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Pete CFP > HARD DECK - loadsa CFP facts > Flashcards

HARD DECK - loadsa CFP facts Flashcards

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1
Q

What are the steps in the financial planning process

A
  1. Understanding the client’s personal and financial circumstances
  2. Identifying and selecting goals
  3. Analyzing the client’s current course of action and potential alternative courses of action
  4. Developing the financial planning recommendations
  5. Presenting the financial planning recommendations
  6. Implementing the financial planning recommendations
  7. Monitoring progress and updating
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2
Q

What are guardianship and conservatorship

A

Court supervised: personal care and wellbeing of ward, property of ward

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3
Q

When do you have to file federal gift tax return

A
  1. Gifts to donee exceed annual exclusion
  2. Any future interest
  3. Common law state - any gift splitting (in community property & JTWROS only if >$30k)
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4
Q

What does Escheat mean?

A

CHEAT! Going to the state where resided at date of death when intestate without family

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5
Q

What is ademption?

A

asset no longer belongs to testator so no bequest to give

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6
Q

Which form is estate tax return

A

706 SIX FEET UNDER

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7
Q

Small cap index

A

Russell 2000

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8
Q

Broad Market index

A

Wilshire 5000

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9
Q

Current Yield Formula

A

Annual interest in dollars / bond’s market price

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10
Q

Property’s Intrinsic Value Formula

A

NOI/Cap Rate

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11
Q

Intrinsic Value of Call

A

Market Price - Exercise Price

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12
Q

Intrinsic Value of Put

A

Exercise Price - Market Price

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13
Q

Return on Equity

A

Earnings Available for common (EPS)/Common Equity (net worth or book value)

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14
Q

Dividend Payout ratio

A

Common Dividends paid/earnings available for common (EPS)

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15
Q

Margin Call

A

(1-initial margin %age/1-maintenance margin %age)xpurchase price of stock

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16
Q

What does Standard Deviation Measure

A

Total Risk - returns of a non diversified portfolio

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17
Q

What does Beta Measure

A

volatility of returns in a diversified portfolio - measure of systematic risk (non diversifiable risk associated with the individual security)

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18
Q

When is life insurance included in the gross estate

A
  1. If the proceeds are paid to the executor
  2. Decedent at death possessed incident of ownership
  3. Insured transferred a policy with incident of ownership within 3 years of death (not sold - no 3 year rule if sold)
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19
Q

Can the company deduct the premium in split dollar arrangements

A

No

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20
Q

Collateral Assignment

A

Employee is owner and Sharholder

Employee aSSigns the policy

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21
Q

Endorsement Method

A

Employer is the owner

EE is not a shareholder

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22
Q

What happens with alimony on death of payor

A

it stops (normal to have life insurance)

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23
Q

What is the rule for SIMPLE RMDs if you keep working past 72

A

You have to take RMDs

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24
Q

Is there a limit to the amount you can convert with a ROTH conversikon

A

NO LIMIT

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25
Q

How much is corporate AMT

A

It has been eliminated

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26
Q

Who can use a 1040EZ

A

No-one - it has been eliminated

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27
Q

What happens to your S Corp basis if you guarantee a bank loan to the S Corp

A

No change - the bank loan does not increase your basis

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28
Q

How do IRA hardship withdrawals work?

A

They do not - there are no hardship withdrawals from an IRA

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29
Q

Can profit sharing plan receive contributions for individual employees in excess of 25% of that
participant’s eligible compensation.

A

Yes, yes they can

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30
Q

NUA rule

A

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

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31
Q

What is a section 125?

A

FSA

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32
Q

How much is FICA & FUTA on FSA contributions

A

zero

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33
Q

How is active participation in an S corp treated?

A

Investment income

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34
Q

Features of gift to qualify for marital deduction

A

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.

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35
Q

Limitation of prepaid tuition 529

A

Only for tuition and mandatory fees

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36
Q

What is indemnity

A

Insurer seeks to reimburse the insured for the amount lost (no more, no less)

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37
Q

What are principles of indemnity

A
  1. Insurable interest
  2. Concept of actual cash value
  3. Other insurance (ability to profit from a loss)
  4. Subrogation (insurer takes over legal rights when it pays claim)
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38
Q

Guaranteed insurability

A

right to purchase additional coverage without having new proof of insurability (but premium may go up)

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39
Q

What’s in Medicare Part B

A
  1. physician
  2. Home health
  3. Diagnositic
  4. Outpatient
    80% paid after deductible
    does include doctor visits both in and out of hosptial
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40
Q

What is APL

A

Automatic Premium Loan(election at issue, or any time)

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41
Q

Can you 1035 annuity to life?

A

noooo

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42
Q

JWROS annuity - how much in estate of first to die?

A

Replacement cost of single life annuity on the surviving spouse

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43
Q

Is there a right of survivorship with community property

A

no

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44
Q

What are estate tax credits?

A

foreign death taxes

credit for taxes on prior transfers

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45
Q

How much of a term policy is included in the estate?

A

just the unused premium

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46
Q

Is tennancy by the entirety recognized in all states?

A

no

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47
Q

Steps in net estate tax

A

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

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48
Q

HSA: who can contribute?

A

any person, including an employer or family

member, on behalf of an eligible person

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49
Q

Where on the 1040 do you deduct HSA contributions?

A

On the front/above the line - you don’t have to itemize to deduct

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50
Q

Can employer and eligible person contribute to HSA in the same year?

A

Yes

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51
Q

What is CML

A

Specifies relationship between risk and return on a portfolio

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52
Q

What is the intersection of the CML called?

A

Rf or risk free (that’s where it’s 100% TBills)

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53
Q

What is point B on the CML called (tangent to the curve)?

A

Optimal risky portfolio, a proportional percentage of all risky assets or the tangent of CML and Markowitz efficeint frontier

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54
Q

What makes it a grantor trust?

A

Any portion of trust INCOME is or may be used to purchase life insurance on grantor or grantor’s spouse.

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55
Q

Can HSA be used to pay LTC premiums?

A

Yes - qualified premiums - age based

Not FSA - which can’t be used for LTC remiums

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56
Q

Draw graph of SML

A

y:rate of return, x:beta - if markets are in equilibrium all assets on SML - expected r for any asset = required rate

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57
Q

Draw graph of CML

A

y:expected return x: standard deviation

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58
Q

What is limit on charitable contribution of inventory

A

it should be valued at cost

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59
Q

Annuity lump sum tax

A

capital gains on gain above basis (over 59 1/2)

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60
Q

Section 1244 deduction

A

Single $50,000 MFJ $100,000

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61
Q

What type of distributions to QDROs affect

A

Qualified plan only NOT IRAs

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62
Q

Life settlement of insurance

A

basis - premiums paid less cost of insurance
income characterized as
ord income on cash value above premiums paid
remainder is LTCG

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63
Q

Another name for call writing

A

shorting

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64
Q

What is section 162

A

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

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65
Q

Social security if both spouses collecting retirement benefits and one dies

A

greater of survivors benefit or 100% of spouse’s

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66
Q

Who can contribute to MSA and when

A

only eligible person or employer - but not both in the same year

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67
Q

What is 2023A

A

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

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68
Q

What is a taxable termination

A

GSTT termination of interest in a property held in trust that leads to skip person getting it

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69
Q

Who pays GSTT

A

direct skip - donor
taxable termination - trustee
taxable distribution - transferee

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70
Q

What is a wealth replacement trust

A

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.

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71
Q

What are required minimum distributions for CLAT and CLUT

A

none! only CRAT & CRUT

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72
Q

If question says “freeze”

A

recapitalization

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73
Q

Result if beneficiary of policy legally obligated to use it to pay estate taxes

A

INcluded in GE

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74
Q

What is the unified credit

A

the $11,580,00 free of gift, estate & GSTT

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75
Q

What is value of gifted securities

A

Average of Hi & Low on date of gift

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76
Q

What is special about IRD property

A

It does NOT get a step up in basis

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77
Q

Which form for estate admin expenses / casualty losses

A

706 or 1041 but not both

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78
Q

Cost basis options for publicly traded securities.

A

specific identification, FIFO, average cost ONLY FOR MUTUAL FUNDS (ie not for shares)

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79
Q

What is investment policy statement

A

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.

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80
Q

What is positive skewness

A

tendency towards positive price movements

81
Q

What is leptokurtic distribution

A

clustered around the mean (lower variance) higher peak

82
Q

What is platykurtic distribution

A

flatter (squashed like a platypus beak) with greater chance of higher variance result (investors don’t like)

83
Q

What is an intermarket bond swap

A

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.

84
Q

What is a rate anticipation bond swap

A

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.

85
Q

What is a pure yield pickup bond swap

A

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.

86
Q

How often do series I and EE bonds pay interest

A

They don’t - they accrue it.

87
Q

What is investment grade?

A

S&P BBB- or higher

88
Q

Non investment grade

A

S&P BB+ or lower

89
Q

trades on an exchange, may trade at a premium or discount to its net asset value, and has a fixed capital structur

A

closed end investment company

90
Q

What is conversion value

A

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

91
Q

Who rates bonds

A

Moodys S&P and Fitch Moody’s Aaa is top rated

92
Q

Can you use line of credit for emergency fund

A

Unsuitable - should use safe and liquid investments

93
Q

What do you need if you’re going to discuss new investment products

A

securities license

94
Q

Wash sale definition

A

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)

95
Q

QDRO affects which type of plans

A

QUALIFIED only - not IRAs

96
Q

Who can be a qualified heir for 2032(a)?

A

Only lineal descendent

97
Q

Can 2032(a) use current use valuation?

A

yes

98
Q

How are estimated taxes collected vs income taxes

A

Estimated: due dates INcome: pay as you go

99
Q

Qualified plans - when do they have to be established to be in effect for th eemployer’s fiscal year end

A

Within the tax year for which the employer wishes to take the tax deduction

100
Q

SEPs - when do they have to be established to be in effect for the employer’s year end

A

By the due date of the business tax return including extensions

101
Q

403(b) required minimum distributions while working

A

if in same profession - no RMD

if in different profession have to take RMDs (like an IRA)

102
Q

Is an income tax refund IRD

A

nope

103
Q

Value of life policy you hod on someone else

A

Interpolated terminal reserve plus the unearned (by the insurance company)premium

104
Q

What are the rules for 401k RMDs for >5% owner

A

must take RMDs at 72

105
Q

excess alimony rule

A

year 2 amount between year 2 and 3 that exceeds year 3 by more than $15k

106
Q

AMT Add back items

A

property/state/city income and sales taxes

ISO bargain element

107
Q

AMT Preference items

A

Intangible drilling costs (excess)
Private activity muni
Oil & gas %age depletion (not cost depletion)
Depreciation ACRS/MACRS (not straight line)

108
Q

When is commingling of client funds allowed

A

with other clients in common fund

109
Q

When is the EE Bond tax due?

A

When you cash them unless for qualified education expenses (and TP below threshold)

110
Q

Forms of discipline

A

Private censure
Public letter of admonition
Suspension
Revocation

111
Q

In FLP how is common stock valued for gift tax purposes

A

Preferred stock value is based on the dividends - common stock value is the difference between this and the FMV of the corporation

112
Q

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?

A

Gross Income A less 50%D and E = net income
add B less self employment tax (7.065% of net income)
less C = AGI

113
Q

Affect of gift tax on basis of appreciated property

A

Not straight carryover - basis will be increased bu the gift tax paid that is attributable to appreciation

114
Q

Normal requirement to participate in group health plan

A

32 hours per week

115
Q

Donating inventory - what’s the deduction for a business?

A

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

116
Q

How are worthless securities treated

A

as if sold on last day of year they became worthless

117
Q

What type of gift is Coverdell

A

Completed - qualifies for GT exclusion

118
Q

Is Coverdell Contribution deductible

A

Nope

119
Q

When does Coverdell phaseout apply

A

It matters at the time of contribution

120
Q

Define Liquid

A

Easily converted to cash without significant impact on value

121
Q

Define Marketable

A

Easily bought/sold/traded

122
Q

Is a 1 yr CD liquid

A

comparatively, yes - in the absence of early withdrawal it will not lose principal

123
Q

Who sets margin requirments

A

Federal Reserve Board

124
Q

What would be effect of decreasing margin requirement

A

Increased speculation

125
Q

What is a BOP

A

Businessowners policy

126
Q

What is QACA

A

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.

127
Q

Reverse QTIP

A

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

128
Q

What shots included in Medicare Part B

A

Annual flu and pneumococcal (pneumonia)

129
Q

What happens to COBRA if company goes out of business

A

It ends

130
Q

What happens to group plan eligibility if you go from full time to part time?

A

You may lose it

131
Q

Can you roll a 403(b) to a Roth at Retirement

A

yes - no penalty if over 59 1/2 but would pay tax

132
Q

Which retirement plans no loans

A

IRAs

133
Q

An SEP is a type of

A

IRA

134
Q

ISOs - if you pay AMT what happens to basis?

A

It increases by the amount of AMT

135
Q

What age can you make the IRA charitable rollover

A

70 1/2

136
Q

What does IRR reflect

A

return on investment considering all cash flows

137
Q

What does time weighted return reflect

A

fund manager performance

138
Q

How can written disclosures (code of ethics) be made

A
  1. ADV
  2. Disclosure under rules/requirement of any self regulatory org
  3. Disclosure using multiple written docs
  4. Disclosure used in compliance with state or fed laws
139
Q

Can S corp offer non qualified deferred compensation plan?

A

no

140
Q

Divorce Decree and gift tax on transfers

A

Counts as marital gift (unlimited) IF within 3 years of divorce

141
Q

What is a 1031 exchange

A

PROPERTY

142
Q

What is a 1035 exchange

A

INSURANCE

143
Q

No R squared - how to decide between Sharpe and Treynor

A

diversified - Treynor

144
Q

What type of interest is a Coverdell deposit

A

Present

145
Q

Is there an age limitation on Coverdell

A

Yes - beneficiary must be under 18

146
Q

What happens if family member is trustee

A

taints trust but can serve as cotrustee with an independent trustee

147
Q

How is a 457 categorized

A

non qualified deferred compensation

148
Q

HO-15 limits

A

5000 +

149
Q

Excess alimony with 0 in year 3 and with something in year 3

A

-37,500
year 3 x2 and -37,500
in both cases subtract from year 1 and 2

150
Q

If client says they don’t want financial planning what are your options?

A
  1. Not enter engagement
  2. Limit the scope
  3. Provide requested services after informing client how FP would benefit them
  4. Terminate engagement
151
Q

BPS

A

basis points

152
Q

EFC

A

Expected Family Contribution

  1. Parental Income
  2. Parental Assets (except cars, home, cash value of life, retirement) non retirement assetes assessed at 5.64%
  3. Student Income
  4. Student assets at 20%
153
Q

QBI

A

Qualified Business Income

20% below the line deduction

154
Q

RSU

A

Restricted Stock Unit

155
Q

TIC

A

Tenancy in Common

156
Q

YRT

A

Yearly Renewable Term - renewability without underwriting but increasing premiums (Often feature with Group LIfe)

157
Q

What happens with NQSOs you gift to charity

A

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).

158
Q

Who are Modified premium whole life policies for

A

want permanent life insurance, but not yet able to afford the higher premiums of traditional whole life insurance - premiums increase as income increases

159
Q

What is coverage E

A

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

160
Q

What is the net gift technique and calculation

A

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

161
Q

What is a disclaimer trust

A

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

162
Q

Can HSA be used to pay LTC premiums?

A

yep

163
Q

Under ERISA rules, which organization is charged with the administration of defined benefit plan termination rules?

A

PBGC

164
Q

Which organization is responsible enforcement of reporting, disclosure, and fiduciary provisions of ERISA

A

DOL through PWBA

165
Q

SIMPLE 401(k) deferral limit

A

13,500 + 3k cacth up

166
Q

How is STCG property dealt with when donating?

A

basis (50% AGI for public charity)

167
Q

What are the rules for dividend received deduction

A

50% UNLESS corporation owns >20% of the stock in which case 65%

168
Q

Surrender of policy - what is taxable

A

Guaranteed cash value less net premiums paid

169
Q

Qualified Plan distribution for education rules

A

Gets the 10% penalty - only IRA rules have exemption

170
Q

Which are the pension plan

A

DB, CB TDB and MP (NOT PS)

171
Q

What is the rule in Qualified plans for substantially equal periodic payments

A

must be due to separation from service

172
Q

Max owner contribution to SEP

A

don’t forget to reduce the 25% - short cut is 18.59%

173
Q

discriminatory life insurance - table 1 premium actual premium how do you determine benefit

A

Use higher of actual cost or table 1 cost

174
Q

6 ADLs

A 
Bathing   BDT etc
Dressing
Eating
Transferring
Toileting - on and off
Continence
175
Q

How does QBI work?

A

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.

176
Q

QBI calculation in excess of phaseout threshold (426,600)

A

limited to lesser of 20% QBI or 50% W-2 wages

177
Q

Can you use Donor advised fund to increase effectiveness of charitable deduction?

A

Yes - bundle payments into the DAF in concentrated amounts (itemize) and have DAF parcel out donations as you wish (ie smoothed out)

178
Q

How are 2503(c) distribtions taxed

A

kiddie tax rules

179
Q

Medicare - what is the limit amount (stop loss)on Part B physician expenses?

A

there is no limit to the 20% “reasonable and customary” physician charges SO GET MEDIGAP

180
Q

How is inpatient care treated Medicare part A

A

days 1-60 flat deductible

61+ copay daily

181
Q

Deduction of Medicare premiums

A

Self employed above the line

Otherwise Sched A below line subject to 7.5% AGI floor

182
Q

How much extra if you extend taking social security beyond FRA

A

8% per year until age 70

183
Q

Advantage of UTMA over 529

A

custodian control over investments

184
Q

EE Bond qualified expenses

A

NOT books, room and board

185
Q

How does tax free exchange from UTMA to 529 work?

A

It doesn’t. Not a thing.

186
Q

Do scholarships reduce financial aid?

A

yup

187
Q

How much can a student earn before it affects EFC?

A

$6000

188
Q

Do parents have an income protection allowance with respect to EFC?

A

Yes typically $17k-$37k

189
Q

How much is student contribution from income above protection allowance?

A

50%

190
Q

How much is parent contribution from income above protection allowance?

A

22-47%

191
Q

If you take money out of IRA to pay education expenses how does that work for FAFSA?

A

counts as income 2 years later - so do it in the final year

192
Q

How are family businesses treated for FAFSA?

A

> 50% owned not included

193
Q

When to file FAFSA

A

october 1 of year prior

194
Q

What is FAFSA application fee?

A

0

195
Q

Can creditors get at TIE property

A

nah-uh

196
Q

Divorced parent - children’s medical expenses - who can deduct?

A

each parent that which they pay (7.5% floor/itemize)

197
Q

If you retitle home JTWROS with unmarried partner is there a gift

A

yes - you gave them a one half interest

198
Q

How does IRS try to treat JTWROS property when one dies

A

they try and include it all in the decedent’s taxable estate (so you need good record keeping)

Pete CFP (2 decks)

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