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Series 65 > Unit 16: Types of Clients > Flashcards

Unit 16: Types of Clients Flashcards

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Series 65 flashcards
1
Q

Individual Account

A

for a natural person, trust, or a deceased person through an estate. One beneficial owner.

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2
Q

Investment Policy Statement (IPS)

A

Must establish a written statement of objectives and investment strategy through consulting with the client before making any recommendations.

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3
Q

Joint account

A

Owned by two or more persons, with each allowed control over account.
-either TIC or JTWROS

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4
Q

Tenants in common

A

if one party passes, their portion goes to their estate rather than to the other owner.
accounts can have unequal ownership.

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5
Q

Suitability for joint accounts

A

Suitability info is required on all persons.
Usually go with lowest common denominator between the two owners

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6
Q

Opening accounts

A

Must make reasonable effort to obtain:
-legal capacity
-employment info
-CIP (full name, DOB, physical address, ID)
-citizenship details
-financials

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7
Q

Order for opening an Options account

A

obtain essential info about client, options disclosure document, manager approve account, enter initial order, customer signed options agreement within 15 days.

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8
Q

Sole proprietorship account

A

simplest form of business account, operates like individual account. owner has unlimited personal liability

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9
Q

Partnership account

A

General- profit/loss flow through
Limited- also flow through, but investor is passive. usually DPPs.

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10
Q

S Corporation account

A

profit/loss flow like sole prop, but no personal liability.
-no more than 100 shareholders (cannot be nonresident alien), one class of stock, losses up to holders basis.

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11
Q

C Corporation account

A

Company is separate entity than owners.
Owners and Partners shielded from personal liability.
Subject to corporate tax
Suitability determined strictly by corporations financials

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12
Q

LLC account

A

similar to S corp without 100 person limit

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13
Q

Double taxation

A

C corp incurs double taxation from corporate tax, then personal tax from divs, etc.

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14
Q

Surviving death

A

Corporations and LLC survive the death of owners.

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15
Q

Dividend exclusion rule

A

when a corporation pays a dividend to another corporation, it is 50% exempt from taxation.

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16
Q

Sole proprietor YE and forms

A

Dec 31, Schedule C

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17
Q

LLC/S-Corp YE and forms

A

Dec 31, Schedule K-1

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18
Q

C Corp YE and forms

A

YE is whatever they choose, Form 1120

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19
Q

Fiduciary Account

A

An individual is legally appointed to manage the account on behalf of the owners best interests
Ex- Trustee, Executor, Administrator, Guardian, Custodian, Receiver

20
Q

Full power of attorney

A

deposit or withdraw money and make investment decisions

21
Q

limited power of attorney

A

some, but not total, control over account. document will specify level of access- typically can trade but not add/wd funds.

22
Q

Durable power of attorney

A

POA can continue control of account if owner is incapacitated

23
Q

Trust

A

must have:
-settlor/grantor; provides property to the trust
-trustee; holds the title to the property, has fiduciary responsibility
-beneficiary; one who is designated to receive benefit

24
Q

Simple VS Complex Trust

A

Simple trust must distribute its income earned every year

25
Q

Living Trust

A

Established during the maker’s lifetime

26
Q

Testamentary Trust

A

Established by the grantor for their beneficiaries after death.

27
Q

Living will

A

end-of-life wishes. does not have anything to do with assets, or trusts, or an actual will.

28
Q

Donor advised funds

A

funds can be contributed in a certain year for tax deduction, and then invested and deployed when ready to a charity.
-operated and maintained by a 501c3
-cannot just give all money to one charity
-IRS may disallow certain deductions

29
Q

Impact investing

A

if funds are ultimately meant to go to a cancer foundation, then the investment allocation should not include tobacco stocks

30
Q

Organization account opening

A

in addition to normal entity info, need detailed information on those in control position.

31
Q

Trust taxes

A

If trust or estate has income, must be reported on IRS Form 1041

32
Q

Revocable trust taxes

A

all income is taxed to the grantor

33
Q

TOD accounts

A

avoids probate, but not estate taxes. available for all paper asset accounts

34
Q

Three ways to avoid probate

A

-designate beneficiary
-TOD account
-JTWROS/TIC

35
Q

Grantor Retained Annuity Trusts (GRATs)

A

Any income is taxed to the grantor.

36
Q

Per Stirpes

A

distributed equally amongst children, and grandchildren if a child has already passed.

37
Q

Suitability with Trusts

A

-trust doc declares investment objective
-margin not permitted unless specified
-if IA is also trustee/executor, they are wearing two hats, not common and must be disclosed

38
Q

Gifts

A

-gifting securities carries over the original cost basis
-but are valued as of date of gift
-if donated to qualifying 501c3, basis is stepped up. donor receives tax deduction and avoids capital gains taxes.

39
Q

inherited securities

A

-recipient will get FMV on date of death, basis steps up.
-gains are automatically considered long term
-does NOT apply when inheriting an annuity

40
Q

Estate tax

A

-no taxes for transferring to spouse, or charities.
-for non-spousal recipients, tax free up to $11.7M

41
Q

Gross Estate VS Taxable Estate

A

Gross Estate- all interests in property held at time of death
Taxable Estate- certain expenses and deductions removed

42
Q

Alternative Valuation Date

A

Option to value the estate as of 6 months after death in case values have dropped significantly. Selling an asset away from market price does not count.

43
Q

Payment of Estate taxes

A

Due 9 months after date of death.
-Estate tax comp, Form 706
-Estate income tax comp, Form 1041

44
Q

Gifting and Estate tax deduction (Unified Tax Credit)

A

All come from the same bucket. Gifts through lifetime lower the $11.7M limit

45
Q

Distributable Net Income (DNI)

A

All investment income is considered DNI. The source or reinvestment does not matter. cap gains do not matter.
DNI=/=taxable income amount. DNI-funds distributed=taxable amount.

46
Q

Irrevocable Life Insurance Trust (ILIT)

A

Purchasing life insurance so that the death benefit can pay estate taxes and prevent unnecessary liquidation of other assets.

Series 65 (24 decks)

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