series 65 unit 18
The distributable net income (DNI) of a simple trust would not include A) realized capital gains. B) dividends received. C) interest received on corporate bonds. D) interest received on municipal bonds.
A
Agatha has an account with her aunt, Sally, which is registered as TIC. If Sally predeceases Agatha, the assets in the account go to A) Agatha B) Sally's estate C) Sally's spouse D) the person designated under the laws of escheat in her state
B
During a trip to visit grandchildren, one of your clients suffers a massive heart attack and dies, intestate. Directions for handling the account could only come from A) the person with a durable power of attorney B) the person appointed as administrator of the estate C) the spouse D) the person named as executor of the estate
B
An advantage of structuring a business operation as an S corporation rather than a C corporation would be A) simplicity when raising capital through a public offering B) avoiding double taxation C) limited liability D) the C corporation is limited to a maximum of 100 shareholders while no such limit exists for the S corporation
B Because an S corporation is taxed like a partnership, all earnings (or losses) flow directly through to the shareholders. This avoids the double taxation inherent in receiving a share of the profits (through dividends) from a C corporation. It is the S corporation that is limited to 100 shareholders. That is why it is not suitable for raising capital through a public offering. The shareholders of both S and C corporations enjoy the benefit of limited liability.
When does a customer have to receive the OCC Options Disclosure Document? A) Within 15 days of account approval by the firm's designated options supervisor B) With the confirmation of the first options transaction C) Before accepting the customer's first order to trade options covered by the ODD D) Within 5 business days of the first options trade
C
A feature of which of the following business entities is limited liability for owners, as well as flow-through of income? A) General partnership B) Sole proprietorship C) C corporation D) Limited partnership
D
An estate account is opened with Family Asset Protectors (FAP) a registered investment adviser. Management decisions regarding the account must be made at the direction of the A) attorney with guardianship over the surviving children B) estate creditors C) investment adviser D) estate's executor or administrator
D
One respect in which an LLC differs from an S corporation is that A) there is more favorable tax treatment afforded to members of an LLC B) not only income, but losses, if generated, pass through to investors in an LLC C) an LLC can be formed with as little as a single investor D) there is no statutory limit on the number of investors in an LLC
D
To comply with the regulations regarding customer identification programs, the minimum identifying information that must be obtained from each customer before opening an account includes name verbal assurance that the customer is of legal age a street address, unless the primary mailing address is a PO Box located in the state of residence a taxpayer identification number A) III and IV B) I and II C) II and III D) I and IV
D
An individual opens an account with your firm. She tells you that upon her death, she wants any assets in the account to be divided equally among her 3 children. She also wants the ability to change the allocation in the event that conditions change and 1 of the children is in greater need than the others, but she does not want to incur any significant legal expense. You would suggest that the account be opened A) under a discretionary power B) as a joint account with right of survivorship C) as a joint account with tenants in common D) as an individual TOD account
D TOD, the term used for transfer on death, will allow this client to fulfill her wishes
A married couple wishes to open up an account at your firm. Which choice of registration should would you recommend if they insist that no trading be done without the consent of both of them? A) Tenants in the entirety B) Joint tenancy C) Tenants with right of survivorship D) Tenants in common
c
A living will is used to A) eliminate, or at least reduce, estate taxes. B) avoid the cost and time of probate. C) ensure that the author's assets are properly distributed after death. D) express the author's end-of-life wishes.
D
One of the situations that investment adviser representatives may encounter is the death of a client. When that happens, orders may be accepted from A) the trustee in intestacy. B) the deceased client's children. C) the deceased client's spouse. D) an individual with a durable power of attorney.
A
When opening an account for a trust, which of the following sets of terms are synonymous? A) Settlor—grantor B) Beneficiary—trustee C) Trustee—settlor D) Grantor—trustee
A The settlor, sometimes referred to as the grantor, is the person who establishes the trust. The trustee administers the trust and could be the grantor but does not have to be.
A feature of which of the following business entities is limited liability but no flow-through of earnings or losses? A) Corporation B) LLC C) Sole proprietorship D) Limited partnership
A The corporation (always assume C corporation unless it says different on the test) offers limited liability to its shareholders, but there is no flow-through of income or loss. LLCs and limited partnerships offer both and the sole proprietorship has unlimited liability.
Which of the following accounts could be opened with a TOD designation? Individual Joint tenants in common Joint tenants with rights of survivorship UTMA A) I and II B) I and III C) I, III and IV D) II and IV
B The only types of accounts that may have the Transfer on Death (TOD) designation are individual and JTWROS. Minors cannot designate a beneficiary. Upon the death of a minor, any assets belong in the deceased's estate.
One of your clients is in the process of forming a new business venture with a friend and is considering whether to operate as a general partnership or a C corporation. Among the advantages of operating as a general partnership are ease of dissolution ease of raising additional capital flow-through of income or loss limited liability A) II and IV B) I and II C) I and III D) III and IV
C
Which of the following accounts can only be opened by spouses? A) Tenants in common B) Tenants with right of survivorship C) TOD accounts D) Tenants in the entirety
D
Ms. Abbot has a joint account with her sister. She enters a sell order in the account and instructs that the proceeds check be made out to her only. If your firm sends the check but makes it payable to both Ms. Abbot and her sister, this is an example of A) not following instructions, a prohibited practice under the Uniform Securities Act B) the proper joint account procedure C) an unfortunate error that can be reconciled with the broker-dealer through a process called reclamation D) an unlawful practice because the transaction was unauthorized
B
Keisha has 3 married children, each with children of their own. She wishes to leave equal shares of her estate to each of her children. What happens if 1 of those children dies before Keisha? A) The estate is divided equally among the 2 surviving children B) The estate is divided on a per capita basis C) The share belonging to the deceased child is distributed per stirpes D) The estate is divided equally between the 2 surviving children and the children of the deceased child
C
One of the portions of the USA PATRIOT Act of 2001that affects the opening of an account for a new customer is A) the Transportation Security Administration (TSA) B) the requirement to obtain suitability information C) the customer identification program D) the "know-your-customer rule"
C
As a registered investment adviser, you have managed $10 million of a customer's funds for several years. The customer asks you to prepare a trust for his children, to transfer $3 million of his funds into the trust, and to trade the trust with the same objectives as the existing account. You should A) explain to the customer that trusts cannot be traded B) prepare the trust, transfer funds, and begin investing C) tell the customer to contact a tax specialist D) refer the customer to an attorney that can set up the trust
D
When comparing a private equity fund to a public one, it would be incorrect to state that the private fund has A) lower reporting costs. B) less liquidity. C) lower risk. D) stronger governance.
D
A grantor retained annuity trust (GRAT) wouldnotbe used to reduce estate taxes. gift taxes. income taxes. A) III only B) I and II only C) I only D) II and III only
A
An investment adviser registered in 4 states would be permitted to enter into an advisory contract with all of the following prospective clients except A) a registered investment company. B) a university endowment fund. C) a charitable foundation. D) a single parent.
A This is a bit sneaky. In order for an investment adviser to enter into an advisory contract with an investment company, the adviser must be SEC registered (federal covered). Federal covered investment advisers are never registered in any states.
The president of a business entity opens an account in the name of the business. When determining the suitability of recommendations to the account, knowing the president's personal financial condition is necessary for each of the following forms of business structure EXCEPT A) a sole proprietorship B) a C corporation C) an LLC D) an S corporation
B Only in the case of the C corporation are the income and losses of the investment account taxed at the corporate level rather than passed through to the owners.
Tax considerations are frequently an important factor when determining appropriate recommendations for advisory clients. In which of the following accounts is the tax status of the individual a critical factor? An account opened in the name of the XYZ Corporation, organized as a C corporation, by their chief investment officer An account opened by a sole proprietor in the name of the company An account opened in the name of ABC Corporation, an S corporation by one of its shareholders An account opened in the name of the GHI Fund, a regulated investment company, by the fund's portfolio manager A) III and IV B) II and III C) I and II D) I and IV
B Sole proprietorships and S corporations have their income and losses pass through to the owners. Therefore, an account opened in the name of the business will create tax consequences for the owners. Regular, or C corporations, pay taxes on their earnings and, even though a regulated investment company passes through at least 90% of its earnings to shareholders, the tax situation of each individual shareholder of the fund is of no consideration when making recommendations to the fund's portfolio manager.
An investment adviser registered with the SEC could have all of the following as advisory clients EXCEPT A) Mildred, an accredited investor B) the XYZ Growth Fund C) the ABC Unit Investment Trust D) the DEF Life Insurance Company
C Be careful—UITs do not have investment advisers. Any of the others could have advisory accounts.
All of the following actions must be completed prior to customers entering their first option trade EXCEPT A) delivery of the options disclosure document (ODD) B) completion of the new account form C) approval by a designated options supervisor D) receipt of a completed options agreement
D
Gloria wishes to set up a trust where income must be annually distributed to her daughter. She wants her daughter to pay any income taxes because she is in a lower tax bracket than Gloria is. What should Gloria do? A) Use a simple trust with her daughter as revocable beneficiary B) Use a complex trust with her daughter as revocable beneficiary C) Use a complex trust with her daughter as irrevocable beneficiary D) Use a simple trust with her daughter as irrevocable beneficiary
D
Which of the following statements about S corporations is NOT correct? A) Stockholders of S corporations are taxed on the net profits of the corporation, even if they do not receive taxable dividends. B) S corporation status offers greater opportunity for raising additional capital than do other forms of business structure. C) An S corporation may have only 1 class of stock. D) An S corporation may have no more than 100 shareholders.
B S corporations are flow-through vehicles, so any earnings are taxable to shareholders, whether or not they are paid out as dividends. An S corporation may have no more than 100 shareholders and may issue only 1 class of stock so its ability to raise large amounts of capital is rather limited.
Increasingly, many institutional investors, especially those in the philanthropic arena, are using ESG factors when considering where to invest their funds. Those factors are most accurately described as A) earnings, systematic, and governmental. B) exchange, sensitivity, and growth. C) exchange, sales, and general. D) environmental, social, and governance.
D
Which of the following is NOT a characteristic of a corporation? A) Ownership interests are evidenced by shares of stock. B) It is considered an entity apart from its owners. C) Owners have no personal liability for corporate debts. D) Existence terminates when an owner dies.
D
An investment constraint that is unique to private foundations is the requirement to A) distribute 5% of its assets each year as qualifying distributions. B) invest 5% of its assets each year in qualifying investments. C) have an investment policy statement. D) have a board of directors.
A
If a businessowner's goal is to establish an entity that features ease in raising capital, which of these entities is the most appropriate? A) A limited liability company (LLC) B) A sole proprietorship C) An S form of corporation D) A general partnership
A
