CTFA - Practice Exam #1 Questions With Complete Solutions, Graded A+

"Constructive Receipt" is normally applicable to the tax treatment of... - Answer-Non-Qualified Deferred Compensation Plans Non-Qualified Deferred Compensation - Answer-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... - Answer-Annuities 1035 Exchange - Answer-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) - Answer--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? - Answer-$23,000 T/F: In a simple trust, trustee fees are deducted from DNI even the fees that come out of Principal? - Answer-True Sprinkling trust - Answer-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? - Answer-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? - Answer-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? - Answer-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, - AnswerGoogle 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? - Answer-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 - Answer-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 - Answer-$250,000 variable universal life policy Compared to conventional mortgage loans, jumbo mortgage loans typically - Answer-have a higher interest rate Currently, a retired worker, who is 67 years of age, receives $22,500 of employment earnings. Social Security benefits will be reduced by: - Answer-0% Donor-advised funds receive the same tax treatment as contributing to - Answer-a public charityT/F: Fiduciary powers generally apply jointly and severally to each fiduciary if there are co-fiduciaries - Answer-True Filing a decedent's final tax return is the responsibility of the decedent's - Answer-personal representative Herman (age 72) is receiving annuity payments of $1,850 per month from a fixed annuity plan on a jointand-last-survivor basis. Herman's wife Kathleen is 68 years old. Regarding his annuity plan, if Herman dies before Kathleen... - Answer-the annuity payments will continue until Kathleen's death with a portion of the payments reportable to her as ordinary income How does an investment advisor prudently include behavioral finance into developing investment strategies? - Answer-Objectively measures how human emotion hinders profit-making decisions. Howard received the following last year: • A $10,000 bonus from his employer • 1,000 shares of Starbuck's preferred stock that he inherited when his mother died • A $1,000 dividend check from Starbuck's • $6,000 of military Reservist pay for his three months of active duty. Regarding Howard's income tax, the stock is - Answer-exempt Husband made the following gifts this year: • $30,000 of Microsoft stock to his wife • $15,000 to the local hospital to pay for his aunt's recent surgery • $70,000 to a 529 plan for the benefit of his niece • $20,000 to his son to pay off his college loan. With regard to the reportability and taxation of these transfers, the gift to his wife of Microsoft sock is... - Answer-not reportable and totally excludable from taxation If a trust distributes property in kind, and elects to recognize gain or loss upon distribution, the beneficiary's basis in such property is - Answer-the fair market value upon distribution In January, Rich created and funded an account under the Uniform Transfer to Minors Act (UTMA) for his son, Tom, who is nine. Rich died in March—three months later. Would Rich's estate include the value of the assets in the UTMA? - Answer-Yes Jake has one living child (C1). C1 has one child, (GC1) Jake's other child (C2) died in 2000 leaving one child, (GC2). Jake also has a grandnephew (GN1) whose father (Jake's nephew) died in 1998. This year,Jake made gifts of $50,000 outright to each of GC1, GC2 and GN1. Which of these recipients are skip persons for generation skipping tax purposes? - Answer-GC1 and GN1 Jenny is the beneficiary of a qualified domestic trust (QDOT) established by her deceased husband, Will. Your bank is the trustee. Your trust department determines that Jenny will receive a discretionary distribution of principal in addition to a distribution of income from the trust. When the distribution is made, which of the following will occur? - Answer-An estate tax will be due equal to the federal estate tax that would have been paid had the QDOT property been included in the deceased spouse's estate. John died January 2, 2014 leaving a $12 million estate. His revocable trust contains a pecuniary formula to a marital trust. John owned a house jointly with his spouse, which had a value in his estate of $400,000. John also owned an IRA valued at $1 million payable to his spouse. All of his other assets were in his trust. John made no gifts during his lifetime. Assuming that the applicable exclusion amount has not increased because of the inflation adjustments, what amount will fund the marital trust? - Answer- $5.6 million Margaret died owning 1000 shares of Johnson & Johnson stock. She died after a dividend was declared and after the record date, but before the payable date. Which of the following will be included in Margaret's gross estate? - Answer-Both stock and dividend On July 26, 2014, Faye purchased for par a $20,000 AAA General Motors Acceptance Corporation (GMAC) 7/1/29 debenture @ 6.625 with a 12th year refunding provision. Is the interest rate is fixed for the term of the debenture? - Answer-Yes On July 26, 2014, Faye purchased for par a $20,000 AAA General Motors Acceptance Corporation (GMAC) 7/1/29 debenture @ 6.625 with a 12th year refunding provision. How much did Faye pay for this investment? - Answer-$20,000 On July 26, 2014, Faye purchased for par a $20,000 AAA General Motors Acceptance Corporation (GMAC) 7/1/29 debenture @ 6.625 with a 12th year refunding provision. In the 12th year (2026). Does GMAC have the option to redeem (call) the bond? - Answer-Yes On July 26, 2014, Faye purchased for par a $20,000 AAA General Motors Acceptance Corporation (GMAC) 7/1/29 debenture @ 6.625 with a 12th year refunding provision. The investment's annual return in dollars is: - Answer-$1,325On July 26, 2014, Faye purchased for par a $20,000 AAA General Motors Acceptance Corporation (GMAC) 7/1/29 debenture @ 6.625 with a 12th year refunding provision. This investment falls into what asset allocation? - Answer-Corporate Bonds Paul and Kim are married and file a joint tax return. They have a one-year-old daughter who spends 20 hours a week outside the house in a qualified daycare facility. Paul is a full-time MBA student. Kim is a full-time psychologist. With respect to claiming the credit for child and dependent care expenses: - Answer-Both can claim it Rod is a nurse and works in a small, local hospital. He is required to wear a clean, surgical scrub uniform each day. He is also required to purchase several medical instruments important for his job. These items are not provided by the hospital. Rod's adjusted gross income is $60,000. He spent $1,400 last year for these items. How much of what he spent can he tax deduct on Schedule A? - Answer-$200 Rodney recently inherited a portfolio of stocks and bonds from his Uncle. He decided to place the securities with XYZ Bank and Trust Company as custodian while he did research. With respect to a custodial agent's permissible duties: - Answer-regarding bonds, the custodial agent is required to notify Rodney of tender offers, changes in ratings, and potential defaults Social Security retirement benefits are based on which of the following? - Answer-The amount of contributions to the system over the retiree's entire work history Social security retirement benefits will not be reduced, regardless of how much income a recipient receives, if the recipient has attained the age of - Answer-70 T/F: Speculative risk is the risk that could result in either loss or gain - Answer-True Steve creates and funds a revocable trust. Following his death, the trust income is payable to his daughter, Mary, during her life, with the remainder amount of the trust payable to Zeb upon Mary's death. If Zeb wishes to disclaim his interest in the trust, he will have to do so within nine months of: - Answer-Steve's death. Susan's first husband Scott died in 2011, leaving all of his assets to Susan. She marries David in 2012, and divorced him in early 2014. David died in December 2014. Which of the following describes the estatetax result? - Answer-Susan's DSUE, if any, will be based on Scott's estate tax exemption at the time of his death. T/F: The beneficial interest held by a surviving spouse beneficiary of a QTIP trust can best be characterized as a NON mandatory income interest? - Answer-False - It is MANDATORY