Series 65 Chapter 10 practice exam provided through STC
What's the purpose of IRMAA?
To increase Medicare premiums for high income individuals
What's the purpose of the AML rules that financial professionals must follow?
To prevent money laundering
All of the following accounts allow for non-deductible contributions, EXCEPT:
Traditional IRAs
Which of the following investments would NOT be appropriate for an estate account?
Treasury bonds
Because the SECURE Act expanded the uses of withdrawals from a 529 plan, all of the following expenses are now eligible, EXCEPT:
Up to $5,000 for expenses related to the birth or adoption of a child
A group of investors is starting a business to explore and drill for oil. All want to be actively involved in the business, but none wants to be personally liable for the venture's debts. Which of the following business structures would meet their objectives? - limited partnership -A general partnership -A limited liability company -An S Corporation
#3 and 4
A client and his wife purchased their home for $300,000. They have occupied their home for the last 26 years and have made $80,000 of improvements over the years. The home was recently put on the market for $800,000, but eventually sold for $770,000. Upon sale, the taxable capital gains would be how much?
$0
An investor purchased 100 shares of ABC stock at $40. After three years, the price of ABC has risen to $50. The investor waits another year and sells the shares when the price has fallen to $46. If the long-term capital gains rate is 20%, what's the investor's tax obligation?
$1.20 per share (46-40)*20%
Ten years ago a client transferred her 401(k), worth $80,000, into an IRA. Her account has grown to $120,000 and she takes a distribution of $10,000 at age 52. The tax consequences of her actions would be:
$10,000 of taxable ordinary income plus a $1,000 penalty
What's the unified tax credit for estate and gift taxes? The annual exclusion to the gift tax is $17,000 per year, per person (or $34,000 for married couples)
$12.92 million
Two individuals are a part of the same household and both work full time. Their household income is $60,000 and neither individual participates in their employer sponsored retirement plans. How much can they jointly put into individual retirement accounts (IRAterm-32s)?
$13,000
Several years ago, a person received a gift of 300 shares of stock that were originally purchased for $10 per share. After the gift, the person then inherited 700 shares of the stock when the price was $20 per share. This year, the person sold all of the shares for $40 per share. What are the tax consequences?
$23,000 long-term capital gain
Which gift is exempt from the annual exclusion for the gift tax?
$25,000 payment for college tuition
What are the different clients an IA may have?
-Individual -Sole proprietorship -S corporation -C corporation -Partnership -General Partnership -Limited Liability Company(LLC)
A customer of a broker-dealer has purchased stock in a margin account. The customer's exposure in the account is 50%. If the stock falls by 10%, what's the customer's percentage of loss in the account?
20%
When trading on margin, clients are required to deposit:
50% of the market value of the security
Withdrawals from an IRA prior to age_____ will result in a _____ penalty and be added to income for tax purposes.
59 1/2 ; 10%
Which of the following is TRUE of a Qualified Domestic Relations Order (QDRO)?
A QDRO is a court order that provides an alternative payee the right to receive all or a portion of the benefits that are payable to a participant under a qualified retirement plan
A sole proprietor desires to set up their business as a separate entity, but retain the same flow-through tax treatment with full ownership. Which of the following business entities would be BEST?
A Subchapter S Corporation
A court has appointed a person to be the guardian for an incompetent individual. To open a guardianship account with a broker-dealer, which of the following court-issued documents is required?
A certificate of incumbency
What's a domestic settlement agreement?
A legal contract between two parties which outlines the obligations to one another after the dissolution of a legal arrangement.
Which of the following is the BEST definition of a will?
A legal contract which coordinates the distribution of assets and other legal matters after an individual dies.
An investor is interested in finding a pass-through investment in which the investors are able to take an active role in the company as members and the company is able to raise an unlimited amount of capital. What investment would meet these requirements?
A limited liability company
A person is interested in investing in the oil and gas sector because she anticipates an increase in demand as the economy moves out of a recession. The person's IAR advises her on various vehicles to gain exposure to this sector, such as oil and gas mutual funds, oil and gas futures, options on the Oil and Gas Index, and oil and gas limited partnerships. When comparing these choices, what is one disadvantage of a limited partnership investment?
A limited partnership's interest is less liquid.
Which of the following choices would be considered a prohibited transaction under ERISA?
A loan to the plan's trustee from the plan
The following persons would be allowed to trade the account of an incapacitated individual, EXCEPT:
A relative named in a living will
What are the advantages of a limited liability company (LLC) compared to an S Corporation?
A simpler managerial structure
All of the following individuals do not have unlimited liability, EXCEPT:
A sole proprietor
The owner of a sole proprietorship is responsible for which of the following activities?
Accurately maintaining all of the necessary business records
A family trust in State A was established 35 years ago. There are now 15 beneficiaries. According to the Uniform Prudent Investor Act, the interests of which beneficiary(ies) are paramount in determining the trust's investment strategy?
All beneficiaries regardless of generation
One disadvantage of investing in a general partnership versus a limited partnership is that:
All general partners have unlimited liability
Which of the following is NOT a required element of a trust?
An attorney
A limited partnership sells an asset for a capital gain in the current year; however, the gain is distributed to the partners in the following year. What is the tax consequence of the gain?
As a capital gain in the year it is realized by the partnership
Which of the following statements BEST describes the similarities between an S Corporation and a general partnership?
Both provide flow-through of losses
A client has a traditional IRA and recently reached the age of 75. To avoid a penalty, when must she take her subsequent required minimum distribution (RMD)?
By December 31 of the current year
How is a person's marginal tax bracket determined?
By reviewing the IRS schedule
All of the following entities provide for the direct flow-through of income to its owners, EXCEPT:
C Corporations
All of the following are pass-through entities, EXCEPT:
C-Corp
Under ERISA, all the following are prohibited between the plan and parties of interest, EXCEPT:
Charging the plan an advisory fee
An IAR's client has inherited $10 million and wants to give it to a charity. The client wants to retain complete control of the money and be able to make all decisions regarding how the money is spent. What should the client establish?
Charitable trust
All of the following statements are TRUE of a 529 plan, EXCEPT:
Contribution amounts are unlimited.
Which of the following features is a characteristic of a Roth IRA?
Contributions are made with after-tax dollars
In order for an individual to be eligible for a Health Savings Account (HSA) the individual must be:
Covered under a high deductible health plan (HDHP)
Which feature of a deferred compensation plan is generally considered to be a disadvantage?
Deferred compensation is not deductible to the employer.
An investment adviser representative is preparing a financial plan for a client. As part of this process, he's helping her create a personal balance sheet and income statement. The income statement should include all of the following items, EXCEPT:
Depreciation on the primary residence
A client contacts an investment adviser representative to discuss the advantages of incorporating. What are the disadvantages of forming a C Corporation?
Double taxation
Which of the following is a benefit of forming a limited partnership?
Ease of establishment
Which of the following is a characteristic of a Money Purchase Plan?
Employers must make mandatory contributions
All of the following methods of ownership will avoid probate, EXCEPT:
Estate
Which of the following is a benefit of owning a master limited partnership (MLP)?
Exchange-listing
An income statement of an individual would contain:
Expenses
An adviser is considering a recommendation that a customer sell uncovered options. The recommendation would NOT be suitable if the adviser:
Failed to satisfy himself that the customer was aware of the risks involved and had the financial capacity to assume such risks
Which of the following statements is TRUE regarding the characteristics of ESG investing?
Fiduciaries must utilize both financial and non-financial factors before investing.
In order to form a limited partnership, two or more people must:
File a certificate with the appropriate state or local official
A client of an IA owns his own home and the title is in his name. If he wants to avoid probate when the property is transferred upon his death, the adviser may recommend which of the following?
File a transfer on death (TOD) deed which identifies a specific beneficiary
As an investment adviser representative, when does the use of donor advised funds (DAF) make the most sense?
For estate planning
According to Reg. T, if a client fails to pay for securities by the fifth business day following the trade date, the client's account will be:
Frozen for 90 days
What's a benefit of establishing a general partnership compared to establishing an S-corporation?
General partnerships don't require incorporation with the state
The potential loss for a limited partner in a real estate limited partnership is limited to:
Her initial investment plus any unpaid amounts to which she had committed to pay
Regarding the taxation of an estate, which of the following statements is TRUE?
In a revocable trust, assets are included in the estate for federal estate tax purposes.
A grandfather has set up a revokable living trust and named his grandchildren as the beneficiaries. What's the tax implication for any income produced by the trust?
Income is taxable at the grantor's tax rate
Which of the following is NOT included in a customer's adjusted gross income (AGI)?
Interest received from municipal bonds
A complex trust:
Is permitted to retain some of its annual investment income
Which of the following statements is TRUE regarding a client's occupation as it relates to her financial status and the suitability of recommendations?
It can influence the liquidity needs of the client's portfolio.
What's the benefit to creating a will?
It reduces estate taxes and speeds up the probate process
Two lifelong friends intend to open a joint trading account, with each contributing $30,000 to the account. Upon the death of either owner, each wants her share of the account to revert to her individual estate. The type of account the friends should open is:
Joint tenants-in-common
A client of a registered representative owns a small business. The business produces strong cash flow during the holiday season, but negative cash flow for the rest of the year. This may indicate a need for which of the following choices?
Liquidity
According to NASAA's Statement of Policy Regarding Dishonest and Unethical Business Practices, which of the following statements regarding customer accounts is TRUE?
Margin agreements must be signed promptly following the first transaction.
The last dollar that a client earns would be taxed at their:
Marginal tax rate
The major advantage of an S Corporation versus a C Corporation is that an S Corporation:
May elect to be treated like partnerships for federal tax purposes
An elderly widow opens an account with an advisory firm. She tells her IAR that she has income of $20,000 a year and a total net worth (including her house) of $300,000. She has little previous investment experience. Her main objectives are income and preservation of capital. She also tells her IAR that she may need to access her funds on short notice for emergency medical expenses. Based on these circumstances, which of the following choices would be the MOST suitable investment for her account?
Money-market instruments and high-quality bonds
If an investment adviser representative is reviewing a client's IRA portfolio, she would be most concerned with the inclusion of which of the following investments?
Municipal bonds
What's a benefit to establishing a business entity as an LLC rather than as a sole proprietorship?
Owners can protect their personal assets
For estate purposes, which of the following ensures that no grandchild will receive a different amount of the estate than another grandchild?
Per capita
Tenants in common:
Provide each owner with an undivided interest in the property
Which of the following is the BEST explanation of the difference between progressive and regressive taxes?
Regressive taxes will result in lower income individuals paying proportionately more in taxes than higher income individuals.
In a qualified retirement account, which of the following is NOT an acceptable qualified default investment alternative (QDIA)?
Securities of the employer
As a group, limited partners may NOT:
Sell assets to pay creditors
The primary advantage of establishing a trust is:
Separate tax status of the trust, which is distinct from the party that establishes the trust
Gifts that exceed the annual gift tax exclusion are:
Taxable if the excess gift takes the donor over the lifetime gift tax exclusion
Under what form of ownership may a husband and wife ensure that their property is not able to be attached by the creditors of either spouse?
Tenancy by the entirety
As it relates to gift and estate taxes, what's portability?
The ability for a surviving spouse to use the deceased spouse's unused lifetime gift tax exclusion
When analyzing a client's personal balance sheet, which of the following items is classified as an asset?
The amount of cash the client has in a checking account.
A mother creates a trust and deposits funds that will be used to pay for her children's college educations. The IAR managing the assets will NOT take into consideration:
The amount of money that the grantor makes.
If an agent of a broker-dealer is granted a durable power of attorney over a client's account, all of the following statements are TRUE, EXCEPT:
The client must be an institution
Approximately 15 years ago, a client signed an agreement that provided his wife with power of attorney over his account. The agreement also stated that, in the event his wife dies, his investment adviser will be named as power of attorney. Which of the following statements about this arrangement is TRUE?
The client's wife and IA are considered consecutive agents.
Which of the following statements about testamentary trusts is NOT TRUE?
The donor manages the assets in the trust.
Who provides the ultimate credit of deferred compensation plan?
The employer
Which of the following choices is NOT a provision under Section 404(c) of the Employee Retirement Income Security Act (ERISA)?
The employer's stock must be an investment option
An investor has granted power of attorney over his account to his daughter. Whose objectives and related investment experience should be considered when making a determination of suitability?
The father's
What is the liability for loss for an investor in a limited partnership?
The investor's basis
Which of the following is a characteristic of designating an asset as community property with rights of survivorship?
The owners must be married
In the past year, a client reported earnings of $3,000 in dividends, $6,000 in long-term capital gains, and salary of $190,000. The client also had a loss of $8,000 from a limited partnership investment. For tax purposes, how is the limited partnership loss treated?
The partnership loss is only deductible against passive income
When considering estate planning needs, what can be said regarding Section 529 plans?
The plan participant maintains control of how the funds are distributed
An annuitant has elected to annuitize using a 10-year period certain payout. His wife is the primary beneficiary and his brother is the contingent beneficiary. If the annuitant and his brother pass away three years after contract is annuitized, who will receive payments for the remaining seven years?
The primary beneficiary
All of the following are characteristics of a revocable trust, EXCEPT:
The trust does NOT avoid probate
Which of the following statements is TRUE concerning family limited partnerships?
They must have a legitimate business purpose in order to receive the full potential tax benefits
John and Chris are a married couple in their forties with two children. They have an annual income of $100,000. Their main assets are their house and John's 401(k) plan. They also have approximately $25,000 available for investment. Which of the following choices should the investment adviser representative recommend?
They should give the adviser a list of their investment objectives and goals
Which of the following is a benefit of a health savings account (HSA)?
Withdrawals for qualified medical expenses are tax-free
You have been approached by Steven to provide investment advice. Steven was recently named as executor of his uncle's estate and wants your assistance managing the investment portfolio pending disposition. Which of the following statements is TRUE?
You may accept the assignment
