estate taxes.
(B) The client has concerns that a disinherited heir will make legal challenges to a will.
(C) The client owns real estate in several states.
(D) The client wants his or her affairs to be kept private.
(A) The client does not want life insurance death benefits to be subject to estate taxes.
170
All of the following statements regarding testamentary trusts are correct EXCEPT
(A) The trust escapes probate even though it is in the client's will.
(B) The trust does not receive property until the client dies.
(C) The proceeds are transferred to the trust by the executor.
(D) The testator retains legal capacity and is not irrevocable until his or her death.
(A) The trust escapes probate even though it is in the client's will.
171
Which of the following statements regarding medigap insurance plans is correct?
(A) Employer-provided Medicare carve-out plans must meet all medigap requirements.
(B) Persons age 65 or older may buy any medigap plan after enrolling in Medicare Part B.
(C) Medigap insurance only covers deductibles and copayments for expenses paid under
Medicare Part B.
(D) All of the medigap insurance plans are required to provide prescription drug
coverage.
(B) Persons age 65 or older may buy any medigap plan after enrolling in Medicare Part B.
172
Jean died and left behind a surviving spouse, age 37, and a child age 15. The surviving spouse's salary exceeds the earnings test threshhold by $2,000. The surviving spouse's annual benefit amount will be reduced by
(A) $500
(B) $1,000
(C) $1,500
(D) $1,750
(B) $1,000
173
Which of the following statements regarding quarters of coverage under Social Security is correct?
(A) The amount of earnings necessary for a quarter of coverage is adjusted annually.
(B) Credit for no more than 12 quarters of coverage may be earned in any one calendar year.
(C) A person is fully insured if he or she has at least 20 quarters of coverage.
(D) A person is currently insured if he or she has at least 4 quarters of coverage.
(A) The amount of earnings necessary for a quarter of coverage is adjusted annually.
174
Which of the following statements regarding the Medicare SELECT program is correct?
(A) They generally cost more than policies that do not use preferred-provider networks.
(B) An insured can switch to any regular medigap policy at any time.
(C) Policies in the SELECT program can vary greatly from regular medigap policies.
(D) They are issued by insurance companies as PPO or HMO products.
(D) They are issued by insurance companies as PPO or HMO products.
175
Which of the following is a requirement for a worker to be "disability insured?"
I. be fully insured under Social Security
II. have a minimum amount of work under Social Security within a recent time period
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
176
Up to 85 percent of Social Security benefits can be taxable for a person filing single in
which of the following situations?
I. the total of 50 percent of benefits and all other income is greater than $34,000
II. the person is earning over $12,000 in other income
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
177
Tracy dies, leaving behind a spouse and a child under age 16. Tracy's PIA is $2,000 per month. Which of the following statements regarding the surviving spouse and child's benefits is (are) correct?
I. The surviving spouse will receive $1,500 per month.
II. The child will receive $1,000 per month.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
178
All of the following persons are also eligible for monthly benefits if a retired worker is receiving retirement benefits EXCEPT
(A) a spouse age 62 or older
(B) a divorced spouse if the marriage lasted at least one year
(C) dependent unmarried children under 18
(D) disabled children of any age if disabled before reaching age 22
(B) a divorced spouse if the marriage lasted at least one year
179
All of the following are factors clients should consider when thinking about taking early retirement benefits EXCEPT
(A) longevity of family members
(B) the client's health
(C) continuing employment
(D) titling of property interests
(D) titling of property interests
180
All of the following statements regarding the Social Security portion of the FICA payroll tax are correct EXCEPT
(A) They are paid by all persons covered under Social Security.
(B) They are paid by the employers of all covered persons.
(C) All wages are subject to Social Security payroll taxes.
(D) The tax rate applicable is 6.2 percent for both employees and employers.
(C) All wages are subject to Social Security payroll taxes.
