Missed Questions / Concepts (Final Quizzes 1-8)

Question 1

Which recommendation could reduce GSTT Tax after the death of the grantor?

Answer 1

Reverse QTIP

Question 2

If you cannot get accurate data from a client to do a plan, what do you do as the planner?

Answer 2

Do not take prospect on as a client.

Question 3

If a defined benefit plan is terminated by the employer, which of the following is true?

Answer 3

The plan is 100% vested. The 10% pre-59.5 distribution penalty may still apply.

Question 4

Trust income is accumulated for later distribution to the beneficiary. Is this taxed to the grantor?

Answer 4

No, it is taxed to the trust. Grantor has no beneficial enjoyment.

Question 5

True or false - only art and collectibles can be use unrelated for donation purposes.

Answer 5

True. (in which case you use basis up to 50% of AGI.)

Question 6

A CFP certificant offers advice on certain mutual funds and charges a fee for his advice. Which
of the following is true?

Answer 6

The CFP certificant will have to register individually or as an Investment Adviser Associate.

Question 7

Sally donates clothes to the Salvation Army. What amount will be allowed as a charitable
deduction?

Answer 7

The deduction is the lesser of fair market value or the donor’s basis (substantiated)

Question 8

Allowing an intern to present a plan to clients without supervision violated which principle?

Answer 8

Professionalism.

Question 9

True or False: Whenever 2032A is available, the estate will also qualify for 6166.

Answer 9

True!

Question 10

What benefits are not included under a VEBA?

Answer 10

Retirement and Deferred Compensation

Question 11

Can you still contribute to a SIMPLE after reaching age 70?

Answer 11

Yes.

Question 12

Baker, Inc. has an ERISA retirement plan (employer funded). The plan lost 50% due to poor
investment decisions last year. What can the employees do?

Answer 12

Sue the officials for losses in the plan.

Question 13

Which of the following is true about a QPRT if the grantor dies during the retained-interest
term?

Answer 13

It leaves the grantor’s estate with no greater tax liability than it would have had if nothing
had been done.

Question 14

What is the cutoff year for MECs?

Answer 14

1988

Question 15

Under the endorsement method, what does the insured have to pay for his or her policy?

Answer 15

The higher of cash value or premiums paid.

Question 16

If you are convicted of a felony, can you still qualify for the AOTC or Lifetime Learning Credit?

Answer 16

You cannot qualify for the AOTC but you can qualify for the Lifetime Learning Credit.

Question 17

True or False: Until the client grants permission to share financial information with third parties, the planner
many not do so.

Answer 17

True. (Exceptions: the requesting party is neither a regulator, a member of the
IRS, or preparing a defense on the planner’s behalf.)

Question 18

A company has 18 full-time employees participating in their group health plan, and 4 full-time
employees who are not participating in the plan. Joe, a participating employee with family
coverage, just divorced Sara. How long will COBRA cover Sara and Debbie (his 12-year-old
daughter)?

Answer 18

Sara will get 36 months, Debbie will still be covered under the group plan.

Question 19

Who pays the GSTT under a taxable termination?

Answer 19

The Trustee.

Question 20

An owner of a company defers the maximum salary into the company’s 401(k) plan. If he starts another company with another 401(k) plan, what will be the outcome?

Answer 20

He can participate in the new company’s profit sharing plan, but he cannot make any deferrals.

Question 21

Shortcut method for finding net after tax mortgage payment for the first year?

Answer 21

1) Find PMT, multiply by 12.
2) Multiply interest percentage by the mortgage, multiplied by the tax bracket.
3) Subtract step 2 from step 1.

Question 22

Would a C Corp get a step up in basis in a community property state?

Answer 22

Yes. The stock is LTCG property.

Question 23

How is a MEC loan taxed?

Answer 23

Cash value minus basis. This number will be ordinary income tax plus 10% penalty.

Question 24

True or false: College Savings plans are suitable for risk-tolerant investors.

Answer 24

True.

Question 25

1040 EZ is for…

Answer 25

Easy returns. You cannot claim dependents or itemize.

Question 26

A company’s officers are concerned about being trustees for the company’s pension plan. What
should they do?

Answer 26

Use an investment manager that will manage the plan

Question 27

Can you qualify for SS disability if you are over NRA (normal retirement age)?

Answer 27

No, you must be under NRA to qualify.

Question 28

For SEC registered advisers - those with AUM at least $100 million – are required to file annual
updates to their ADV within _____ days of their end of year.

Answer 28

90

Question 29

Mrs. Tilley has the following income. How much of it is earned income?
I. Wages from an S corporation of $50,000
II. Corporate dividends of $5,000
III. K-1 income of $10,000 from an S corporation she is more than a 2% owner (active)
IV. Sale of a collectible for a $5,000 gain

Answer 29

Only the wages - 50,000.

Question 30

Corporate annual reports do not include which of the following?

Answer 30

Profitability projections.

Question 31

True or false: Prepaid plans only pay for tuition and mandatory fees.

Answer 31

True.

Question 32

If an unmarried couple retitles a home from Sole to JTWROS, is there a taxable event?

Answer 32

Yes. When the other person is added to the deed this counts against the lifetime gift exemption.

Question 33

Who gets the personal exemptions in a divorce?

Answer 33

Whoever has custody - does not matter who is paying the support.

Question 34

Qualified plan DISTRIBUTIONS. Are they protected in bankruptcy court?

Answer 34

Only a portion are protected. Once they become distributed they are not fully protected.

Question 35

The CML (Capital Market Line) tells us one thing only. What does it tell us?

Answer 35

The expected return on a fully diversified portfilio.

Question 36

John, age 69, and Mary, age 66 (married) have been collecting Social Security benefits of $1,500
and $750 per month. If he dies, what will happen to her benefits?

Answer 36

She will get the greater of her benefits or 100% of his benefits.

Question 37

True or False: DNI is distributed net income. A simple trust uses the conduit principal (DNI).

Answer 37

True.

Question 38

True or False: Room and Board expenses are taxable.

Answer 38

True.

Question 39

Marty purchased some Treasury Inflation-indexed securities (TIPS). He is questioning the tax
ramifications of the securities. Which one of the following statements is true?

I. The interest is subject to federal taxation when received.
II. The inflation adjustment to principal is also subject to federal taxation in the year the
adjustment is made.
III. The interest and inflation adjustment may be deferred until the bond is redeemed or
maturity is reached in 30 years.
IV. The deflation adjustment to principal is also subject to federal tax deduction in the
year the adjustment is made.

Answer 39

I, II, IV.

Question 40

When will the QDRO be valid?

Answer 40

When the plan administrator has approved the QDRO that has been entered with court and
signed by the judge

Question 41

Is an income tax refund IRD?

Answer 41

No.

Question 42

Mr. Tate died owning a whole life policy on Mrs. Tate. The death benefit of the policy was
$250,000, and the cash value was $30,000. What amount will be included in Mr. Tate’s estate?

Answer 42

The interpolated terminated reserve PLUS unearned premium.

Question 43

As a result the policy became a MEC. The insurance company pays dividends each year. Which use
of yearly dividends would be tax-free?

Answer 43

Dividends are used to buy paid-up additions.

Question 44

What are the principle risks of a GIC?

Answer 44

Inflation risk and Reinvestment Risk.

Question 45

Mrs. T wants to gift $388,000 to her daughter. Her husband has consented to a split-gift.
Neither Mrs. T or Mr. T has done any prior gifting. What forms need to be filed and by whom?

Answer 45

Mrs. T and Mr. T file individual Form 709 showing taxable gifts of $180,000.

Question 46

Client has converted the majority of his common stock to preferred stock and gifted the remaining
common stock to his son. What is the gift tax result?

Answer 46

The gift tax value of the common stock will be based on dividends paid on the preferred
stock.

Question 47

A client wants to purchase some high yield debt to take advantage of current interest rates. Which of the following features would be most appealing?

Answer 47

A non-call feature for 10 years

Question 48

A stock is currently selling for $28.50, and its estimated future earnings is $3. Is the stock
underpriced or overpriced in terms of future earnings if its P/E ratio is 11?

Answer 48

The stock is underpriced ($3 x $11 = $33).

Question 49

Which of the following bonds are only subject to IP of DRIP?

Answer 49

STRIPS

Question 50

Are CDs considered liquid?

Answer 50

YES.

Question 51

What happens to a structured settlement if the recipient dies before the term is up?

Answer 51

The present value of the remaining periodic payments is included in her estate.

Question 52

To sell her property, your client must have the property graded level, seeded, and surveyed.
The cost is $20,000. Which of the following is true?

Answer 52

The 20,000 must be capitalized.

Question 53

Who needs a QDOT - the citizen spouse or the non-citizen spouse.

Answer 53

The citizen spouse.

Question 54

True or False: Distributions from tax-qualified retirement plans, TSAs [403(b)] and governmental 457s can be rolled directly into a Roth IRA.

Answer 54

True.

Question 55

Mr. Quincy took out a single premium policy in 1990. He paid $100,000. In 2005 he took a
$50,000 loan against the policy when the cash value was $170,000. He paid the annual interest
each year, but never repaid the loan. This year he died at age 60. If the face value of the
universal life (option A level) policy is $1,000,000 and the cash value is $200,000, how much will
his beneficiary be paid?

Answer 55

The death benefit (1,000,000) minus the loan (50,000).

Question 56

A husband agrees to give his wife $1,000,000 as a lump-sum settlement in exchange for her
release of all marital rights that she has in his estate. Is the $1,000,000 subject to gift tax if it is
part of a divorce decree?

Answer 56

No.

Question 57

Mr. Montain purchased an annuity for $600,000, 25 years ago. He annuitized it 20 years ago
when it was worth $800,000. The contract used a 20-year single life expectancy paying him
$5,000 per month. How much of the monthly payment will be included in Mr. Montain’s gross
income this year (21st year)?

Answer 57

The whole thing is taxed (outlived the 20 year term).