Unit 18: Type of Client Flashcards
Tenants in common (TIC)
provides that a deceased tenant’s fractional interest in the account is retained by that tenant’s estate and is not passed to to the surviving tenants, ownership is divided unequally
- do not avoid probate
Joint tenants with right of survivorship (JTWROS)
a deceased tenant’s interest in the account passes to the surviving tenants, ownership is equal and undivided
- whenever the test uses the term joint tenants, it means JTWROS
Tenants by the entirety (TBE)
only for married persons, the consent of the other tenant is required before the other tenant can sell or give away his interest in the property, upon death of one of the spouses the interest passes to the surviving spouse
- Most commonly used for ownership of real estate
Checks or distributions from a joint account must be
made payable in the account name and endorsed by all parties
Suitability for a joint account is based on the tenant with:
the lowest common denominator (example where one tenant is an accredited investor and the other is a non-accredited investor)
Opening of options accounts sequence:
- Obtain essential facts from the customer
- Obtain approval from a qualified supervisor
- Enter the initial order
Obtain a signed options agreement within 15 days
General Partnership
- Partners are responsible for debts of the business
- Easy to form and dissolve but generally not suited for raising large sums of capital
- Avoids double taxation
Limited Liability Company (LLC)
business structure that combines benefits of incorporation (limited liability) with the tax advantages of a partnership, owners are members and are not personally liable for the debts of the LLC
S Corporation
offers investors the limited liability associated with corporations in general, profits and losses are passed through directly to the shareholders in proportion to their ownership
- May not have more than 100 shareholders
- Shareholders may only deduct losses to the extent of their basis (money contributed or lent)
C Corporation
distinguishes the company as a separate entity from its owners
- If a business expects to need significant capital, this form is almost always the preferred choice
- Subject to double taxation
Benefits of structuring a business as a general partnership, an LLC, or an S corporation would include
no double taxation
Only the sole proprietorship and the C Corporation are taxed on their income.
The sole proprietorship’s is the on the owner’s personal tax return and the corp’s is on a Form 1120.
The only logical choice where a large amount of capital is to be raised is the
C Corporation.
The ones that have limited liability for owners as well as flow-through of income/loss is the
limited partnership, LLC, and S corp
Which business structures survive the death of their owners?
Corporations and LLCs
Which business structure has the easiest transfer of ownership?
C corportion
Orders entered after the time of the death of the grantor,
even if the purchase or sale was decided upon before death, are not accepted.
The grantor of the trust can also be the
trustee and/or beneficiary
Remainderman
the person who received the remaining balance
Example: A husband dies and has arranged for his wife to use their home until she passes away. Any surviving children then inherit the home - they are the remaindermen
Simple Trusts
all income earned on assets must be distributed during the year it is received
Complex trust
may accumulate income
The key difference between a simple and a complex trust is that:
the simple trust must distribute all of its annual income, whereas complex trust is not obligated to do so.
Living Trust (inter vivos trust)
established during the maker’s lifetime and they maintain complete control over it. Changes can be made (revocable)
Testamentary Trust
the settlor retains control over assets until death (“last will and testament”)
Living Will
individual’s instructions for end-of-life situations, such as withholding medical care of organ donation.
A living will is used to express the author’s end-of-life wishes
Philanthropic Funds
wealthy individuals may set up donor-advised funds that allow for flexibility and tax advantages. Foundations are generally funded by their founders who usually give those managing the money greater flexibility.
Impact Investments
the charity commits a portion of its funds to those companies or industries which align with its specified goal.
- Example, the Cancer Society probably would not have tobacco stocks in its portfolio.
- Subset of Socially Responsible Investing (SRI) that attempts to generate positive social good in addition to the goals typically outlined in an SRI approach.
- The acronym ESG is also frequently found = Environment, Social, and Corporate Governance
Program-Related Investments
the foundation make a charitable distribution
Transfer-on-Death (TOD)
avoids probate but does not avoid estate taxes
- May also “payable-on-death” (POD) although the term is used far more frequently for bank accounts
- The only types of accounts that may have the Transfer on Death (TOD) designation are individual and JTWROS.
Grantor Retained Annuity Trusts (GRATs)
estate planning tool designed to pass assets to beneficiaries (usually children) in a way to minimize gift and/or estate taxes
- Any income from the trust is taxed to the grantor
- The annuity portion is paid for a specified number of years. At the end of that term, the beneficiaries get wherever is left and that could be free of estate and gift taxes.
Estate Accounts
an account that is directed by fiduciary on behalf of the beneficiary of an estate
Per Stirpes
the deceased intended that a beneficiary’s share of the inheritance is to go to an heir
Per Capita means
“by total head count”
