HARD DECK - loadsa CFP facts Flashcards
What are the steps in the financial planning process
- Understanding the client’s personal and financial circumstances
- Identifying and selecting goals
- Analyzing the client’s current course of action and potential alternative courses of action
- Developing the financial planning recommendations
- Presenting the financial planning recommendations
- Implementing the financial planning recommendations
- Monitoring progress and updating
What are guardianship and conservatorship
Court supervised: personal care and wellbeing of ward, property of ward
When do you have to file federal gift tax return
- Gifts to donee exceed annual exclusion
- Any future interest
- Common law state - any gift splitting (in community property & JTWROS only if >$30k)
What does Escheat mean?
CHEAT! Going to the state where resided at date of death when intestate without family
What is ademption?
asset no longer belongs to testator so no bequest to give
Which form is estate tax return
706 SIX FEET UNDER
Small cap index
Russell 2000
Broad Market index
Wilshire 5000
Current Yield Formula
Annual interest in dollars / bond’s market price
Property’s Intrinsic Value Formula
NOI/Cap Rate
Intrinsic Value of Call
Market Price - Exercise Price
Intrinsic Value of Put
Exercise Price - Market Price
Return on Equity
Earnings Available for common (EPS)/Common Equity (net worth or book value)
Dividend Payout ratio
Common Dividends paid/earnings available for common (EPS)
Margin Call
(1-initial margin %age/1-maintenance margin %age)xpurchase price of stock
What does Standard Deviation Measure
Total Risk - returns of a non diversified portfolio
What does Beta Measure
volatility of returns in a diversified portfolio - measure of systematic risk (non diversifiable risk associated with the individual security)
When is life insurance included in the gross estate
- If the proceeds are paid to the executor
- Decedent at death possessed incident of ownership
- Insured transferred a policy with incident of ownership within 3 years of death (not sold - no 3 year rule if sold)
Can the company deduct the premium in split dollar arrangements
No
Collateral Assignment
Employee is owner and Sharholder
Employee aSSigns the policy
Endorsement Method
Employer is the owner
EE is not a shareholder
What happens with alimony on death of payor
it stops (normal to have life insurance)
What is the rule for SIMPLE RMDs if you keep working past 72
You have to take RMDs
Is there a limit to the amount you can convert with a ROTH conversikon
NO LIMIT
How much is corporate AMT
It has been eliminated
Who can use a 1040EZ
No-one - it has been eliminated
What happens to your S Corp basis if you guarantee a bank loan to the S Corp
No change - the bank loan does not increase your basis
How do IRA hardship withdrawals work?
They do not - there are no hardship withdrawals from an IRA
Can profit sharing plan receive contributions for individual employees in excess of 25% of that
participant’s eligible compensation.
Yes, yes they can
NUA rule
At distribution the lump sum amount is taxed as income, at sale there is LTCG up to the FMV at distribution and then either LTCG or STCG for the rest if the stock has appreciated since distribution
What is a section 125?
FSA
How much is FICA & FUTA on FSA contributions
zero
How is active participation in an S corp treated?
Investment income
Features of gift to qualify for marital deduction
The donee spouse must be given the property outright or have a right to the income from the property and a general power of appointment over the principal.
Limitation of prepaid tuition 529
Only for tuition and mandatory fees
What is indemnity
Insurer seeks to reimburse the insured for the amount lost (no more, no less)
What are principles of indemnity
- Insurable interest
- Concept of actual cash value
- Other insurance (ability to profit from a loss)
- Subrogation (insurer takes over legal rights when it pays claim)
Guaranteed insurability
right to purchase additional coverage without having new proof of insurability (but premium may go up)
What’s in Medicare Part B
- physician
- Home health
- Diagnositic
- Outpatient
80% paid after deductible
does include doctor visits both in and out of hosptial
What is APL
Automatic Premium Loan(election at issue, or any time)
Can you 1035 annuity to life?
noooo
JWROS annuity - how much in estate of first to die?
Replacement cost of single life annuity on the surviving spouse
Is there a right of survivorship with community property
no
What are estate tax credits?
foreign death taxes
credit for taxes on prior transfers
How much of a term policy is included in the estate?
just the unused premium
Is tennancy by the entirety recognized in all states?
no
Steps in net estate tax
1.Gross Estate (probate +non-probate assets)
- funeral, admin, debts, taxes, casualty losses
2. Adjusted Gross Esate
- unlimited marital & charitable deductions
3. Taxable Estate
+ adjusted taxable gifts (amounts exceeding annual exclusion)
4. Tax Base
- exemption amount
excess x tax rate
5. Tentative Tax
- gift taxes paid (credit)
6. Net Estate Tax
HSA: who can contribute?
any person, including an employer or family
member, on behalf of an eligible person
Where on the 1040 do you deduct HSA contributions?
On the front/above the line - you don’t have to itemize to deduct
Can employer and eligible person contribute to HSA in the same year?
Yes
What is CML
Specifies relationship between risk and return on a portfolio
What is the intersection of the CML called?
Rf or risk free (that’s where it’s 100% TBills)
What is point B on the CML called (tangent to the curve)?
Optimal risky portfolio, a proportional percentage of all risky assets or the tangent of CML and Markowitz efficeint frontier
What makes it a grantor trust?
Any portion of trust INCOME is or may be used to purchase life insurance on grantor or grantor’s spouse.
Can HSA be used to pay LTC premiums?
Yes - qualified premiums - age based
Not FSA - which can’t be used for LTC remiums
Draw graph of SML
y:rate of return, x:beta - if markets are in equilibrium all assets on SML - expected r for any asset = required rate
Draw graph of CML
y:expected return x: standard deviation
What is limit on charitable contribution of inventory
it should be valued at cost
Annuity lump sum tax
capital gains on gain above basis (over 59 1/2)
Section 1244 deduction
Single $50,000 MFJ $100,000
What type of distributions to QDROs affect
Qualified plan only NOT IRAs
Life settlement of insurance
basis - premiums paid less cost of insurance
income characterized as
ord income on cash value above premiums paid
remainder is LTCG
Another name for call writing
shorting
What is section 162
A 162 Executive Bonus plan allows a business to provide life and/or disability income insurance to key executives using tax deductible dollars. Insurance policies are owned by the executives and are paid for through cash bonuses to the executive - yes it is INCOME
Social security if both spouses collecting retirement benefits and one dies
greater of survivors benefit or 100% of spouse’s
Who can contribute to MSA and when
only eligible person or employer - but not both in the same year
What is 2023A
Special Use Valuation
Closely held business or farm
Max reduction of $1.8m from GE
Rules
- 50% of GE (reduced by liens) real or personal property devoted to qualified use
- value of Real property at least 25% of GE
- qualified use 5/8 years prior to death
- qualifying heir and quaified use 10 years after death
What is a taxable termination
GSTT termination of interest in a property held in trust that leads to skip person getting it
Who pays GSTT
direct skip - donor
taxable termination - trustee
taxable distribution - transferee
What is a wealth replacement trust
A wealth replacement trust is a planning tool in which a donor uses the income or tax savings from establishing a life-income gift, such as a gift annuity or charitable remainder trust, to buy life insurance to replace the assets that he or she is giving away.
What are required minimum distributions for CLAT and CLUT
none! only CRAT & CRUT
If question says “freeze”
recapitalization
Result if beneficiary of policy legally obligated to use it to pay estate taxes
INcluded in GE
What is the unified credit
the $11,580,00 free of gift, estate & GSTT
What is value of gifted securities
Average of Hi & Low on date of gift
What is special about IRD property
It does NOT get a step up in basis
Which form for estate admin expenses / casualty losses
706 or 1041 but not both
Cost basis options for publicly traded securities.
specific identification, FIFO, average cost ONLY FOR MUTUAL FUNDS (ie not for shares)
What is investment policy statement
An investment policy statement is a written document that sets forth a client’s objectives and sets forth certain limitations for the investment manager. The investment policy statement gives guidance to the portfolio manager and provides a means for evaluating investment/portfolio performance.
What is positive skewness
tendency towards positive price movements
What is leptokurtic distribution
clustered around the mean (lower variance) higher peak
What is platykurtic distribution
flatter (squashed like a platypus beak) with greater chance of higher variance result (investors don’t like)
What is an intermarket bond swap
An intermarket spread swap involves the exchange of one type of bond (e.g., govern-ment bond) with another type of bond (e.g., corporate bond). This occurs when inves-tors believe one type of bond is currently mispriced in relation to the other.
What is a rate anticipation bond swap
A rate anticipation swap attempts to take advantage of expected changes in interest rates. For example, if rates are expected to increase, long-term bonds are swapped for short-term bonds.
What is a pure yield pickup bond swap
In a pure yield pickup swap, a bond with a lower YTM is exchanged for a bond with a higher YTM. The new bond that replaces the old bond is either a longer-term bond or a lower-quality bond sufficient to generate a higher overall YTM.
How often do series I and EE bonds pay interest
They don’t - they accrue it.
What is investment grade?
S&P BBB- or higher
Non investment grade
S&P BB+ or lower
trades on an exchange, may trade at a premium or discount to its net asset value, and has a fixed capital structur
closed end investment company
What is conversion value
Conversion value is the amount an investor would received if a convertible security is changed into common stock. This value is arrived at by multiplying the conversion ratio (how many shares received per bond) by the market price of the common stock. IT is the minimum you’d get for selling the bond in secondary market
Who rates bonds
Moodys S&P and Fitch Moody’s Aaa is top rated
Can you use line of credit for emergency fund
Unsuitable - should use safe and liquid investments
What do you need if you’re going to discuss new investment products
securities license
Wash sale definition
A wash sale occurs when you sell a security at a loss and then purchase that same security or “substantially identical” securities within 30 days (before or after the sale date)
QDRO affects which type of plans
QUALIFIED only - not IRAs
Who can be a qualified heir for 2032(a)?
Only lineal descendent
Can 2032(a) use current use valuation?
yes
How are estimated taxes collected vs income taxes
Estimated: due dates INcome: pay as you go
Qualified plans - when do they have to be established to be in effect for th eemployer’s fiscal year end
Within the tax year for which the employer wishes to take the tax deduction
SEPs - when do they have to be established to be in effect for the employer’s year end
By the due date of the business tax return including extensions
403(b) required minimum distributions while working
if in same profession - no RMD
if in different profession have to take RMDs (like an IRA)
Is an income tax refund IRD
nope
Value of life policy you hod on someone else
Interpolated terminal reserve plus the unearned (by the insurance company)premium
What are the rules for 401k RMDs for >5% owner
must take RMDs at 72
excess alimony rule
year 2 amount between year 2 and 3 that exceeds year 3 by more than $15k
AMT Add back items
property/state/city income and sales taxes
ISO bargain element
AMT Preference items
Intangible drilling costs (excess)
Private activity muni
Oil & gas %age depletion (not cost depletion)
Depreciation ACRS/MACRS (not straight line)
When is commingling of client funds allowed
with other clients in common fund
When is the EE Bond tax due?
When you cash them unless for qualified education expenses (and TP below threshold)
Forms of discipline
Private censure
Public letter of admonition
Suspension
Revocation
In FLP how is common stock valued for gift tax purposes
Preferred stock value is based on the dividends - common stock value is the difference between this and the FMV of the corporation
sole proprietor, has gross income of $A from his business. , $B from qualified dividends. $C IRA contribution, $D of meals expense, and $E of business expenses - AGI?
Gross Income A less 50%D and E = net income
add B less self employment tax (7.065% of net income)
less C = AGI
Affect of gift tax on basis of appreciated property
Not straight carryover - basis will be increased bu the gift tax paid that is attributable to appreciation
Normal requirement to participate in group health plan
32 hours per week
Donating inventory - what’s the deduction for a business?
When donating inventory, corporate taxpayers may deduct the sum of one-half of the unrealized appreciation (fair market value minus cost of goods sold = appreciation) plus the taxpayer’s cost, but not in excess of twice the cost of the contributed property
How are worthless securities treated
as if sold on last day of year they became worthless
What type of gift is Coverdell
Completed - qualifies for GT exclusion
Is Coverdell Contribution deductible
Nope
When does Coverdell phaseout apply
It matters at the time of contribution
Define Liquid
Easily converted to cash without significant impact on value
Define Marketable
Easily bought/sold/traded
Is a 1 yr CD liquid
comparatively, yes - in the absence of early withdrawal it will not lose principal
Who sets margin requirments
Federal Reserve Board
What would be effect of decreasing margin requirement
Increased speculation
What is a BOP
Businessowners policy
What is QACA
Qualified automatic contribution arrangements (QACAs) are a form of automatic-enrollment retirement plan offered by employers. As an opt-out plan, employees will automatically be enrolled with a matching contribution unless they choose to leave the plan.
Reverse QTIP
A reverse QTIP election permits the executor of the first spouse to die to elect that the QTIP trust will continue to be treated, for purposes of the GST, as property transferred by the first spouse to die, even though the trust property is otherwise treated as belonging to the surviving spouse for estate and gift tax
What shots included in Medicare Part B
Annual flu and pneumococcal (pneumonia)
What happens to COBRA if company goes out of business
It ends
What happens to group plan eligibility if you go from full time to part time?
You may lose it
Can you roll a 403(b) to a Roth at Retirement
yes - no penalty if over 59 1/2 but would pay tax
Which retirement plans no loans
IRAs
An SEP is a type of
IRA
ISOs - if you pay AMT what happens to basis?
It increases by the amount of AMT
What age can you make the IRA charitable rollover
70 1/2
What does IRR reflect
return on investment considering all cash flows
What does time weighted return reflect
fund manager performance
How can written disclosures (code of ethics) be made
- ADV
- Disclosure under rules/requirement of any self regulatory org
- Disclosure using multiple written docs
- Disclosure used in compliance with state or fed laws
Can S corp offer non qualified deferred compensation plan?
no
Divorce Decree and gift tax on transfers
Counts as marital gift (unlimited) IF within 3 years of divorce
What is a 1031 exchange
PROPERTY
What is a 1035 exchange
INSURANCE
No R squared - how to decide between Sharpe and Treynor
diversified - Treynor
What type of interest is a Coverdell deposit
Present
Is there an age limitation on Coverdell
Yes - beneficiary must be under 18
What happens if family member is trustee
taints trust but can serve as cotrustee with an independent trustee
How is a 457 categorized
non qualified deferred compensation
HO-15 limits
5000 +
Excess alimony with 0 in year 3 and with something in year 3
-37,500
year 3 x2 and -37,500
in both cases subtract from year 1 and 2
If client says they don’t want financial planning what are your options?
- Not enter engagement
- Limit the scope
- Provide requested services after informing client how FP would benefit them
- Terminate engagement
BPS
basis points
EFC
Expected Family Contribution
- Parental Income
- Parental Assets (except cars, home, cash value of life, retirement) non retirement assetes assessed at 5.64%
- Student Income
- Student assets at 20%
QBI
Qualified Business Income
20% below the line deduction
RSU
Restricted Stock Unit
TIC
Tenancy in Common
YRT
Yearly Renewable Term - renewability without underwriting but increasing premiums (Often feature with Group LIfe)
What happens with NQSOs you gift to charity
EE does not recognize gain on the transfer date.
EE ordinary income when the charity exercises if still living
No ordinary income if the charity exercises the option after death
EE allowed charitable income tax deduction on the date of transfer (or date of vesting, if later).
Who are Modified premium whole life policies for
want permanent life insurance, but not yet able to afford the higher premiums of traditional whole life insurance - premiums increase as income increases
What is coverage E
Coverage E protects the insured against claims arising out of both bodily injury and property damage. This coverage also pays the costs of defending the insured against a covered claim
What is the net gift technique and calculation
A Net Gift is a Gift the donor makes to the donee in which the Gift Tax on the Gift will not be paid by the donor, but instead will be paid by the donee out of the proceeds of the Gift he or she receives
GT=tentative tax/1.4
What is a disclaimer trust
A disclaimer trust is one that has embedded provisions (usually contained in a will) that allow a surviving spouse to put specific assets under the trust by disclaiming ownership of a portion of the estate. Disclaimed property interests are then transferred to the trust, without being taxed
Can HSA be used to pay LTC premiums?
yep
Under ERISA rules, which organization is charged with the administration of defined benefit plan termination rules?
PBGC
Which organization is responsible enforcement of reporting, disclosure, and fiduciary provisions of ERISA
DOL through PWBA
SIMPLE 401(k) deferral limit
13,500 + 3k cacth up
How is STCG property dealt with when donating?
basis (50% AGI for public charity)
What are the rules for dividend received deduction
50% UNLESS corporation owns >20% of the stock in which case 65%
Surrender of policy - what is taxable
Guaranteed cash value less net premiums paid
Qualified Plan distribution for education rules
Gets the 10% penalty - only IRA rules have exemption
Which are the pension plan
DB, CB TDB and MP (NOT PS)
What is the rule in Qualified plans for substantially equal periodic payments
must be due to separation from service
Max owner contribution to SEP
don’t forget to reduce the 25% - short cut is 18.59%
discriminatory life insurance - table 1 premium actual premium how do you determine benefit
Use higher of actual cost or table 1 cost
6 ADLs
Bathing BDT etc Dressing Eating Transferring Toileting - on and off Continence
How does QBI work?
20% below the line without requiring itemizing
If your business falls into any of the SSTB categories and your taxable income is between $315,000 and $415,000 (MFJ) or $157,500 and $207,500 (other), your deduction is limited.
QBI calculation in excess of phaseout threshold (426,600)
limited to lesser of 20% QBI or 50% W-2 wages
Can you use Donor advised fund to increase effectiveness of charitable deduction?
Yes - bundle payments into the DAF in concentrated amounts (itemize) and have DAF parcel out donations as you wish (ie smoothed out)
How are 2503(c) distribtions taxed
kiddie tax rules
Medicare - what is the limit amount (stop loss)on Part B physician expenses?
there is no limit to the 20% “reasonable and customary” physician charges SO GET MEDIGAP
How is inpatient care treated Medicare part A
days 1-60 flat deductible
61+ copay daily
Deduction of Medicare premiums
Self employed above the line
Otherwise Sched A below line subject to 7.5% AGI floor
How much extra if you extend taking social security beyond FRA
8% per year until age 70
Advantage of UTMA over 529
custodian control over investments
EE Bond qualified expenses
NOT books, room and board
How does tax free exchange from UTMA to 529 work?
It doesn’t. Not a thing.
Do scholarships reduce financial aid?
yup
How much can a student earn before it affects EFC?
$6000
Do parents have an income protection allowance with respect to EFC?
Yes typically $17k-$37k
How much is student contribution from income above protection allowance?
50%
How much is parent contribution from income above protection allowance?
22-47%
If you take money out of IRA to pay education expenses how does that work for FAFSA?
counts as income 2 years later - so do it in the final year
How are family businesses treated for FAFSA?
> 50% owned not included
When to file FAFSA
october 1 of year prior
What is FAFSA application fee?
0
Can creditors get at TIE property
nah-uh
Divorced parent - children’s medical expenses - who can deduct?
each parent that which they pay (7.5% floor/itemize)
If you retitle home JTWROS with unmarried partner is there a gift
yes - you gave them a one half interest
How does IRS try to treat JTWROS property when one dies
they try and include it all in the decedent’s taxable estate (so you need good record keeping)
