Unit 16 Flashcards
Types of Clients
Individuals who can have an individual account (4)
Natural person, trust, deceased person through an estate account, sole proprietorship businesses
The account holder is the only person who can (2)
- Control the investments within the account
- Request distributions of cash or securities from the account
What Joint Tenants with Right of Survivorship (JTWROS) says
Deceased tenant’s interest in the account passes to the surviving tenant(s)
What Community Property with Right of Survivorship says (3)
- Married couples to share property equally
- Each person legally has 50% ownership stake
- When first person dies, entire property is taken over by survivor
Whenever the test uses the term joint tenants, does it mean JTWROS or tenants in common?
JTWROS
What Tenants in Common ownership stipulates
A deceased tenant’s fractional interest in the account is retained by that tenant’s estate and is not passed to the surviving tenant(s)
Difference between JTWROS and Tenants in Common
Tenants in Common interest can be divided unequally
Tenancy by the Entirety
Ownership from multiple persons where each co-tenant has an undivided interest
What is Tenancy by the Entirety mostly used for
Real estate
What undivided interest means
No tenant has a designated interest in any specific asset in the account
Right of survivorship
Surviving owner receives the deceased’s interest in the account
What is suitability for a joint account generally based on?
Lowest common denominator individual
Information that must be obtained from client (5)
Legal capacity, employment info, Customer Identification Program notice, citizenship details, client’s financial standing
When broker-dealer must obtain from the customer a written agreement that the customer is aware of and agrees to be bound by FINRA rules applicable to the trading of option contracts and that the customer has received a copy of the current ODD
15 days after account is opened
Steps in opening an options account (4)
- Obtain essential facts about the customer
- Give the customer an options disclosure document
- Have the manager approve the account
- Enter the initial order
What must an S corp not do (2)
- Have more than 100 shareholders
- Have more than one class of stock
If a sole proprietorship operates under a DBA (Doing Business As) name that might seem to imply it is a corporation, does it remove the full liability from the individual owner?
No
What document sole proprietorship taxes are listed on
Schedule C of owner’s Form 1040
What partnerships file
Information return, Form 1065
What LLC’s can file taxes as (3)
Corporation, partnership, or sole proprietorship
Where is return filed in a C-corp
Form 1120
Where is return filed in an S-corp
Form 1120S
Dividend exclusion rule for C-corps
Dividends paid from one corporation to another are 50% exempt from taxation
Do corporations pay federal taxes on interest received from municipal bonds
No
Fiduciary account
Chosen individual enters trades, makes all decisions, and manages accounts in owner’s best interest
Examples of fiduciaries (6)
Trustee, executor, Administrator, reciever, guardian, Custodian
What full power of attorney grants control person
Ability to buy and sell, ability withdraw funds
What limited power of attorney grants
Ability to buy and sell only, no withdrawal
What Durable Power of Attorney is designed to do
Give specifically designated persons power over the account even upon the grantor’s incapacitation (not death)
Trust definition
Legal entity that offers flexibility to an individual who wishes to transfer property
What three parties must be specified in a trust document?
Settlor, trustee, beneficiary
Settlor
Person who supplies the property for the trust
Trustee
Individual or another party holding legal title to property held for the benefit of another person
Can settlor, trustee and beneficiary be the same person?
Yes under certain circumstances
Remainderman
Person who receives remaining balance of a trust
Basic rule of a simple trust
All income earned on assets must be distributed during first year it is received
What living will has to do with
Advance directive of medical care directive (not assets or beneficiaries)
Foundation vs. charity when it comes to distribution of money
Foundations can be more flexible with funds
Impact Investing
The intentional allocation of capital to generate a positive social or environmental impact that can be measured
If a variable life insurance policy is surrendered, what is cash taxed as
Ordinary income
If someone named as the insured individual on a life insurance policy holds incidents of ownership in that policy, how much of death benefit payable is subject to taxes?
All of it
Benefits of having a life insurance policy transferred to an irrevocable life insurance trust
Premiums paid by the insured may qualify for the annual gift tax exclusion
When a trust or estate must report on IRS form 1041
If it has income
What is not included in Distributable Net Income
Realized gains reinvested
Benefits of transfer on death account (2)
- No legal documentation necessary
- Percentage of beneficiaries can be split any way owner wants
What transfer on death might also be called
Payable on death
What totten trusts allow
Allows for the transfer of ownership of a bank account to a beneficiary after the owner’s death
3 primary tools to avoid probate
- Designate a beneficiary
- Using on a Transfer on Death designation on a bank or investment account
- Title as asset in names of two or more people
What do pretty much all IRAs have
A specificized beneficiary
What must be true for an irrevocable trust to be considered irrevoacable
Settlor must give up all ownership in property transferred to a trust
Basics of Grantor Retained Annuity Trust
- Any income from trust is taxed to grantor
- The annuity portion is paid for a specified number of years. At the end of that term, the beneficiaries get whatever is left, and that could be free of estate and gift taxes
Methods of determining the distribution of an estate’s assets
Per Stirpes, Per Capita
Real benefit of Donor Advised Funds
Only one tax statement to the payer at the end of the year
What a donor-advised fund is
Separately identified fund or account that is maintained and operated by a 501(c)(3) organization
What carryover basis does
The cost basis of the gift to the recipient (the donee) is the donor’s cost basis
What cost basis is for inherited securities
Fair market value on date of owner’s death (step up provision)
What is not included in a step up provision
Annuity
When estate taxes are due
No later than 9 months after death
What computation of estate tax is recorded on
Form 706
Where estate income tax computation is done
Form 1041
What gift tax is
Progressive federal tax imposed on the transfer of property during the lifetime of the donor up to $11.7 million
How much an individual can give without incurring gift tax
$16,000
If a new joint tenants with rights of survivorship account is opened by two related individuals whose name does the money need to be in
Both parties
When customer has to receive the OCC Options Disclosure Document
At or prior to the time the account is approved for options trading
Vehicles that make use of unified estate tax credit (2)
- Bypass trust
- Generation-skipping trust
What must simple trusts do that complex trusts do not have to?
Annually distribute income to the beneficiaries
only common form of account registration requiring the consent of both parties prior to any activity
Tenants by the entirety
Difference between gifts and inheritances
Recipient assumes normal cost basis on gifts, recipient receives step up basis to market value
Only type of business that places a limit on the maximum number of investors
S corporation
