Study from Wrong Answers Flashcards
To allow a DE spouse to receive income from an A trust, the spouse is given a ____________ power of appointment whereas in a B trust, the spouse is given a ___________ power of appointment.
General; limited
What are the tax consequences of selecting the QTIP election?
Anything as part of the QTIP qualifies for the unlimited marital selection and is not taxed.
However, the assets are then included in the surviving spouses estate
Each of the following vehicles for charitable giving generates a deduction equal to the present value of the charity’s remainder interest EXCEPT:
Charitable Remainder Trust
Pooled Income Fund
Donor-Advised Fund
Charitable Gift Annuity
Donor-advised funds only allows a deduction based on the type of property contributed, subject to AGI limitations
When using a charitable gift annuity to make payments to a spouse, if the spouse receives all payments and has a general power of appointment following the donor’s death, _______________________ is available.
a marital deduction
deduction for the PV of the charity’s remainder interest
deduction for the PV of the charity’s income interest
an income tax deduction limited to 30% for cash and to 20% for LTCG property
a marital deduction
For gift annuity payments made to a spouse, a marital deduction is available if the spouse receives all annuity payments and has general POA over payments after the donor’s death
What kind of marital deduction is available for non-US citizens?
None
What is the early withdrawal penalty for 457’s?
There isn’t one
What funds can a 403(b) invest in?
Mutual funds and annuities
Which annuitization method provides the highest monthly income to the annuitant?
Life, 10-year certain
Life, 20-year certain
Life, refund certain
Life only
Life only
Biggest payment but all payments end when the annuitant dies. (better than 10 years, I guess??)
‘Annuity Certain’ is a subcategory within which of the following annuity features?
Guaranteed Minimums
How Funds are Invested
Lives Covered
Forms of Payment
Forms of Payment
‘Annuity Certain’ can refer to either a Fixed Period or Fixed Payment.
What does rule 72(t) refer to?
Sep from service at or after 55
An exception to qualified plans early withdrawal penalties, (BUT NOT FROM IRAs)
What’s the way to remember FAFSA EFC percentages?
low to high: A ssets before I income
What is the “final” step in determining the EFC?
Subtracting the family contribution calculation from the cost of tuition
When calculating the taxes and penalty on a 529 withdrawal for non-qualified expenses, what is the formula?
Total - principle / total
What are tax sheltered annuities?
TSAs or 403(b)s
What is the key to differentiating collision from comprehensive policy use?
Hitting STATIONARY objects (or other cars) - collision
Hitting NON-STATIONARY objects - comprehenisve
Rollovers may be made without penalty from a section 529 tuition account to a section 529A ABLE account if
I) is a qualified relative per the IRS
II) is an eligible member of the family
II only
Rollovers may be made without penalty from a section 529 tuition account to a section 529A ABLE account if the beneficiary of the ABLE account is the DESIGNATED beneficiary of the tuition account or is an ELIGABLE member of the family.
What are REITs?
Companies that invest in real estate instead of financial assets to provide passive income.
Two types: Equity and Mortgage (REMICs of 2008)
What are the tax filing penalties?
Fraud: 75%
Frivolous: $5000
Negligence: 20%
Failure to file: 5% per month up to 25%
Failure to pay: .5% per month up to 25%
What method of accounting must be used if there is inventory involved in the business?
Accrual. Hybrid if there is a service component
What is the formula to determine mixed-use rental deductions?
rental days / total days (pers & rent) used * total expenses
Cannot deduct more than rental income
How much can educators deduct - Single? MFJ?
Single or married, you can deduct up to $300 qualifying expenses per educator
What happens if failure to file and failure to pay taxes before 5 months and when it exceeds 5 months?
Prior to 5 months, only failure to file is levied. After 5 months, only failure to pay is levied
What kind of student loan debt forgiveness can be deducted from gross income?
Only forgiven debt using the public service loan forgiveness program
What is the correct discount rate used in the NPV formula?
The investor’s required rate of return
The U.S. economy has experienced significant growth over the past six months after spending two years in a recession. In response, the Fed has begun aggressively increasing the discount rate, however, economists are anticipating another prolonged contraction 5-7 years from now.
What is likely to occur in the yield curve as a result?
A flat curve
A steep positive curve
A normal curve
An inverted curve
An inverted curve
Increase in short term rates and contraction in long term rates result in an inverted curve
Which part of Medicare uses a “gatekeeper” approach?
Part C
Part B
Part A
Part D
Part C
Must use in-network for medicare advantage
Periodic withdrawals from a deferred annuity up until age 59 ½ receive what type of tax treatment?
-All distributions are tax-free.
-Distributions are considered basis first.
-Distributions are considered earnings first.
-Each periodic distribution has an exclusion allowance applied.
Distributions are considered earnings first.
What does an options contract intrinsic value include?
Only the market and exercise price - NO PREMIUM!!!
How many shares is a standard call or put contract?
1 = 100
When do you include the premium in the value of a put or call?
When the question asks for the net gain or loss
What are the filing (S) and (MFJ) breakpoints for 0%, 50% and 85% of SS taxed?
(S) $25k and $34K
(MFJ) $32k and $44k
When do you use .9235 when calculating taxes?
For SE income ONLY!
True / False. There is an annual exclusion for GST.
True. $16k per person
What are the matches to:
Straddle
Collar
Spread
Straddle = volatility
Collar = income from Call covers cost of Put
Spread = stability
A standardized contract to buy or sell a commodity is known as:
Forward
Option
Future
Swap
Future
In a liquidation of an S Corporation, the event is taxable at the _____________________.
I. corporate level
II. shareholder level
I only
II only
Both I and II
Neither I nor II
II only
Taxpayers using the ____________ generally report income in the year it is received.
accrual method
cash method
hybrid method
constructive receipt method
cash method
What tax form and dollar threshold amount is associated with the FBAR?
Form 114 - over an aggregate of $10k in foreign accounts at any time
What should be considered when deciding to calculate 3.8% NII or income over additional medicare threshold?
The 3.8% surcharge tax is applied against the lesser of NII or income over the threshold
What is the child and dependent care credit amount, assuming AGI over the $45k threshold?
20% of the qualifying expenses
How much is the child tax credit and what are the thresholds for getting the max credit for both filiing (S) and (MFJ)?
$2000 if AGI is not above…
(S) $200k
(MFJ) $400k
What is the maximum capital loss a (MFS) can claim?
$1500 - the IRS hates MFS
When does the first RMD have to be taken for an IRA vs a 401(k)?
For an IRA, it has to be taken by April 1st of the year following turning 72.
For a 401(k) same rules apply as an IRA. But if the EE is still working for the ER offering a 401(k), he does not have to take distributions until he actually retires, unless he owns more than 5% of the company.
What are the various taxing rules on SBP distributions?
ER Basis: Ordinary
Earnings at distribution: LTCG
Earnings at sale: ST/LT holding period rules
What is the 83(b) election?
Allows an EE to elect to pay ord income tax at SBP grant for basis, then pay LTCG at sell.
Non-discrimination testing. What are the formulas for:
Safe Habor
Ratio
Avg Benefits
Safe Harbor: #NHCE benefiting / total NHCE
Ratio:
-Safe harbor % / (#HCE benefiting / total HCE)
Avg benefits: NHCE benefits must be 70% of HCE benefits
How do you calculate total contribution amount to SS using integration base rates?
Take the base rate % and multiply times $147,000. Then take that base rate + excess rate and multiply times the excess income amount above $147,000
What is the maximum SS integration base rate that can be multiplied by 2?
5.7%
What is the maximum increase in benefits for SS integration formula?
.75 x .01 x (up to 35 years)
For a solo 401(k), what can the EE contribute and what can the ER contribute?
EE can max elective deferrals limit w/catch-up
ER can contribute 25% of covered comp up to annual additions limit
What is a key EE?
Anyone…
Making over $200k p/yr
Is a more than 5% owner
Is a more than 1% owner and makes $150k
What are the consequences of a top-heavy test fail?
Vesting schedule changes to 2-6 year graded/3 yr cliff
DB plan: 2% benefit p/yr up to 10 years
DC plan: min of 3% comp or match to lower HCE comp
What retirement plan do teachers participate in?
403(b)
What is required for a current spouse to receive SS benefits?
Married for more than 1 year
Worker is taking benefits
When earned and unearned income, how is the kids and parents tax totaled?
Step 1. Gross all income and subtract kid’s standard deduction (earned income +400 capped at $12,950)
Step 2. Work unearned income at parent’s tax rate (what they owe)
Step 3. (Answer 1 - Answer 2) * child’s tax rate = what the kid owes
How is a funded ILIT taxed?
Whatever income is produced from the funded ILIT will be taxed at the grantors rates regardless of premiums paid.
In a family limited partnership, what are key factors to keep in mind regarding taxation?
Could trigger kiddie tax
No step-up at basis
What are two discounts available to FLPs?
Lack of marketability
Minority interest
What is a 303 redemption?
Keeps stock in the family and provides a tax friendly way to use business profits to help pay for death expenses
What is the formula for using 303 stock at death?
303 stock must be greater than
(35% * Adjusted gross estate + losses added back in)
What is a 2032A Special Use Valuation?
Allows the estate to reduce estate taxes by lowering the value of qualified farm land
What are the requirements for a qualified 2032A property?
Must be farmland
Must equal at least 50% of the gross estate
At least 25% of gross estate (minus debts and mortgages) must be qualified farm property
What is the section 6166 election?
Allows the estate to make federal tax payments to alleviate liquidity problems at death
Payments are spread across 10 years of equal payments
What are the requirements for the section 6166 election?
Closely held business must exceed 35% of the adjusted gross estate
The first payment must be made within 5 years of death
What are key benchmarks for:
Large US Stocks
Small US Stocks
Non-US economies
Publicly traded companies
Large US Stocks - S&P 500
Small US Stocks - Russell 2000
Non US economies - MSCI
Publicly traded companies - Wilshire 5000
What are the following legislative acts:
Glass-Steagall 1933
Maloney 1938
Gramm-leach 1999
GS 1933: prohibited financial institutions from consolidating banking, investment, insurance
Maloney 1938: Brought OTC investments under the SEC
GL 1999: addressed privacy
Distributable Net Income (DNI) represents the maximum that can be taxed to the ________.
trust
beneficiaries
grantor
trustee
beneficiaries
Each of the following is a requirement for establishing a QDOT EXCEPT:
The trustee must be a US citizen or a domestic corporation, or a US bank if trust assets exceed $2 million.
The trust must retain sufficient assets to cover the non-citizen’s spouse’s estate taxes.
The trust must be set up as an A-Trust or a B-Trust.
The trustee must approve all distributions of principal and withhold estate taxes from distributions that are not subject to an ascertainable standard (HEMS).
The trust must be set up as an A-Trust or a B-Trust.
Each of the following is a BASIC need that a Special Needs Trust is available to cover EXCEPT:
Food
Shelter
Clothing
Medical Care
Medical Care
Each of the following is a SUPPLEMENTAL need that a Special Needs Trust is available to cover EXCEPT:
Medical Care
Education
Clothing
Special Equipment
Clothing
The reservist expense deduction applies to members of the Reserves and allows deduction of travel, meals, and lodging costs if the individual is _____________.
1) providing services
2) 200+ miles from home
1 Only. 2 is good when they provide services 100+ miles from home
What are/is the tax penalties for a non-qualfied withdrawal from an EE bond?
No tax penalty, but there is a prorated amount of ordinary tax on the unqualified amount
What is the TWWR calculation?
Price p/share invested (-/+)PV
Price p/share current value FV
Number of years
[Solve I/YR]
What is the imputed interest rule for loans over $10k and under $100k?
Lesser of AFR or NII
What basis do TIC have after the death of their partner?
Whatever percentage they contributed to the property
What is the difference between an unfunded and funded ILIT?
Unfunded means there is no income-producing assets in the trust to pay for premiums. Money has to be added for that to happen. In addition, this type of trust is eligible for Crummey powers.
A funded trust has income-producing assets that pay premiums. The income is taxed to the grantor
What are advantages and disadvantages of a family limited partnership?
Advantages: control, income shifting, valuation discounts
Disadvantages: kiddie tax potential, no stepped-up basis
What is the main difference between a sale and a gift lease-back?
The gift-lease back goes to an irrevocable trust.
For the following intra-family transfers, what is the duration, are they secured, and what is the impact on the seller’s gross estate?
Installment Sale
SCIN
Private annuity
Installment: Fixed duration, secured, PV unpaid installments included in estate
SCIN: Fixed duration, secured, transferred prop removed from estate
Private annuity: Duration for life of seller, not secured, PV could be included in estate if joint and survivor
Age and max amount for QCD?
70.5 and $100k per person
What is the general ROT for an AMT year?
Point is to bring regular income tax up to reduce the gap between regular tax and AMT. That said…
Accelerate income and defer deductions
AMT tax flow:
Real
Affluent
Americans
Get
Taxed
Alot
Regular tax
AMTI
AMT Base
Gross AMT
Tentative minimum tax
AMT
How is the face amount of each policy determined in an entity or cross-purchase buy-sell?
The total value of the business divided by the number of policies required to make the business whole
If the grantor does not survive the QPRT, what is the amount added back into the estate?
The FMV at death
Beneficiaries are equitable owners of the trust in the sense that they are: (Select all that apply)
Entitled to the enjoyment of the trust property.
Entitled to the income produced by the trust property.
Entitled to hold legal title to the property.
Expected to pay the trust’s income tax liability.
Entitled to the enjoyment of the trust property.
Entitled to the income produced by the trust property.
Who pays the tax for:
Direct skip
Taxable distribution
Taxable termination
Direct skip: the gifter
Taxable distribution: the giftee
Taxable termination: the trust
The estate tax implications for terminable interest property (TIP) include:
I) Inclusion of property in the gross estate at death for the spouse receiving TIP.
II) Removal of property from the estate of the spouse who gifts TIP.
I only
II only
Both I and II
Neither I nor II
II only
Removal of property from the estate of the spouse who gifts TIP.
Last year, Seth received a corpus that was not subject to estate or gift tax. The trust was established by Seth’s grandfather, Milo. What type of GST transaction has occurred?
Taxable distribution
Taxable termination
Direct skip
GSTT exemption
Taxable distribution
What are key considerations for a SIMPLE?
Withdrawals within 2 years are taxed at 25%
$14k EE contributions
For EE with annual salary $5k
Who is taxed on a gift at or below the annual exclusion?
No one. Inheritance and gifts are one of the exclusions (DADS MADE PACIFISM)
Tom and Judith want to file under the Married Filing Separately status. If Tom wants to itemize his casualty losses, then __________.
-they will have to file jointly
-Judith must take the standard deduction
-Judith must either itemize her deductions or claim a “zero” standard deduction
-None of these
-Judith must either itemize her deductions or claim a “zero” standard deduction
Schedule K-1 is used to document each of the following items pertaining to a partnership EXCEPT:
Shares of income
Shares of partnership credits
Available partnership deductions
Basis of the partnership interest
Basis of the partnership interest
__________________ is a law that provides individuals with the opportunity to fairly obtain credit.
Fair Credit Reporting Act
Fair Debt Collection Practices Act
Equal Credit Opportunity Act
Fair Credit Billing Act
Equal Credit Opportunity Act
Under SEC Rule 415, how long do companies have to issue shares from their IPO filing?
One year
Two years
Three years
Four years
Two years
Under which of the duties of Standard A.1, Fiduciary Duty, is a CFP® professional required to “[a]void Conflicts of Interest, or fully disclose Material Conflicts of Interest to the Client, obtain the Client’s informed consent, and properly manage the conflict.”?
Duty of Loyalty.
Duty of Care.
Duty to Follow Client Instructions.
None of these.
Duty of Loyalty.
Which law indicates that supply for an economic product will vary directly with its price?
The law of supply
The law of demand
The law of supply and demand
The law of large numbers
The law of supply
What is the ER match percentage based off in a PS plan?
Percentage of total compensation.
Ex: 100% match on first 5% of EE deferments on a $200k salary = $10k match
What does medicare part B pay after the deductible has been paid?
80%
What is the EE portion of SS and Medicare?
SS = 6.2%
Medicare = 1.45%
SIMPLE IRAs are available to employees who have earned at least $5,000 in each of the past ______ and are expected to earn $5,000 are eligible.
1 year
2 years
3 years
5 years
2 years
What is the fair credit billing act?
A right to have mistakes corrected
What is the fair credit reporting act?
A right to know what’s in your file
VA LOAN
Down payment
Terms
Fixed or adjustable
Funding Fees
Down payment: None
Terms: 15 - 30 years
Fixed or adjustable: Both
Funding Fees: 2.3-3.6%
Conventional loan
Down payment
Terms
Fixed or adjustable
Funding Fees
Down payment: 3-20%
Terms: 15-30 years
Fixed or adjustable: both
Funding Fees: none
USDA Loan
Down payment
Terms
Fixed or adjustable
Funding Fees
Down payment: 0
Terms: 15 - 30 years
Fixed or adjustable: fixed only
Funding Fees: 1% up front; .35% annually
What is the P/E ratio?
Price to earnings.
Share price / earnings per share
OR…
market cap / net income
When market risk premiums go up, what does the value of a stock do?
The stock goes down
As risk goes up, investors become hesitant to invest which then drives the price down
Given dividends of stocks over many years, how do you find the growth rate?
Time value of money
PV: first dividend
FV: last dividend
N: how may years in between
[solve I/IR]
What formula is used for required rate of return?
CAPM
If an investor is expecting a large drop in interest rates, how could he combat it?
By increasing the yield of his portfolio
When calculating how much of an IRA is deductible for an active particpant over 50, do you include the catchup contribution?
Yes
What is the vesting schedule for the two DB pension plans?
Traditional: 3-7 graded, 5 year graded
Cash Balance: 3 YEAR CLIFF!!!!!!!!!!!
Of the ADP and ACP, which one applies to the EE and which one applies to the ER?
ACP = ER (contributions)
ADP = EE (deferrals)
When solving for the P/E ratio, what are the primary numbers needed to solve and what are the secondary?
Pri: stock price / earnings per share
Sec: Market cap / Company net earnings
What are the two COBRA coverages of less than 36 months?
Termination (18) and SS Disability (29)
According to the Fitness Standards, which of the following is a presumptive bar for CFP® certification?
Arbitrations and/or civil proceedings.
Revocation of a financial license for non-administrative reasons.
Felony conviction for a financial-based crime.
Felony conviction of a non-violent crime within the past 5 years.
Felony conviction of a non-violent crime within the past 5 years.
When calculating NUA, what gets taxed in the year of distribution and at what rate?
The business basis in the stock
Any amount above the value of the stock that is distributed (e.g. total stock value $60k, but account value is $100k = $40k taxed)
What is a market, limit, and stop order?
Market: an order at what you think is the best price
Limit: an order with a restriction to buy at a specific low price or sell at a specific high price
Stop: A buy or sell order for a stock at a specific price.
In super-funding a 529, how (and over how many years) is the total amount distributed into the 529? What is the significance?
Total amount is divided by 5 and that amount is placed in each year.
This is significant if the super-funding is less than the annual exclusion and that same person wants to add more funds later. They can only add the difference between what was previously funded and what is currently allowed by annual exclusion
What are the 45-day timings for CFB board procedures?
Hearing documents
Written statements
Stipulations
For both ISOs and NQSOs, what happens at exercise?
ISO - a positive AMT adjustment
NQSO - ordinary taxes on the bargain element
The general purposes of A, B, and C trusts.
A: all - martial deduction and spouse gets control
B: bypass - no martial deduction, no control
C: compromise - QTIP. Marital deduction, but no control
What are the at risk amounts in a limited partnership?
Cash contributions, additional investments, and any amount that the taxpayer has borrowed and is personally liable.
NOT A BUSINESS LIABILITY!
In a futures contract, if you a long a product you need a _________ hedge and if you are short a product, you need a ________ hedge.
Short / long
When the loan/borrowed amount is less than $100,000 and the NII is less than $1000, what is the imputed interest?
$0.
Loans of $10k-$100k receive lesser of NII or current AFR. When NII is less than $1,000, it doesn’t count at all, becoming $0.
What is the ER-required contributions to a SIMPLE?
Either a 100$ match of up to 3% of the EE deferral or 2% period with no EE deferral
What is the US to non-US citizen limit for marital deduction?
$164,000
When faced with a scenario requiring use of both the lifetime and GST in the same year, how does that work?
There is only one use of the $12,060,000. So reduce the total taxable amount(s) by the annual exclusion(s), then by a single use of the lifetime exemption, and then the rest by 40% tax rate
When does the 3-year rule not apply to an ILIT?
When the ILIT purchases the life insurance policy.
Look for “transfer into” vs “bought by”
When is the 20% withholding for traditional rollover, exempt?
IRA-IRA roll
Identify the statistical measure that is used to quantify non-diversifiable risk.
Beta
Alpha
Variance
Standard Deviation
Beta
Anne and Gloria started a small specialty tech manufacturing firm 5 years ago. Each invested $500,000. The company is growing rapidly, and the owners implemented a cross-purchase buy-sell agreement, based on a valuation of $2,000,000. Within a year, Anne died unexpectedly, and the buy-sell agreement was executed. Following the buy-sell, what is Gloria’s basis in the company?
$2,000,000
$1,500,000
$1,000,000
$500,000
$1,500,000
Gloria’s original basis is $500,000. The buy-sell was based off $2,000,000 valuation (each had $1,000,000 policy). When Anne died, her $1,000,000 payout to Gloria was used to purchase Anne’s portion of the company. Hence an additional $1,000,000 was added to Gloria’s basis of $500,000.
Given this list, what is AGI? (break it down)
$92,500 Net W-2 Income
$9,000 Municipal Bond Interest
$3,650 after-tax HSA contribution
$7,000 Traditional IRA Contribution
$17,000 gift received from Auntie Bea
$30,000 in unreimbursed medical expenses from a surgery
$7,650 in FICA withholdings
Gross income - $92,500 + $9,000 + $17,000 = $118,500
Gross income exemptions DADSMADEPAFACISM - Muni and gift
-$9,000 + $17,000
ATL deductions: THE HMS BEARS
Trad IRA (above threshold), HSA contributions, 1/2 SE FICA (but this doesn’t state self employed)
-$3,650
-Med expenses are BTL.
=$88,850
To what extent are distributions to shareholders in an S Corps, tax free?
To their basis in the S Corps stock
When is alimony deductible and who can deduct it?
Prior to Dec 31st, 2018. The payor of the alimony deducts it for AGI (the hms beArs)
What are the 4 qualified distributions to a ROTH? (DHAD)
Death
Home (1st home limited to $10k)
Age 59.5
Disability
In quarterly tax payments, what is the rule - lesser or greater of .9 / 1 / 1.1%?
Lesser
The Employee Retirement Income Security Act of 1974 (ERISA) is administered and enforced by each of these bodies EXCEPT:
PBGC
DOL
IRS
SEC
SEC
What does it take to be considered an investment advisor?
A - providing advice
B - in the business of giving advice
C- being compensated for advice
Easy way to remember which non-exemptions for early withdrawal penalty - IRA vs qualified plan
HHH -> Q (as in HHQuarters)
When calculating the phaseout for a ROTH contribution, how does that apply to a married couple?
The percentage within the phaseout applies to both of their contribution allowances equally
What is the relationship between interest rates and bond yields?
Inverse
How are mixed-use rental deduction losses calculated?
Total number of rental days / total number of days used * losses (not to exceed total rental income)
What are the three actions CFP board can take the member is found in violation?
Letter of dismissal: maybe guilty, but not enough to send to DEC
Settlement offer: send to DEC
Complaint: deliver a complaint
What is the difference between a balance sheet and a Statement of Cash Flow?
A balance sheet is a snapshot in time outlaying the overall net worth - assets are listed from most liquid to least.
Statement of cash flow indicates all of the inflows and outflows during a period
What are the FDIC account groupings and who qualifies for protection with each?
Checking
Money market savings
Savings
CDs
IRAs
Revocable trusts
Corporations
Irrevocable trusts
EE benefit plans
Money market mutual
Government accounts
Cash accounts = checking, savings, CDs, and money market savings are $250k per owner of account (single or joint)
All other accounts are individually broken out and give $250k insurance per owner/beneficiary
Money market mutual fund - NO
Net or Gross. Which debt ratios use net or gross income?
The only net income is the debt or current ratio at 20%
Both the PITI and total debt ratios use gross income
What are the tax consequences for using a ROTH or Traditional IRA for education funding prior to 59 1/2?
The 10% early withdraw penalty is waived for both. On the Tradition IRA, you still have to pay ordinary tax. On the ROTH, you’ve already paid ordinary tax.
In EFC, who get asset and/or income protection?
Both parents and kids get income protection
Parents get asset protection
In market structure, what makes up the capital market and what makes up the financial market?
Financial: Money market and Capital
Capital: primary and secondary markets
What is the difference between marketability and liquidity?
Marketability is the ability to sell something - but it may not come in at the value you want
Liquidity is the ability to quickly turn something into cash without losing value
What are unique benefits of LCTi features and tax benefits?
Features:
“guaranteed renewable”
2-year incontestable clause
Dividends reduce premiums or increase benefits
Tax:
Benefits tax-free
premiums paid by ER remain tax-free to EE
Qual med expense for itemized deduction
What are the annuity forms of payment?
FOP-LAW
Life Annuity
Annuity certain -fixed income or period
Withdrawals
Which definition of disability in a disability income insurance policy has the most stringent underwriting requirements?
Modified own occupation
Presumptive total disability
Any occupation
Own occupation
Own occupation
During periods of disability, does disability income still count toward the taxation of social security disability income?
Yes - see pg 5 for wage base earnings
At what point, are disability benefits “tax free” to the EE?
When the ER includes the premium payments as compensation to the EE
How are non-qualified HSA distributions taxed?
Ord income + 20% penalty
Can a married couple have both a HDHP and another health coverage?
Yes, but only on one spouse who is only covered by the HDHP
In a guaranteed renewable term life insurance policy, as the premium rate increases with each renewal, mortality experience increasingly reflects ______________.
adverse selection
actuarial tables
client’s age
life expectancy
adverse selection
The opportunity to renew a lapsed life insurance policy is called the ___________________.
reinstatement provision
incontestable clause
entire contract provision
grace period
reinstatement provision
In community property, what is the new basis when a spouse passes?
100% full basis.
Beta and Std Dev. Which is total and which is systematic risk?
Beta = systematic
Std Dev = total
In CAPM, what is the market risk premium and what is the stock risk premium?
Market = (Rm - Rf)
Stock = (Rm - Rf)B
Which of the following is a linear estimate of sensitivity to changes in rates?
Convexity
Duration
Covariance
Derivative
Duration
Std Dev, Beta, CML, SML, CAPM, Efficient frontier. Put them together.
CML= efficient frontier and std dev
SML = CAPM and beta
What are the two components to HPR?
Income yield = D / beginning
Capital appreciation = Pe - Pb / Pb
What is the difference between private and public interests in passive activity rules?
Private - can take losses against any gains
Public or PTPs - can only take losses against gains in that specific company
How long can charity contribution deductions be carried over?
5 years
Of the additional 3.8% medicare tax, which gets taxed- NII or excess income?
The lesser of NII or excess income gets taxed an additional 3.8%
Individuals will owe the NII tax if they have:
I) Net Investment Income
II) MAGI over the stated threshold for their filing status
I only
II only
Both I and II
Neither I nor II
Both I and II
To claim qualified widow status, what is required?
Children - or dependents
FBAR form and amount exceeded that you are then required to follow.
110; $10,000
Form 8938 (foreign) thresholds
2 groups (residents and non-residents)
Resident Single and joint: 50k, 75k, 100k, 150k
Non-res Single and joint: 200, 300, 400, 600
Three types of special needs trusts
Pooled
1st Party
3rd Party
Pooled: managed by non-profit
1st Party: funded by the person w/disability
3rd Party: formed by an estate to aid the disabled after death
AMT on exercise and sale. Which is positive and which is negative?
At Ex: positive (pay ordinary)
At sale: negative (get income)
AMT tax flow:
Real
Affluent
Americans
Get
Taxed
Alot
Regular taxable income
tax preference
standard/itemized deduction
AMT adjustments and tax preference items
AMTI (Alternative Minimum Taxable Income)
Exemption Amount
AMT base
AMT tax rate(s)
Gross AMT tax
AMT foreign tax credit
Tentative minimum tax (TMT)
Regular tax liability
AMT* (If tentative minimum tax exceeds the regular tax, the difference is the AMT)
What is the LIFO / FIFO quad chart?
FALL RISE
FIFO low high
Real Real
LIFO high low
over under
Section 1231 property is ________________________.
I) property used in a trade or business
II) property held for investment
I only
II only
Both I and II
Neither I nor II
I only
Property held for the production of income
If the home is transferred to a taxpayer as a result of a divorce, the time that the divorced spouse owned the home is _______ the taxpayer’s period of ownership for Section 121 exclusion eligibility.
added to
subtracted from
excluded from this.
divided by
added to
If married, to qualify for the Section 121 exclusion _____ spouse(s) must meet the usage test, _____ spouse(s) needs to meet the ownership test.
both; both
both; one
one; both
one; one
both; one
What are the withholding amounts of SS if earning income at the same time? (Earning limits on tax tables)
Prior to FRA: $1 for every $2
Post FRA: $1 for every $3
What is Medicare parts A and B?
A - in hospital
B - outpatient
What is the medicare tax?
2.9% across the board. Additional .9% on amounts above additional medicare tax on tax sheet
What is the SS tax?
12.4% on the wage base
For the same premium, which of the following types of life insurance provides the least amount of face amount death benefit at the onset of the policy?
Whole life insurance
Universal life Option A
Universal Life Option B
10-year term life insurance
Whole life insurance
A terminally ill individual is someone who has been certified by a physician as having an illness or physical condition that can reasonably be expected to result in death in _________ or less after the date of certification.
36 months
24 months
12 months
6 months
24 months
Ernesto has been unable to transfer from his bed to a chair or bathe independently for 4 months. During his annual physical, his physician determined that Ernesto is chronically ill. To afford the daily expenses associated with extra at-home assistance, Ernesto elects to secure a viatical settlement for $120,000 using his life insurance policy with a face value of $200,000.
Throughout the year, Ernesto’s breakdown of expenses is as follows:
$80,000 home health care
$40,000 non-medical expenses
Assuming that Ernesto is in the 24% marginal tax bracket, what is the tax owed on the viatical settlement proceeds?
$19,200
$9,600
$28,800
$0
$9,600
The key is chronically ill. If he was terminally ill, he would pay no taxes.
Which type of life insurance is recommended for a client who wants the greater potential for cash value growth but does not want to experience a negative return on the cash value?
Equity-indexed universal life insurance
Whole life insurance
Variable universal life insurance
Fixed universal life option B
Equity-indexed universal life insurance
Which of the following types of life insurance is most likely to be a participating policy?
Whole life insurance
10-year term life insurance
Universal life insurance
Variable universal life insurance
Whole life insurance
How are RMDs accumulated against other IRAs and 401(k)s?
A single RMD can account for the entirety of all IRAs and a single IRA can fund the entire RMD for all IRAs.
401(k)s need an RMD per 401(k)
14, 30, 45, 90, and 1 year. What are the significant reporting actions in these timeframes?
14 days: generally the amount of time to respond to something after being summoned or missing a deadline
45 days: hearing docs, stipulations, & written statements due
90 days: inform your clients of wrongdoing
1 year: update your client privacy policy
30 days… everything else
Per capita
Per stirpes
Per capita by gen
Per capita: even split down all generations
Per stirpes: even split at 1st gen, 2nd gen gets & splits the 1st gen portion
Per capita by gen: even split at 1st gen, even split at 2nd gen
DIfference between durable and non-durable POA?
Durable outlasts incapacity
When property is gifted at a loss and then sold at a further loss, what are the tax consequences and holding period associated?
The DE uses the date of gift as the holding period and the DR date of gift FMV as the basis
The federal estate tax is on a right to (transfer or receive) property?
Transfer
What is the 65 day rule and the section 645 election?
65 day rule allows the trustee to distribute assets up to 65 days into the new year, for last year.
Section 645 election allows the trustee to count the trust and estate as one for tax purposes
What is the rule for DNI versus distributions from non-grantor trusts?
The beneficiary is taxed on the lesser of the two
What is the percentage of income provided to the beneficiary of a CRAT or CRUT?
Between 5-50% annually
Identify the estate planning document on which a testator can name guardians, appoint an executor, and direct assets into a revocable living trust (RLT) that were incorrectly titled.
Last Will
Living Will
Pour-over Will
Holographic Will
Pour-over Will
What powers of attorney end at death?
All of them
Which of the following allows the surviving spouse to determine what portion of the decedent’s estate to transfer into a trust to use the decedent’s unified credit?
A-Trust
B-Trust
Estate Trust
Disclaimer Trust
Disclaimer Trust
Each of the following is a type of property that is NOT transferred by will that is subject to probate EXCEPT:
-Intestate property
-Life insurance policy proceeds or annuities payable to the decedent’s estate
-Homestead and exempt property allowances
-Tenancy-in-Common property
-Tenancy-in-Common property
Transfers by will and through probate
Given the 3 year pull-back rule with life insurance into an ILIT, what is the exception?
That the policy owner isn’t the insured.
The principal within a 2503(b) trust _____________________.
-may be withheld from the beneficiary until his or her death
-must be distributed no later than upon the beneficiary attaining age 21
-must be distributed at least annually
-will be excluded from the gross estate of the donor who serves as the trustee
-may be withheld from the beneficiary until his or her death
