Cannon CTFA Exam Prep with Complete
Solutions
0 owns a house that he rents to L. L pays yearly rent of $15,000. L also agreed to pay
O's mortgage on the house in the amount of $1,000 per month. L has built a swimming
pool on the property, which increased the value of the property by $8,000. What is O's
rental
income for the year?
A. $15,000
B. $19,000
C. $23,000
D. $27,000 - ANSWER-D. $27,000
L's payment of O's mortgage expense is considered additional income. O therefore has
total rental income of $27,000, which must be included in gross income. The
improvements made by L are not included in O's income unless L agreed to make the
improvements as part of the rental agreement.
A "zeroed-out" GRAT will not provide an estate planning benefit unless:
A. The grantor survives the term and the GRAT's rate of return on its assets exceeds
10%.
B. The grantor dies before the GRAT term ends.
C. The grantor survives the term and the GRAT's rate of return on its assets exceeds
the Section 7520 rate used to value the gift to the GRAT.
D. The grantor transfers at lease $650,000 to the GRAT. - ANSWER-C. The grantor
survives the term and the GRAT's rate of return on its assets exceeds the Section 7520
rate used to value the gift to the GRAT.
A clause which states "an amount equal to...should be placed in trust..." is an example
of which of the following?
A. pecuniary amount clause
B. fractional share clause
C. marital share
D. residuary share - ANSWER-A. pecuniary amount clause
A customer, who is terminally ill, wishes to make several gifts by check to friends before
she dies. Since these individuals are not beneficiaries under her will, she is anxious to
have the gifts completed before her death. Which of the following should represent your
advice to her?
A. If the checks are dated before she dies, they will constitute completed gifts
,B. If the gifts are not made before her death, they can be made by her executor based
on her verbally expressed intent
C. If the checks are delivered to the recipients before her death, they are considered to
be completed gifts
D. The checks must be deposited for cashing at the bank before her death in order to
qualify as completed gifts - ANSWER-D. The checks must be deposited for cashing at
the bank before her death in order to qualify as completed gifts
A decedent owns a $1,400,000 in her own name, a $150,000 vacation home jointly with
her spouse and a $100,000 life insurance policy with the children as beneficiaries.
Which of the following is the value of her gross estate?
A. $1,250,000
B. $1,400,000
C. $1,475,000
D. $1,575,000 - ANSWER-D. $1,575,000
A decedent passed away on September 18. Her income for the full year in which she
died was $85,000, of which $60,000 had been earned and received as of September
18. How much income should be reported on the decedent's estate's initial 1041 income
tax return?
A. $25,000
B. $60,000
C. $85,000
D. it depends on the fiscal year chosen for her estate - ANSWER-D. it depends on the
fiscal year chosen for her estate
A decedent passed away on September 18. Her income for the full year of her death
was $85,000, of which $60,000 had been earned and received as of September 18.
How much income should be reported on the decedent's estate's initial income tax
return?
A. $25,000
B. $60,000
C. $85,000
D. It depends on the fiscal year chosen for her estate - ANSWER-D. It depends on the
fiscal year chosen for her estate
A decedent's estate being settled by your bank contains an antique automobile. One of
the directors of your bank indicates that he would like to buy it. You should do which of
the following?
A. Sell it to him at a bargain price and befriend him.
B. Have a qualified appraisal done and offer it to him at that value.
C. Explain that he may not purchase the car from the estate.
, D. Arrange for a public auction at which he may buy it if he is the highest bidder. -
ANSWER-C. Explain that he may not purchase the car from the estate.
A donor establishes a charitable remainder unitrust that will pay him 6% annually. He
funds it with a highly appreciated, valuable stock holding, purchased by his grandfather.
His income tax charitable deduction is which of the following?
A. Donor's cost basis up to 100% of the donor's adjusted gross income.
B. Fair market value less the actuarial value of his retained life interest, up to 60% of the
donor's adjusted gross income.
C. Fair market value less the actuarial value of his retained life interest, up to 30% of the
donor's adjusted gross income.
D. Fair market value up to 30% of the donor's adjusted gross income. - ANSWER-C.
Fair market value less the actuarial value of his retained life interest, up to 30% of the
donor's adjusted gross income.
A fidelity bond covers which of the following types of losses?
A. fraud
B. market fluctuation
C. poor judgment - ANSWER-A. fraud
A fiduciary can elect a fiscal year, other than a calendar year, for income tax reporting
purposes for which of the following types of arrangements?
I. Estates
II. Charitable Remainder Trusts
III. Charitable Lead Trusts
IV. Fully Charitable Trusts
A. I only
B. I & IV only
C. II & III only
D. I, II & IV only - ANSWER-B. I & IV only
A flood occurs at a house you hold in an account. It will be very expensive to repair the
damage. Which of the following would be covered under a typical flood insurance
policy?
A. During a hurricane, a window is broken and water driven by rain floods the house.
B. After a large snowstorm, melting snow on the roof causes water to seep in through
the wall
C. Heavy rain causes creek to overflow its banks and destroys the porch
D. During a heavy downpour, water backs up from a drain into a basement and ruins
the carpet. - ANSWER-C. Heavy rain causes creek to overflow its banks and destroys
the porch
Solutions
0 owns a house that he rents to L. L pays yearly rent of $15,000. L also agreed to pay
O's mortgage on the house in the amount of $1,000 per month. L has built a swimming
pool on the property, which increased the value of the property by $8,000. What is O's
rental
income for the year?
A. $15,000
B. $19,000
C. $23,000
D. $27,000 - ANSWER-D. $27,000
L's payment of O's mortgage expense is considered additional income. O therefore has
total rental income of $27,000, which must be included in gross income. The
improvements made by L are not included in O's income unless L agreed to make the
improvements as part of the rental agreement.
A "zeroed-out" GRAT will not provide an estate planning benefit unless:
A. The grantor survives the term and the GRAT's rate of return on its assets exceeds
10%.
B. The grantor dies before the GRAT term ends.
C. The grantor survives the term and the GRAT's rate of return on its assets exceeds
the Section 7520 rate used to value the gift to the GRAT.
D. The grantor transfers at lease $650,000 to the GRAT. - ANSWER-C. The grantor
survives the term and the GRAT's rate of return on its assets exceeds the Section 7520
rate used to value the gift to the GRAT.
A clause which states "an amount equal to...should be placed in trust..." is an example
of which of the following?
A. pecuniary amount clause
B. fractional share clause
C. marital share
D. residuary share - ANSWER-A. pecuniary amount clause
A customer, who is terminally ill, wishes to make several gifts by check to friends before
she dies. Since these individuals are not beneficiaries under her will, she is anxious to
have the gifts completed before her death. Which of the following should represent your
advice to her?
A. If the checks are dated before she dies, they will constitute completed gifts
,B. If the gifts are not made before her death, they can be made by her executor based
on her verbally expressed intent
C. If the checks are delivered to the recipients before her death, they are considered to
be completed gifts
D. The checks must be deposited for cashing at the bank before her death in order to
qualify as completed gifts - ANSWER-D. The checks must be deposited for cashing at
the bank before her death in order to qualify as completed gifts
A decedent owns a $1,400,000 in her own name, a $150,000 vacation home jointly with
her spouse and a $100,000 life insurance policy with the children as beneficiaries.
Which of the following is the value of her gross estate?
A. $1,250,000
B. $1,400,000
C. $1,475,000
D. $1,575,000 - ANSWER-D. $1,575,000
A decedent passed away on September 18. Her income for the full year in which she
died was $85,000, of which $60,000 had been earned and received as of September
18. How much income should be reported on the decedent's estate's initial 1041 income
tax return?
A. $25,000
B. $60,000
C. $85,000
D. it depends on the fiscal year chosen for her estate - ANSWER-D. it depends on the
fiscal year chosen for her estate
A decedent passed away on September 18. Her income for the full year of her death
was $85,000, of which $60,000 had been earned and received as of September 18.
How much income should be reported on the decedent's estate's initial income tax
return?
A. $25,000
B. $60,000
C. $85,000
D. It depends on the fiscal year chosen for her estate - ANSWER-D. It depends on the
fiscal year chosen for her estate
A decedent's estate being settled by your bank contains an antique automobile. One of
the directors of your bank indicates that he would like to buy it. You should do which of
the following?
A. Sell it to him at a bargain price and befriend him.
B. Have a qualified appraisal done and offer it to him at that value.
C. Explain that he may not purchase the car from the estate.
, D. Arrange for a public auction at which he may buy it if he is the highest bidder. -
ANSWER-C. Explain that he may not purchase the car from the estate.
A donor establishes a charitable remainder unitrust that will pay him 6% annually. He
funds it with a highly appreciated, valuable stock holding, purchased by his grandfather.
His income tax charitable deduction is which of the following?
A. Donor's cost basis up to 100% of the donor's adjusted gross income.
B. Fair market value less the actuarial value of his retained life interest, up to 60% of the
donor's adjusted gross income.
C. Fair market value less the actuarial value of his retained life interest, up to 30% of the
donor's adjusted gross income.
D. Fair market value up to 30% of the donor's adjusted gross income. - ANSWER-C.
Fair market value less the actuarial value of his retained life interest, up to 30% of the
donor's adjusted gross income.
A fidelity bond covers which of the following types of losses?
A. fraud
B. market fluctuation
C. poor judgment - ANSWER-A. fraud
A fiduciary can elect a fiscal year, other than a calendar year, for income tax reporting
purposes for which of the following types of arrangements?
I. Estates
II. Charitable Remainder Trusts
III. Charitable Lead Trusts
IV. Fully Charitable Trusts
A. I only
B. I & IV only
C. II & III only
D. I, II & IV only - ANSWER-B. I & IV only
A flood occurs at a house you hold in an account. It will be very expensive to repair the
damage. Which of the following would be covered under a typical flood insurance
policy?
A. During a hurricane, a window is broken and water driven by rain floods the house.
B. After a large snowstorm, melting snow on the roof causes water to seep in through
the wall
C. Heavy rain causes creek to overflow its banks and destroys the porch
D. During a heavy downpour, water backs up from a drain into a basement and ruins
the carpet. - ANSWER-C. Heavy rain causes creek to overflow its banks and destroys
the porch
