CRPC EXAM REVIEW WITH QUESTIONS AND ANSWERS
A "rising equity glidepath" typically will lead to which equity exposure over one's total lifetime?
A)
increased
B)
consistent
C)
decreased
D)
increased in the early years and decreased in the later years - -C
The strategy of increasing equity exposure throughout retirement can result in less equity exposure over
one's lifetime due to the reduced exposure in the early years.
LO 7-6
-A fundamental duty owed to a client is to always look out for what is in the client's best interest. Which
fiduciary duty best personifies this? - -DUTY OF LOYALTY
The fiduciary duty that best personifies looking out for the client's best interest first is the fiduciary duty
of loyalty. This duty requires being loyal to the client first and foremost, and always looking out for what
is in their best interest. The duty of care is analogous to medical care. It looks at the degree of skill and
diligence, not the adviser's feelings about the client's situation.
LO 9-4
-A lump sum payment of the proceeds of a life insurance policy that is made to the beneficiary upon the
insured's death
A)
is exempt from estate taxation.
B)
is taxable if from a modified endowment contract (MEC).
C)
is generally exempt from income taxation.
D)
is typically taxable. - -C
The lump sum proceeds of a life insurance policy (even if a MEC) paid to a beneficiary are generally
exempt from income taxation. Withdrawals and loans from a MEC may be taxable. Life insurance
proceeds, however, are subject to estate taxes if the deceased owned a life insurance policy. If the
deceased owner was also the insured, the death benefits are included in his estate. If the deceased
owner is not also the insured, the current value of the policy is in the deceased owner's gross estate.
LO 4-7
-A Medicare Part A patient must pay
,A)
the approved costs of care in a skilled nursing facility for the first 10 days.
B)
all costs for a hospital stay beyond 150 days.
C)
the annual deductible for out-of-hospital doctor's services.
D)
all costs above the hospital deductible for a 30-day stay in a hospital. - -B
The patient must pay all costs related to a hospital stay beyond 150 days. The annual deductible
describes a gap in Medicare Part B coverage, not Part A. Medicare pays for the cost of the first 60 days in
a hospital, but the patient must pay the Part A deductible. Medicare will pay the approved charges for
the first 20 days in a skilled nursing facility. The gap results from the cost of care that exceeds 20 days
(the patient pays the per day copayment) or the need for custodial care.
LO 5-3
-A nonspringing durable power of attorney
A)
remains effective after the principal becomes incapacitated.
B)
remains effective after the principal's death.
C)
is usually created in a person's revocable trust.
D)
gives the attorney-in-fact authority only when the principal becomes incompetent. - -A
The very purpose of any durable power of attorney is to give the attorney-in-fact authority to act after
the principal becomes incapacitated. However, such authority does not survive the principal's death.
Such authority is created in an independent document, and is effective immediately in this type of
power of attorney.
LO 5-2
-A springing durable power of attorney
A)
is usually created in a person's revocable trust.
B)
remains effective after the principal's death.
C)
gives the attorney-in-fact authority only when the principal is deemed incompetent.
D)
remains effective until the principal becomes incapacitated. - -C
Explanation
,The very purpose of any durable power of attorney is to give the attorney-in-fact authority to act after
the principal becomes incapacitated. However, such authority does not survive the principal's death.
Such authority is created in an independent document (not part of a living will or a living trust), and is
effective immediately in this type of power of attorney. A springing durable power of attorney becomes
effective when the principal becomes incompetent or incapacitated.
LO 5-2
-All of the following are correct statements regarding qualified longevity annuity contracts (QLACs)
EXCEPT
A)
owners must begin receiving income by age 75.
B)
accumulations in these annuities are exempt from the initial RMD rules from age 73 to 85.
C)
owners can put no more than 25% of their retirement plan money into a longevity annuity with an
overall cap of $145,000 in 2022.
D)
payments from longevity annuities are larger than those received from a regular annuity due to the
delay in receipt of the annuity payments. - -A
Owners must begin receiving income from a longevity annuity by age 85. All of the other statements are
correct.
LO 4-5
-All of the following are reasons reverse mortgages may become more common in the future except
A)
reverse mortgages are a potential tool for combating sequence of return risk.
B)
many older Americans have large amounts of equity in their homes but lack liquid assets capable of
sustaining their lifestyle.
C)
reverse mortgage fees must be rolled into the loan.
D)
government regulatory changes in 2013 standardized Home Equity Conversion Mortgage (HECM) rules
to a great extent. - -C
Fees may be rolled into the reverse mortgage, but that is not required. Until the late 1990s American tax
law had strong incentives to purchase ever more expensive homes. This effect lingers on today. Next,
people have to live somewhere. Buying a home is a forced savings plan as the mortgage is repaid each
month. In addition, increases in home prices over time help accrue wealth. Reverse mortgages have the
potential to fight sequence of return risk in several ways. First, reverse mortgage loans can pay off the
original mortgage and thus eliminate the need for the original mortgage amount each month. Lowering
income needs reduces the monthly need. Reducing the monthly need takes pressure off the portfolio.
Also, money from a reverse mortgage is tax free (like all other loans received). Additionally, during a
market downturn, monthly payments from a reverse mortgage can be substituted for portfolio
, withdrawals. In fact, the monthly reverse mortgage amount can be smaller than the normal withdrawal
from a non-Roth retirement plan because the amount of income tax required with the retirement plan
withdrawal is not needed when the monthly income is coming from a reverse mortgage.
LO 4-8
-All of the following are ways that a person can voluntarily transfer estate assets to another person or
entity at death except
A)
by probate.
B)
by will substitute.
C)
transfer on death (T.O.D.).
D)
by gift. - -D
Probate and will substitute are ways that a person can voluntarily transfer estate assets to another
person or entity at death. Gifting is one of the two ways that a person can voluntarily transfer estate
assets to another person or entity during life, not at death. Selling is the second way to transfer property
while alive. T.O.D. passes the brokerage account to the named person when the owner of the account
dies. P.O.D. (payable on death) transfers a bank account in the same way.
LO 8-8
-All of the following assets would be included in a decedent's gross estate except
A)
life insurance proceeds from a policy on the decedent in which the decedent had assigned all incidents
of ownership two years before her death.
B)
an irrevocable trust established by the decedent five years before his death that paid all income to him
until death, then the corpus to his children.
C)
the proceeds from a life insurance policy on the decedent that was always owned by the decedent's
spouse, with the spouse as the named beneficiary.
D)
a residence that was owned by the decedent and his spouse as joint tenants with right of survivorship. -
-C
Because the decedent never owned this policy, and his estate is not the beneficiary, these proceeds are
not included in the decedent's gross estate. The decedent's retained right to income causes inclusion.
The decedent owned an interest in the residence at death, and therefore his interest must be included
in his gross estate. If the decedent assigned incidents of ownership in this policy within three years of
death, the proceeds must be included in the decedent's gross estate.
LO 8-9
-All of these are examples of asset allocation strategies except
A)
A "rising equity glidepath" typically will lead to which equity exposure over one's total lifetime?
A)
increased
B)
consistent
C)
decreased
D)
increased in the early years and decreased in the later years - -C
The strategy of increasing equity exposure throughout retirement can result in less equity exposure over
one's lifetime due to the reduced exposure in the early years.
LO 7-6
-A fundamental duty owed to a client is to always look out for what is in the client's best interest. Which
fiduciary duty best personifies this? - -DUTY OF LOYALTY
The fiduciary duty that best personifies looking out for the client's best interest first is the fiduciary duty
of loyalty. This duty requires being loyal to the client first and foremost, and always looking out for what
is in their best interest. The duty of care is analogous to medical care. It looks at the degree of skill and
diligence, not the adviser's feelings about the client's situation.
LO 9-4
-A lump sum payment of the proceeds of a life insurance policy that is made to the beneficiary upon the
insured's death
A)
is exempt from estate taxation.
B)
is taxable if from a modified endowment contract (MEC).
C)
is generally exempt from income taxation.
D)
is typically taxable. - -C
The lump sum proceeds of a life insurance policy (even if a MEC) paid to a beneficiary are generally
exempt from income taxation. Withdrawals and loans from a MEC may be taxable. Life insurance
proceeds, however, are subject to estate taxes if the deceased owned a life insurance policy. If the
deceased owner was also the insured, the death benefits are included in his estate. If the deceased
owner is not also the insured, the current value of the policy is in the deceased owner's gross estate.
LO 4-7
-A Medicare Part A patient must pay
,A)
the approved costs of care in a skilled nursing facility for the first 10 days.
B)
all costs for a hospital stay beyond 150 days.
C)
the annual deductible for out-of-hospital doctor's services.
D)
all costs above the hospital deductible for a 30-day stay in a hospital. - -B
The patient must pay all costs related to a hospital stay beyond 150 days. The annual deductible
describes a gap in Medicare Part B coverage, not Part A. Medicare pays for the cost of the first 60 days in
a hospital, but the patient must pay the Part A deductible. Medicare will pay the approved charges for
the first 20 days in a skilled nursing facility. The gap results from the cost of care that exceeds 20 days
(the patient pays the per day copayment) or the need for custodial care.
LO 5-3
-A nonspringing durable power of attorney
A)
remains effective after the principal becomes incapacitated.
B)
remains effective after the principal's death.
C)
is usually created in a person's revocable trust.
D)
gives the attorney-in-fact authority only when the principal becomes incompetent. - -A
The very purpose of any durable power of attorney is to give the attorney-in-fact authority to act after
the principal becomes incapacitated. However, such authority does not survive the principal's death.
Such authority is created in an independent document, and is effective immediately in this type of
power of attorney.
LO 5-2
-A springing durable power of attorney
A)
is usually created in a person's revocable trust.
B)
remains effective after the principal's death.
C)
gives the attorney-in-fact authority only when the principal is deemed incompetent.
D)
remains effective until the principal becomes incapacitated. - -C
Explanation
,The very purpose of any durable power of attorney is to give the attorney-in-fact authority to act after
the principal becomes incapacitated. However, such authority does not survive the principal's death.
Such authority is created in an independent document (not part of a living will or a living trust), and is
effective immediately in this type of power of attorney. A springing durable power of attorney becomes
effective when the principal becomes incompetent or incapacitated.
LO 5-2
-All of the following are correct statements regarding qualified longevity annuity contracts (QLACs)
EXCEPT
A)
owners must begin receiving income by age 75.
B)
accumulations in these annuities are exempt from the initial RMD rules from age 73 to 85.
C)
owners can put no more than 25% of their retirement plan money into a longevity annuity with an
overall cap of $145,000 in 2022.
D)
payments from longevity annuities are larger than those received from a regular annuity due to the
delay in receipt of the annuity payments. - -A
Owners must begin receiving income from a longevity annuity by age 85. All of the other statements are
correct.
LO 4-5
-All of the following are reasons reverse mortgages may become more common in the future except
A)
reverse mortgages are a potential tool for combating sequence of return risk.
B)
many older Americans have large amounts of equity in their homes but lack liquid assets capable of
sustaining their lifestyle.
C)
reverse mortgage fees must be rolled into the loan.
D)
government regulatory changes in 2013 standardized Home Equity Conversion Mortgage (HECM) rules
to a great extent. - -C
Fees may be rolled into the reverse mortgage, but that is not required. Until the late 1990s American tax
law had strong incentives to purchase ever more expensive homes. This effect lingers on today. Next,
people have to live somewhere. Buying a home is a forced savings plan as the mortgage is repaid each
month. In addition, increases in home prices over time help accrue wealth. Reverse mortgages have the
potential to fight sequence of return risk in several ways. First, reverse mortgage loans can pay off the
original mortgage and thus eliminate the need for the original mortgage amount each month. Lowering
income needs reduces the monthly need. Reducing the monthly need takes pressure off the portfolio.
Also, money from a reverse mortgage is tax free (like all other loans received). Additionally, during a
market downturn, monthly payments from a reverse mortgage can be substituted for portfolio
, withdrawals. In fact, the monthly reverse mortgage amount can be smaller than the normal withdrawal
from a non-Roth retirement plan because the amount of income tax required with the retirement plan
withdrawal is not needed when the monthly income is coming from a reverse mortgage.
LO 4-8
-All of the following are ways that a person can voluntarily transfer estate assets to another person or
entity at death except
A)
by probate.
B)
by will substitute.
C)
transfer on death (T.O.D.).
D)
by gift. - -D
Probate and will substitute are ways that a person can voluntarily transfer estate assets to another
person or entity at death. Gifting is one of the two ways that a person can voluntarily transfer estate
assets to another person or entity during life, not at death. Selling is the second way to transfer property
while alive. T.O.D. passes the brokerage account to the named person when the owner of the account
dies. P.O.D. (payable on death) transfers a bank account in the same way.
LO 8-8
-All of the following assets would be included in a decedent's gross estate except
A)
life insurance proceeds from a policy on the decedent in which the decedent had assigned all incidents
of ownership two years before her death.
B)
an irrevocable trust established by the decedent five years before his death that paid all income to him
until death, then the corpus to his children.
C)
the proceeds from a life insurance policy on the decedent that was always owned by the decedent's
spouse, with the spouse as the named beneficiary.
D)
a residence that was owned by the decedent and his spouse as joint tenants with right of survivorship. -
-C
Because the decedent never owned this policy, and his estate is not the beneficiary, these proceeds are
not included in the decedent's gross estate. The decedent's retained right to income causes inclusion.
The decedent owned an interest in the residence at death, and therefore his interest must be included
in his gross estate. If the decedent assigned incidents of ownership in this policy within three years of
death, the proceeds must be included in the decedent's gross estate.
LO 8-9
-All of these are examples of asset allocation strategies except
A)
