CTFA - PRACTICE EXAM
QUESTIONS AND
CORRECT ANSWERS
GRADED A+ 2025-2026
"Constructive Receipt" is normally applicable to the tax treatment of... - ANS-Non-
Qualified Deferred Compensation Plans
Non-Qualified Deferred Compensation - ANS-TCHRA: Compensation that is not
immediately taxable. It does not qualify under ERISA for tax exemption. Taxation
occurs once the individual receives the compensation or "property"
A 1035 exchange refers to a tax free exchange of... - ANS-Annuities
1035 Exchange - ANS-IRS allows tax-free transfer of cash values between 2 LIKE
policies (i.e. Life to Life, Annuity to Annuity, or Life to Annuity).
If a bank uses its own proprietary mutual funds for fiduciary accounts then it should
do the following (3) - ANS--Be able to substantiate the reasonableness of using these
funds
-Explain the fees associated
-Monitor the fund's investment performance
A simple trust earned $27,000 in dividends. It paid $4,000 in trustee fees. 1/2 from
Income and 1/2 from P. What is the DNI? - ANS-$23,000
T/F: In a simple trust, trustee fees are deducted from DNI even the fees that come out
of Principal? - ANS-True
, Sprinkling trust - ANS-A trust in which the income or principal is distributed among
the members of a designated class in amounts and proportions as may be determined
in the discretion of the trustee or other party. Also called spraying trust.
A US dollar can buy 33 Thai Baht. What is a characteristic of the Thai Baht? - ANS-The
Thai Baht is a medium f exchange to facilitate trade and of itself has no intrinsic value.
A very wealthy client created a trust that names your bank as a co -trustee with an
individual following the client's death. Upon reviewing the trust document, you notice
that the individual trustee is granted sole and complete responsibility for all trust
investment decisions. Is that acceptable? What should you follow up with? - ANS-This
is ok but you should require that trust contain broad language specifying that the bank
will be exonerated (exculpated) from any decision made individual trustee.
Al, Bob and Chuck purchased a $300,000 piece of real property. They each contributed
$100,000 to the purchase. Which of the following forms of property ownership would
automatically pass the property to Bob and Chuck if Al dies first? - ANS-JTWROS
Assume Ann, 45, leaves her job at Google and takes a similar position at Facebook. If
she instructs Google's human resource department to distribute her existing 401(k)
balance to an IRA, - ANS-Google may distribute Ann's full account balance without
withholding any amount.
Assume that the United States is experiencing a larger than normal GDP growth and
the Federal Reserve wants to "cool things off" with an interest rate hike. Which of the
following BEST describes the mechanism to accomplish this objective? - ANS-Pursue
open market activities (OMA) to sell bonds.
Assuming Amy created a five-year grantor annuity trust (GRAT) in 2015 with a 25%
annuity payment, and she dies in 2018 - ANS-Amy could have used her closely held
business or a publicly traded stock to fund the GRAT
Barney, an insurance agent, shows Myron why he needs $250,000 of additional
coverage. Myron is young and has three young children. He is investment-minded and
likes to play the market. Which of the following is the best option for Myron - ANS-
$250,000 variable universal life policy
QUESTIONS AND
CORRECT ANSWERS
GRADED A+ 2025-2026
"Constructive Receipt" is normally applicable to the tax treatment of... - ANS-Non-
Qualified Deferred Compensation Plans
Non-Qualified Deferred Compensation - ANS-TCHRA: Compensation that is not
immediately taxable. It does not qualify under ERISA for tax exemption. Taxation
occurs once the individual receives the compensation or "property"
A 1035 exchange refers to a tax free exchange of... - ANS-Annuities
1035 Exchange - ANS-IRS allows tax-free transfer of cash values between 2 LIKE
policies (i.e. Life to Life, Annuity to Annuity, or Life to Annuity).
If a bank uses its own proprietary mutual funds for fiduciary accounts then it should
do the following (3) - ANS--Be able to substantiate the reasonableness of using these
funds
-Explain the fees associated
-Monitor the fund's investment performance
A simple trust earned $27,000 in dividends. It paid $4,000 in trustee fees. 1/2 from
Income and 1/2 from P. What is the DNI? - ANS-$23,000
T/F: In a simple trust, trustee fees are deducted from DNI even the fees that come out
of Principal? - ANS-True
, Sprinkling trust - ANS-A trust in which the income or principal is distributed among
the members of a designated class in amounts and proportions as may be determined
in the discretion of the trustee or other party. Also called spraying trust.
A US dollar can buy 33 Thai Baht. What is a characteristic of the Thai Baht? - ANS-The
Thai Baht is a medium f exchange to facilitate trade and of itself has no intrinsic value.
A very wealthy client created a trust that names your bank as a co -trustee with an
individual following the client's death. Upon reviewing the trust document, you notice
that the individual trustee is granted sole and complete responsibility for all trust
investment decisions. Is that acceptable? What should you follow up with? - ANS-This
is ok but you should require that trust contain broad language specifying that the bank
will be exonerated (exculpated) from any decision made individual trustee.
Al, Bob and Chuck purchased a $300,000 piece of real property. They each contributed
$100,000 to the purchase. Which of the following forms of property ownership would
automatically pass the property to Bob and Chuck if Al dies first? - ANS-JTWROS
Assume Ann, 45, leaves her job at Google and takes a similar position at Facebook. If
she instructs Google's human resource department to distribute her existing 401(k)
balance to an IRA, - ANS-Google may distribute Ann's full account balance without
withholding any amount.
Assume that the United States is experiencing a larger than normal GDP growth and
the Federal Reserve wants to "cool things off" with an interest rate hike. Which of the
following BEST describes the mechanism to accomplish this objective? - ANS-Pursue
open market activities (OMA) to sell bonds.
Assuming Amy created a five-year grantor annuity trust (GRAT) in 2015 with a 25%
annuity payment, and she dies in 2018 - ANS-Amy could have used her closely held
business or a publicly traded stock to fund the GRAT
Barney, an insurance agent, shows Myron why he needs $250,000 of additional
coverage. Myron is young and has three young children. He is investment-minded and
likes to play the market. Which of the following is the best option for Myron - ANS-
$250,000 variable universal life policy
