Test Questions

Question 1

Key employee life insurance

Answer 1

amount of coverage should evaluate value to firm

Question 2

Liquidation of deceased’s interest in buy – sell

Answer 2

distributive income as ordinary income to estate

Question 3

Recertification of qualification for employment

Answer 3

NOT letter of intent

Question 4

Wait list

Answer 4

accelerate need for special needs to move from home

Question 5

ABLE

Answer 5

= tax exempt, contributions cannot exceed $15k by all per year

o * disability before age 26 but may be older than 26
o *do not need to currently receive SSI/ Medicaid

o Subject to individual state & limit for 529 accounts
o Only allow “qualified disability expenses” - personal support, financial management & administrative services, housing, education
o Funds under $100K exempt from SSI

Question 6

ILIT

Answer 6

avoid Crummery withdrawal powers

Question 7

Health care POA

Answer 7

refuse to apply artificial nutrition/ hydration for terminal illness

Question 8

AGI

Answer 8

= medical expenses 7.5% of AGI income
o Impairment related not to limit (only for handicapped)
o Charitable contributions deductible
o Roth IRA more favorable AGI limit than IRA

Question 9

Blended family

Answer 9

NOT different generations

Question 10

Property settlement of divorce

Answer 10

nontaxable event

Question 11

Divorce Social security

Answer 11

can begin at 62 from ex-spouse’s benefit as long as ex-spouse is of retirement age

Question 12

Community property

Answer 12

= retains status even if taken to noncommunity law state

• Remain community property & if quasi, automatically becomes it
• If award, entire amount is community property

Question 13

Divorce child support

Answer 13

NOT tax deductible

Question 14

Divorce division of pension

Answer 14

wait-and-see valuation NOT needed

Question 15

Business ILIT

Answer 15

proceeds reduce liquidity burden without adding estate tax & income to surviving spouse, inheritance to heirs

Question 16

LLC

Answer 16

= designated beneficiary
o Policyowner
o Premium payor
o Policy should approximate the amount of sale price

Question 17

SNT

Answer 17

– income taxed to beneficiary
o Transfer of assets in is an incomplete gift
o Make distributions to child during lifetime
o Receives excess assets to permit bene to qualify for Medicaid
o Only created & funded if under 65
o Assets after death but first reimburse state for Medicaid
o Distribution for family caregiver not treated as income for SSI/ Medicaid

Question 18

SSDI

Answer 18

Can be appealed if initially rejected

Question 19

AMT for business

Answer 19

o Accumulated-earnings tax if profits above $250K

o No corporate AMT

Question 20

Disability to Social Security

Answer 20

unable to do gainful activity by mental/ physical impairment (not result in death)

Question 21

Supplemental Security Income (SSI)

Answer 21

business interest not included

Question 22

System 1

Answer 22

animal responses (automatic)

Question 23

GSTT

Answer 23

annual exclusion available for direct skips to grandchildren

Question 24

Provisional Income

Answer 24

AGI + tax exempt interest + ½ social

Question 25

Inflation Risk

Answer 25

period certain immediate annuity | *made worse by longevity risk

Question 26

Longevity return

Answer 26

does not make sequence of return risk worse

Question 27

systematic withdrawal

Answer 27

converting retirement assets into income = fixed distribution adjusted for inflation o Bucket approach o Age-banded approach o Essential vs. discretionary (flooring)

Question 28

marital deduction

Answer 28

must be US citizen at time of gift

Question 29

Deduction from decedent’s gross estate

Answer 29

expenses from collecting assets & probate distribution costs to bene

Question 30

Religious convictions filled out

Answer 30

medical POA & signing POLST

Question 31

Traditional finance | Behavioral finance

Answer 31

= undermines human nature in relation to market | = emphasizes human nature in relation to market

Question 32

Imagination capital

Answer 32

to save for a goal (negative emotion if don’t reach goal)

Question 33

Robert Schiller

Answer 33

= volatility puzzle (disputed efficient market) | *prices move more than should on earnings & interest rates

Question 34

Fama & French

Answer 34

= value ETFs can match performance of active managers (due to market inefficiencies) * No evidence that stock managers can persistently beat markets

Question 35

Decumulation phase risk tolerance

Answer 35

= retirement assets depleted prior to end of life (level of concern)

Question 36

Biases

Answer 36

violations of neoclassical economic theory identified through descriptive analysis

Question 37

QDRO

Answer 37

= court order provides special instructions to plan admin about payment to nonparticipant spouse (alternate payee) for pension  splitting a pension in a divorce

Question 38

“unified” system of estate & gift tax

Answer 38

= estate & gift share same tax schedule, exclusion amounts, credit amount (regardless is transfer life/ death

Question 39

QTIP

Answer 39

= exception to gift tax terminable interest rule o Qualifies for unlimited marital deduction to transferor spouse/ estate o Transferee spouse receive only qualifying income interest for life o Remainder interest passes in accordance w/ transferor (donor) spouse’s direction

Question 40

2503(c)

Answer 40

NO Crummery provision

Question 41

Above-the-line deductions

Answer 41

tax credit claimed as deduction whether or not itemizes deductions (business or income) *reduces AGI

Question 42

Retirement income planning

Answer 42

= not synonym for retirement planning | * Client does not need to know software to calc. expected aggregate future retirement expenses

Question 43

Projected retirement income shortfall

Answer 43

reduce current expenses to make more income avail. for contribution to tax-deferred account

Question 44

Prospect Theory

Answer 44

o Reference dependence o Loss aversion o Nonlinear probability weighting

Question 45

Crummery Power

Answer 45

= create present interest gift to qualify for annual exclusion for transfers in trust o Allows trust bene the right to make withdrawals o Right to withdrawal unexercised = lapsed