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Series 66 > Unit 18 (5) > Flashcards

Unit 18 (5) Flashcards

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Series 66 flashcards
1
Q

Customer just died. Wife asks you what amount of federal estate tax will be imposed on the transfer of their personal property to her name, what do you tell her?

A

Consult a qualified tax specialist. Specific tax advice should be referred to a qualified tax adviser such as an accountant or tax attorney. No federal estate tax is imposed as a result of the marital exclusion as long as the spouse is a us citizen

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2
Q

S Corp

A

Taxed like a partnership, offers limited liability. Profits and losses passed through to the shareholders. Only one class of stock. Can’t have more than 100 shareholders

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3
Q

A living will is used to

A

Express the authors end of life wishes

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4
Q

Estate account

A

Directed by a fiduciary on behalf of the beneficiary or beneficiaries of an estate. If you have a will, there’s a specified executor. If you die without a will, there’s a court appointed administrator.

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5
Q

One of your clients dies, you could legally take instructions regarding the individuals estate from

  1. CPA who prepared the deceased’s tax return
  2. Spouse of the deceased
  3. A person with durable power of attorney
  4. The administrator in intestacy
A

The administrator in intestacy. If an individual dies without a will, the state will appoint an administrator in intestacy who, just as an executor for one who had a will, has control over the deceased’s assets. A durable power of attorney, just like any power of attorney, stops when either party dies.

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6
Q

Which business entity can easily raise a large amount of capital?

A

C Corp. Think C for capital

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7
Q

C Corp advantages

A
  1. Shareholders not liable for Corp debt
  2. Easier to raise money by issuing stock
  3. Easier to transfer ownership
  4. Continuous life, doesn’t terminate upon death of shareholders, officers, directors
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8
Q

Can you have more than 2 people in a tenants in common?

A

Yes

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9
Q

Does a testamentary trust avoid probate?

A

No

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10
Q

Which joint account has equal and undivided interests?

A

JTWROS

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11
Q

Does tenants in common avoid probate?

A

No

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12
Q

One type of account must be approved by a specially designated supervisor before any trading activity may take place?

A

Options. Because trading options involves a higher degree of risk, a designated supervisor with knowledge of options must approve the account

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13
Q

A wealth individual has set up a GRAT. Should she die during the time the trust is active, how are the remaining assets in the trust taxed?

A

The original value plus any appreciation is taxed as part of the grantors estate. One of the risks in setting up a GRAT is that if the grantor dies during the term of the trust, usually 3-10 years, the assets put in the GRAT, plus any appreciation are included in her estate.

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14
Q

Totten trust

A

Transfers ownership of a bank account to a beneficiary after an owner’s death

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15
Q

CIP requires date of birth while regulatory bodies require what?

A

Proof of age.

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16
Q

When must the options agreement be returned?

A

No later than 15 days after account opening

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17
Q

Revocable trust

A

Grantor retains the ability to revoke the trust and take back the assets. Income is taxable to the grantor. Grantor is subject to tax on trust income even when not receiving income. Also called living trust. Avoids probate

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18
Q

Transfer on death

A

Avoids probate. Allows account owner to designate beneficiaries in whatever percentage she wants and can make changes at any time before death

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19
Q

Geraldine invests 25k into an S Corp. Other 9 investors contribute the same. Later, she loans 10k to the Corp. Her basis is now 35k. The Corp experiences 400k loss. What is her share and what can she deduct?

A

Her share of the loss is 40k. She can only write off/deduct up to her basis of 35k.

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20
Q

What is the easiest business structure to transfer?

A

The corporate structure.

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21
Q

Does a testamentary trust avoid probate?

A

No

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22
Q

One of your clients approaches you about setting up a trust. If your client assumes the role of grantor, what additional roles may they take?

  1. Trustee
  2. Beneficiary
  3. As grantor, no other roles may be taken
  4. Trustee and beneficiary
A

Under trust law, the grantor of a trust, sometimes referred to as the settlor, may also be the beneficiary and the trustee.

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23
Q

What must be received at or before account approval, the options account agreement or the options disclosure document?

A

The options disclosure document. Think of it this way, first we need to figure out if you’re suitable, then if you are, you can send the form back when you have a chance within 15 days.

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24
Q

Does transfer on death avoid probate?

A

Yes. It does not avoid estate taxes

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25
Q

The customer identification program does not require what?

  1. date of birth
  2. Visa details for non citizens
  3. Physical address
  4. Sex
A

Sex. The CIP does not ask if the account holder is male or female.

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26
Q

Is property in an irrevocable trust counted in the grantor’s estate for tax purposes?

A

No. The settlor must give up all ownership of property in the trust

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27
Q

Does a testamentary trust reduce the grantors income or estate tax exposure?

A

No.

28
Q

When an agent at a BD opens a new options account, in what order does the following happen:

  1. Obtain approval from qualified supervisor
  2. Obtain essential facts from the customer
  3. Obtain signed options agreement
  4. Enter the initial order
A 
2, 1, 4, 3. 
Obtain essential facts
Supervisor approval
Enter initial order
Obtain signed options agreement (within 15 days)
29
Q

What is the one thing the customer identification program can’t ask?

A

Sex

30
Q

LLC owners are called what

A

Members

31
Q

How many investors is an S Corp limited to?

A

100 investors

32
Q

What is the key difference between simple and complex trust?

A

A simple trust must distribute all income earned on assets each year

33
Q

A client is completing a new account form that contains questions about the investors experience and knowledge. What type of account is being opened?

A

Options. The one question on the options account that is not on the regular brokerage account form is investing experience and knowledge for options, stocks and bonds, commodities, and financial instruments

34
Q

What does a living will concern?

A

End of life wishes like life support, organ donation, etc.

35
Q

Complex trust

A

May accumulate income and doesn’t have to distribute annually. Permitted deductions for distributions of net capital or principal. Capital gains are deemed part of the distributable net income unless reinvested

36
Q

Irrevocable trust

A

Grantor or settlor must give up all ownership of property in the trust

37
Q

Which can own unequal interests in the account?

A

Tenants in common. JTWROS is equal

38
Q

In the banking industry, the term POD refers to an account similar to the TOD designation used by BDs. An old, but sometimes still used term to describe this kind of account is

A

Totten trust. The account owner is the trustee, in control of the money that will eventually go to the trust beneficiary, and could change beneficiaries as desired. Totten or POD are interchangeable terms.

39
Q

Living trust

A

Also called inter vivos trust. Established during the makers lifetime. When you set up a revocable living trust, you maintain complete control over it. You can make changes as often as you want and add or remove assets. They contain instructions on managing the trust in the event of incapacity or death

40
Q

The advantages of structuring a business as a S Corp rather than C Corp is

A

Avoiding double taxation. Because an s Corp is taxed like a partnership, all earnings or losses flow through to the shareholders. This avoids the double taxation inherent in receiving a share of the profits from a c Corp.

41
Q

150 investors want to form a corporation to limit their financial liability to the amount of money they invest and do not want to be responsible for any debt the Corp incurs :

  1. Proprietorship
  2. General partnership
  3. C Corp
  4. S Corp
A

C Corp. c corp stockholders are not liable for Corp debt, it’s easier to raise money issuing stock, easier to transfer ownership, c Corp is continuous, it does not terminate upon death of shareholders, officers, or directors.

42
Q

What amount of federal estate tax is imposed on transfer of personal property to a spouse when the other dies?

A

As long as the spouse is a US citizen, no federal estate tax is imposed

43
Q

Grantor retained annuity trust GRAT

A

Any income from the trust is taxed to the grantor. The annuity portion is paid for a specific number of years. After that, beneficiaries get whatever is left, usually tax free.

44
Q

Testamentary trust

A

Settlor retains control over assets until death. Think “last will and testament”. The will states that upon death the testator property is to be placed into a trust. This does not reduce the income or estate tax exposure. Assets do not avoid probate.

45
Q

Which entities are taxed on their income?

A

Sole proprietorship and c Corp are taxed on their income. Sole proprietorship is on the owners personal tax form, and C Corp on form 1120

46
Q

There are many different ways to structure a new business entity. One of these is a general partnership. Among the benefits of using this is

  1. 50% dividends received exclusion
  2. Limited liability
  3. Ease of formation
  4. Substantial capital can be raised with little or no cost
A

Ease of formation. Compared with a corporation, it is generally easier to form and dissolve a partnership. General partners have full liability and there is no 50% dividends received exclusion for partnerships. That only applies to corporations. C corps are the entity for raising lots of capital

47
Q

Simple trust

A

All income must be distributed during the year its received. If it doesn’t distribute all of its net income at least annually, it’s declared complex

48
Q

Limited liability and pass through of earnings

A

S Corp, LLC, Limited partnership

49
Q

What type of trust avoids probate?

A

Revocable

50
Q

How long do you have to receive the signed options agreement?

A

15 days

51
Q

Can a PO Box be used for an address under CIP and Regulatory rules?

A

Yes

52
Q

What is the best entity for raising a lot of capital?

A

C Corp. Think C for capital

53
Q

When must the options account be approved by a designated supervisor?

A

Prior to any trades taking place

54
Q

The options disclosure document must be delivered no later than when?

A

With account opening

55
Q

Small corporations that satisfy certain criteria can elect to pay income tax at the corporate level but instead pass their earnings through to their shareholders. These are known as

A

S corps. Think shareholders for s corps that pass through their earnings to shareholders

56
Q

Which type of trust allows changes during the maker’s lifetime? Revocable or irrevocable?

A

Revocable. Think, “I revoke what I said and I want to change it”

57
Q

An IAs client wishes to save current income taxes by placing certain investments in a charitable trust, ethically, the IA should

A

Recommend the client talk to a qualified attorney

58
Q

Living trust

A

Revocable trust

59
Q

How are c Corp earnings taxed?

A

At the corporate level and again at the individual level

60
Q

Checks to joint accounts are may payable to who and endorsed by who?

A

Made payable in the account name and endorsed by all parties

61
Q

For a joint account, who must you have suitability information from?

A

All of the tenants in the account

62
Q

A customer and his spouse own shares of ABC Fund as JTWROS. if the customer dies, what happens to the shares in the account?

A

In a JTWROS, securities pass to the surviving member. Remember -> pass then joint and take equal shares

63
Q

4 Primary Requirements of the CIP

A
  1. Clients name
  2. Physical address
  3. Date of birth
  4. Social security number
64
Q

Which of the following are governed by the prudent investor rule?

  1. Trustee
  2. Executor
  3. Custodian
  4. Agent who has been granted discretionary authority
A

All 4. The prudent investor rule applies to fiduciary accounts, or accounts in which someone is acting on someone else’s behalf. Agents who has been granted discretionary authority is acting in a fiduciary capacity.

65
Q

What are the two types of accounts that can be opened with a transfer on death designation?

A

Individual and JTQWROS

66
Q

Can minors designate a beneficiary in a UTMA account?

A

No. Upon the death of a minor, any assets belong in the deceased’s estate

Series 66 (22 decks)

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