Unit 18 - Type of Client

Question 1

An individual account is for one beneficial owner. What other type of entity can apply for an individual account?

Answer 1

A sole proprietorship

Question 2

How many days does a broker-dealer have to secure a written agreement (ODD) regarding the risks of trading options?

Answer 2

15 Days

Question 3

Which business entity makes an individual personally liable for all of the company’s debts?

Answer 3

Sole Proprietorship

Question 4

Which business entities allow the income or loss to pass directly to the individuals of the company?

Answer 4

Sole Proprietorship, General Partnership, LLC

Question 5

A general partnership must have at least how many members?

Answer 5

Two Members

Question 6

What is the primary advantage of having a Sole Proprietorship, General Partnership or LLC?

Answer 6

You avoid double taxation by passing the income directly to the individuals.

Question 7

A Limited Partnership is comprised of general partners and limited partners. Which group is assigned the management duties and assumes all liabilities?

Answer 7

General Partners

Question 8

A Limited Partnership is comprised of general partners and limited partners. Which group is passive and has their liability limited to the size of their investment?

Answer 8

Limited Partners

Question 9

An LLC combines what two benefits?

Answer 9

The benefit of incorporation (limited liability) and tax advantages of a partnership (flow-through taxable earnings/losses).

Question 10

Unlike an LLC which can have an unlimited number of members, an S Corp is limited to how many shareholders?

Answer 10

100 Shareholders, none of whom can be nonresident aliens.

Question 11

S Corporations are limited to how many classes of stock?

Answer 11

One class of stock (typically common)

Question 12

Which business entity is the easiest to transfer ownership from one party to another?

Answer 12

C Corporation - selling shares is rather straightforward

Question 13

Which business entity is ideal for raising a large amount of capital?

Answer 13

C Corporation

Question 14

Explain a Durable Power of Attorney

Answer 14

A Durable POA allows the individual to maintain control over the account when the grantor becomes incapacitated.

Question 15

What is the difference between a Simple Trust and a Complex Trust?

Answer 15

A Simple Trust must distribute all of its income earned from investments in the same year they’re received vs a Complex Trust that can accumulate income.

Question 16

A Living Trust allows the individual who set up the trust to maintain control over the assets until their death.

Answer 16

Mighty

Question 17

A Testamentary Trust stipulates that, at death, the property and assets of the trust will be given to specified beneficiaries.

Answer 17

Mighty

Question 18

A Living Will is the individual’s end-of-life instructions for and has nothing to do with assets.

Answer 18

Mighty

Question 19

Philanthropic funds may be set up so a high net worth individual can donate a lump sum, take a current tax deduction, and make distributions to charities over time.

Answer 19

Mighty

Question 20

A Transfer on Death (TOD) Account allows the individual to distribute their assets using percentages for each beneficiary.

Answer 20

While alive the owner is the only person with access to the assets. Individual accounts, JTWROS and tenants by entirety are the only accounts that can be set up as a TOD.

Question 21

What’s a revocable trust?

Answer 21

The grantor can revoke the trust and take back the assets. Income gains are taxable even if the capital isn’t withdrawn.

Question 22

What’s an irrevocable trust?

Answer 22

The Settlor must give up all ownership of the property and grant it back to the Grantor.

Question 23

What is Per Stirpes and Per Capita?

Answer 23

Per Stirpes: If someone in a will is deceased before receiving their distribution from the will, their beneficiaries will receive the deceased’s share.
Per Capita: The shares are distributed evenly across all parties, even if the deceased’s beneficiaries are four individuals. They each receive an even share along with the other beneficiaries.