UNIT 22 QBANK Flashcards
All of the following accounts would allow all parties with access to the account to authorize withdrawals except
A) individual account with a limited power of attorney (LPOA).
B) tenants in common account (TIC).
C) joint tenants with rights of survivorship account (JTWROS).
D) individual account with a full power of attorney (FPOA).
A) individual account with a limited power of attorney (LPOA).
Explanation
Individual accounts with limited POA allow a designated person to place trades but not make withdrawals. All the other answer choices do allow withdrawals as well as placing trades by all parties with access to the account.
A married couple opens a new account with a broker-dealer as tenants in common. In explaining the details of the account to the couple, the registered representative would not indicate which of the following?
A) Mail may be sent to either party with the permission of the other party.
B) Certificates may be registered in the name of either party.
C) Orders may be given by either party.
D) In the event of death, the decedent’s interest in the account goes to the decedent’s estate.
B) Certificates may be registered in the name of either party.
Explanation
With a joint account, certificates must be registered in the names of all parties to the account.
Under whose Social Security number is the custodial account established?
A) The custodian’s
B) The person who established the account for the minor, whether the parent or not
C) The minor’s
D) The parent, whether the parent is custodian or not
C) The minor’s
Explanation
Assets in a custodial account are the minor’s property, so the minor’s Social Security number is used.
The income level of a donor
A) may affect contributions into both Coverdell ESA’s and Section 529 plans.
B) will not affect contributions into a Coverdell Education Savings Account (ESA) or a section 529 plan.
C) may affect contributions into a Coverdell ES.
D) will affect contributions into a Section 529 plan.
C) may affect contributions into a Coverdell ES.
Explanation
Contributions into a Coverdell Education Savings Account (ESA) are phased out at high income levels for a donor, whereas the income level of a donor has no impact on contributions made into a Section 529 plan.
How an account is registered determines
A) the sole individual allowed to access the account.
B) control of the investments in the account only.
C) ownership of the account only.
D) ownership and control of the investments in the account.
D) ownership and control of the investments in the account.
Explanation
Accounts can be registered in the name of one or more persons, as well as legal entities such as corporations or partnerships. Account registration determines the ownership of the account and who will have control of the investments in the account.
A married couple have equal 50% ownership interests in a tenants in common account (TIC). If one party to the account dies, what happens to the shares in the account?
A) The deceased party’s interest is transferred to the remaining party.
B) Half, or 50% of the shares, would belong to the remaining party and the balance would be distributed to the estate of the deceased party.
C) Ownership and distribution of all shares would be determined by probate court.
D) All the shares are distributed to the heirs named in the estate of the deceased party.
B) Half, or 50% of the shares, would belong to the remaining party and the balance would be distributed to the estate of the deceased party.
Explanation
In a tenants in common (TIC) account, securities owned by the decedent pass to the decedent’s estate—in this case, 50% of the assets. The other 50% is retained by any remaining living parties to the account.
The primary use for a revocable living trust is to
A) limit the grantor access to items in the estate.
B) avoid tax consequences for the grantor.
C) use as a substitute for a will.
D) prevent the grantor from liquidating their estate prior to death.
C) use as a substitute for a will.
Explanation
While the grantor is alive they have full control of the trust it is mainly use in place of a will.
Under the Uniform Transfers to Minors Act (UTMA), a custodian may invest in all of the following except
A) mutual funds in growth shares.
B) blue-chip stocks on margin.
C) non-investment grade (junk) bonds.
D) U.S. Treasury notes with less than one year to maturity.
B) blue-chip stocks on margin.
Explanation
A custodian may not purchase securities in an account on margin or pledge them as collateral for a loan.
Which of the following accounts would allow the assets of a single father’s account to go directly to his daughter while avoiding probate but not a let her have access while he is alive?
A) Individual with transfer on death (TOD)
B) Tenants in common (TIC)
C) Joint tenants with rights of survivorship (JTWROS)
D) Individual with power of attorney (POA)
D) Individual with power of attorney (POA)
Explanation
Individual with TOD exactly meets his requirements. JTWROS and TIC and individual with POA would all allow the daughter access to the account while he is still alive.
Which of the following is a benefit of 529 plans but not Coverdell Education Saving Accounts?
A) Withdrawals are tax free if used for qualified education expenses
B)
Can be transferred to a sibling if not used by the original beneficiary
C)
Available for use for K–12
D)
No income restrictions
Explanation
Coverdell plans have income restrictions; 529 plans do not.
Which of the following statements are true of an irrevocable trust?
I. The grantor may change the terms of the trust
II. The grantor must give up ownership of items placed in the trust
III. The structure of the trust may reduce estate taxes
IV. The grantor may retain ownership of items placed in the trust
A) I and IV
B) I and II
C) II and III
D) II and IV
C) II and III
II. The grantor must give up ownership of items placed in the trust
III. The structure of the trust may reduce estate taxes
Explanation
The grantor may be able to avoid some of the tax consequences because he gives up ownership of items in the trust and cannot change the terms of the trust once established.
If the beneficiary of a custodian account dies, the securities in the account pass to
A) the Securities Investor Protection Corporation (SIPC) trustee’s account.
B) the parents.
C) the minor’s estate.
D) the custodian’s estate.
C) the minor’s estate.
Explanation
If the beneficiary of a custodial account (minor) dies, the securities in the account must pass to the minor’s estate, not to the parents’ or custodian’s estate.
A customer wants to save some money for his grandson’s college education in an IRA account. Which of the following regarding a Coverdell Education Savings Account (ESA) is true?
A) The maximum contribution permitted is $3,000 annually.
B) The customer may take a deduction for the amount contributed.
C) The customer may make annual contributions until the grandson graduates from college.
D) The funds must be distributed by the time the grandchild attains age 30, unless they are rolled over.
D) The funds must be distributed by the time the grandchild attains age 30, unless they are rolled over.
Explanation
The maximum annual contribution to an ESA is $2,000. Contributions are not deductible and must cease when the beneficiary reaches age 18. Any unused balance must be rolled over or distributed by the time the beneficiary attains age 30. Amounts not used for one child may be rolled over tax free to the account of another child of the same family only once during any 12-month period.
Which of the following is among the items of information that must be entered on a new account form?
A) Names and addresses of at least two of the prospective customer’s neighbors as personal references
B) What educational degree(s) the accountholder has earned
C) Names of all persons who will have access to the account
D) Names of other broker-dealer firms already holding accounts for the prospective customer
C) Names of all persons who will have access to the account
Explanation
The facts that are required on a new account form are aimed at facilitating the operation of the account, properly identifying the customer, and guarding against money laundering and other illegal activities. Of the choices offered, only the names of those with access to the account would help with these goals, so this item of information is the only one on the list that is required.
An investor has opened an individual brokerage account for use in a small business and has given a business partner a power of attorney (POA) over the account. Which of the following persons may have access to the account for trading purposes?
I. The attorney who administers to the business’s legal needs
II. The investor’s partner who was given the POA
III. The investor who opened the account
IV. A secretary at the business, but only in an emergency
A) II and IV
B) I and IV
C) I and III
D) II and III
D) II and III
II. The investor’s partner who was given the POA
III. The investor who opened the account
Explanation
The owner of an individual account and anyone who has power of attorney (POA) over the account are the only persons who may have access. This would exclude the business’s attorney, secretary, or anyone else not having the POA.
Craig and Judy have just married. It is a second marriage for both of them and they both have kids from a prior marriage. Craig would like his portion of their account to go to his kids when he dies and Judy would like her portion to go to her kids when she dies. As new partners in marriage, while they are both alive they would both like to have full access to the account. What type of account(s) should they set up?
A) Each should set up their own individual transfer on death (TOD) account with limited power of attorney (POA)
B) Joint tenants in common (JTIC)
C) Joint tenants with rights of survivorship (JTWROS)
D) A partnership account
B) Joint tenants in common (JTIC)
Explanation
The JTIC account does exactly what the clients requested. The JTWOS does not separate their assets at death; instead the whole account would go to the surviving spouse. Individual accounts with limited POA and TOD would not give both full access to the account. The partnership account is for business accounts.
