Test Prep Flashcards
Which entity is also called an asset holding company and is a method of recapitalization. It is authorized to issue both voting preferred stock and non-voting common stock. The intention is to freeze the interest of the business owner in the operating corporation by subsequent gifts of the non-voting common stock to this entity.
family holding company
Your client is 55 years old, is planning on retiring in 2 years and will have an AGI of $500,000 until he retires. He believes his AGI in his first year of retirement will be $100,000. The client would like to make charitable gifts totaling $200,000 this year and 100,000 in each of the next two years to a qualified public charity. A list of potential gifts are: 1. $175,000 cash 2. $200,000 stock with a $10,000 short-term capital gain 3. $600,000 stock purchased 10 years ago with a long-term capital gain of $500,000 In order to maximize his income tax deductions, which asset(s) should he gift in the first year?
Because of his AGI, the client should contribute short term capital gain property in year one. In year two, the client can contribute either short-term capital gain property or long-term capital gain property and still deduct the gifts in full. In year three, the client should distribute short-term capital gain property or cash in order to maximize his deduction. In year three, the short-term capital gain stock becomes long-term stock, lowering the percentage deduction.
Ed has contributed $20,000 to his partnership in the first year of his business. He shares the business equally with his colleagues Allison and Aaron. His share of the business liabilities is $10,000. In the first year, the business has a 15,000 loss. What is Ed’s basis in the partnership at the end of the business’ first year?
Ed’s basis is equal to [$20,000 (Ed’s initial contribution) + $10,000 (Ed’s share of company liabilities)] - $5,000 (Ed’s share of the business loss) = $25,000. See reading: Basis, pp 245 - 246.
A company is examining its ability to self-insure against potential legal claims. The company is comparing its losses over the last five years to an insurance policy deductible. The company’s losses typically were less than $100,000. The insurance policy against this type of loss carries a deductible of $200,000. Which method of examining losses is better demonstrated by this comparison?
Loss Triangles
Projected expected losses
Simple loss range analysis
Maximum probable loss and max possible loss
Simple loss range analysis
A qualified annuity interest in a grantor retained annuity trust (GRAT) may be based on a fixed dollar amount or percentage of the value of the trust, and cannot vary except to the extent the amount or percentage in any year does not exceed ___% of the prior year’s payment:
100%
110%
120%
130%
120%
The “value function is s-shaped and asymmetrical in order to reflect loss aversion (i.e., the tendency to feel the impact of losses more than gains)” is a key tenet of which theory or study?
Adaptive market Hypothesis
Behavior Game Theory
Paradox of Choice
Prospect Theory
Prospect Theory
A split-dollar plan is funded with a $5 million death benefit life insurance policy on your clients, Bill Smith and Walt Disney . Bill is the 50% owner of a On Time Inc., closely held business. Walt passes away and the insurance company pays the two listed beneficiaries: On Time Inc., $2.5 million; and Bill Smith $2.5 million. What are the tax consequences of insurance proceeds?
The corporation does not pay income tax on the $2 million and $3 million is included in client’s estate. See reading: Business Planning Strategies, pp 470 - 471.
What percentage of families succeed in transitioning wealth into the hands of their heirs?
30%
Which style of investing most often uses “Negative Screening” ?
SRI
Socially responsible investing
What assets are optimal for transferring assets into a GRAT in a low interest environment?
GRATs are optimal for transferring assets with a high potential for appreciation and when interest rates are low. See reading: Estate Freeze Strategies, pp 426 - 427.
What is the maximum amount of debt that can be considered when itemizing deductions related to interest on primary residence?
Before Dec 2017: $1M
After Dec 2017: $750k
A qualified personal residence trust (QPRT) most resembles which of the following trust structures?
GRAT
GRIT
GRUT
NIMCRUT
GRIT
Your client is interested in taking a significant role in determining her asset allocation. As an investor, she is more of an “Individualist.” Based on what you know about the Individualist client as well as the brain structure, what part of your client’s brain might be at work in the process of creating a satisfactory asset allocation plan?
Result:
A) The amygdala or reptilian part of the brain
B) The limbic system or mammalian part of the brain
C) The pre-frontal cortex
D) The exocortex
Individualists are known for their careful analysis and rationality. These are processes of the pre-frontal cortex. Review the lecture by Devin Ekberg, “The Behavioral Wealth Advisor.”
Rule 16(b), also called the “short-swing profit rule” prohibits senior officers, directors or beneficial owners of >10% from profiting from the purchase or sale of company shares within any period of less than ___ months?
Result:
Incorrect
Option D is not correct
Feedback
The correct answer is less than 6 months. See the video on the screen titled Concentrated Stock Positions.
Reference(s)
Question 44 of 135
Each of the following are appropriate reasons for a citizen of the United States to establish a foreign trust EXCEPT for:
Result:
Correct Answer 44 is D
Feedback
A foreign trust will not help the US citizen minimize or avoid taxes. See reading: Asset Protection: Problems, Issues, and Opportunities, pg. 1.
Test Review Report
A) 3 month
B) 6 months
C) 9 months
D) 12 months
6 months
The following type of nonqualified deferred compensation plan is a funded or unfunded plan maintained by an employer solely for the purpose of providing benefits for employees in addition to the benefits that may be funded through a qualified plan, but not in excess of the Section 401(a)(17) limitation of $280,000 (for 2019).
A) top-hat plan (SERP)
B) excess benefit plan
C) stock-appreciation rights (SARs)
D) phantom stock
Excess benefit plan
Describe 1244 stock
