SIE Unit 22 Qbank
Which of these is not correct? A) A 529 plan's assets must be used by age 30, an ESA does not. B) There is no annual contribution limit for a 529 plan. C) There are no earnings limits for those contributing to a 529 plan. D) Both a 529 College Savings Plan and an ESA may be used to pay for pre-college education expenses.
A 529 plan's assets must be used by age 30, an ESA does not. An education savings account (ESA) must be used by age 30, a 529 plan has no such limit. As of January 1, 2018, both plans may be used for pre-college education costs.
Three brothers open a joint account instructing you that if they die, they want the cash and securities in the account to go to the remaining parties to the account. The account should be opened A) with rights of survivorship. B) as a custodial account. C) as a transfer on death (TOD) account. D) as a tenants in common (TIC) account.
A) with rights of survivorship.
Which of the following are characteristics of a revocable living trust? It is established before the grantor dies. The grantor can change beneficiaries. The grantor can add or remove items from the trust. The grantor is subject to tax on income that remains in the trust. A) I, II, and III B) I, II, III, and IV C) I only D) I and II
I, II, III, and IV In a revocable living trust the grantor has complete control over the trust while alive and because of this, the grantor is also subject to any tax implications of the trust.
In an irrevocable trust may or must do which of the following? May change the terms of the trust Must give up ownership of items placed in the trust May reduce estate taxes May retain ownership of items placed in the trust
II and III
The benefits of designating a brokerage account as transfer on death (TOD) are that the designation eliminates estate taxes. the designation avoids probate. the account holder no longer has to make investment decisions regarding the account. the account holder may still make beneficiary changes for the account. A) I and IV B) I and III C) II and III D) II and IV
II and IV The transfer on death (TOD) designation allows the account holder to name a specific beneficiary (or beneficiaries) to receive the account's assets upon death. Those named persons may be changed whenever the account holder wishes. Although this designation allows the account to bypasses probate, it does not avoid estate taxes. TOD has nothing to do with giving investment discretion.
John and Tara Bourne have two children—Henry and Avery—for whom they want to set up custodial accounts. Which of the registrations of the accounts are allowed? A) John and Tara Bourne, custodians for Avery Bourne B) John Bourne, custodian for Henry and Avery Bourne C) John Bourne, custodian for Henry Bourne D) John and Tara Bourne, custodians for Henry and Avery Bourne
John Bourne, custodian for Henry Bourne Only one adult and one minor are allowed on each account.
Which of the following is a benefit of 529 plans but not Coverdale Education Saving Accounts? A) Withdrawals are tax free if used for qualified education expenses B) No income restrictions on contributors C) Available for use for K-12 D) Can be transferred to a sibling if not used by the original beneficiary
B) No income restrictions on contributors
Craig and Judy have just married. It is a second marriage for both of them and they both have kids from a prior marriage. Craig would like his portion of their account to go to his kids when he dies and Judy would like her portion to go to her kids when she dies. As new partners in marriage, while they are both alive they would both like to have full access to the account. What type of account(s) should they set up? A) Joint tenants in common (JTIC) B) Each should set up their own individual transfer on death (TOD) account with limited power of attorney (POA) C) Joint tenants with rights of survivorship (JTWROS) D) A partnership account
Joint tenants in common (JTIC) The JTIC account does exactly what the clients requested. The JTWOS does not separate their assets at death; instead the whole account would go to the surviving spouse. Individual accounts with limited POA and TOD would not give both full access to the account. The partnership account is for business accounts.
Alan and Barbara Collins have three minor children; Dan, Ellen, and Frank. Which of the following UTMA accounts could be opened? A) Alan Collins as custodian for Dan and Frank Collins B) Frank Collins as custodian for Dan Collins C) Alan and Barbara Collins as custodians for Ellen Collins D) Barbara Collins as custodian for Ellen Collins
Barbara Collins as custodian for Ellen Collins In an UTMA account, one adult is custodian for one minor. There is no such thing as joint custodians or joint beneficiaries.
Your customer, Jim, wants to deposit money into a 529 College Savings plan for his great-niece Penelope. He states four reasons why he likes the 529 plan. Unfortunately, you need to tell him he is incorrect on one point. Which of his following points is not considered a feature of a 529 College Savings Plan? A) The growth can be tax free if used for qualified education expenses. B) She has to use the money by the time she turns 30, so she will not be able to put it off too long. C) The money grows tax deferred. D) If she gets into a good prep school the money can be used for that as well as college.
She has to use the money by the time she turns 30, so she will not be able to put it off too long. 529 plans grow tax deferred and the funds may be withdrawn tax-free if used for qualified education expenses. These plans may be used to fund secondary education (pre-college). There is no age limit to when the funds must be used.
One difference between an UTMA account and an UGMA account is A) an UGMA account is tax deferred and a UTMA account is not. B) an UTMA account transfers at the age of majority, an UGMA account can go until the beneficiary turns 30 year of age. C) UTMA assets are considered an irrevocable gift, an UGMA account allows the custodian to reclaim the assets. D) an UTMA account has a wider set of allowed investments.
an UTMA account has a wider set of allowed investments. UTMA accounts allow real estate holdings, an UGMA account does not. Neither accounts are tax deferred and both accounts are irrevocable. The UGMA transfers at the age of majority, the UTMA may transfer as late as age 25.
Sam Malloy owns a small business and has built a substantial estate both with his business success and his early career as a pro athlete. He wants to set up his estate in a way that he will control the assets until he passes away or becomes incapacitated. Once that time comes, he wants control to transfer easily and he wants to avoid probate. Sam should A) establish a revocable living trust. B) place his assets in a transfer on death account. C) establish an irrevocable living trust. D) create a last will and testament.
establish a revocable living trust. A revocable living trust will accomplish his goals for his estate. An irrevocable trust takes away his control of his assets. The business cannot be placed in a transfer on death account. A will must go through probate.
All of the following accounts would allow all parties with access to the account to make withdrawals except A) JTWROS. B) individual with limited POA. C) TIC. D) individual with full POA.
individual with limited POA.
The income level of a donor A) may affect contributions into a Coverdell ES. B) will affect contributions into a Section 529 plan. C) may affect contributions into both Coverdell ESA's and Section 529 plans. D) will not affect contributions into a Coverdell Education Savings Account (ESA) or a section 529 plan.
may affect contributions into a Coverdell ES. Contributions into a Coverdell Education Savings Account (ESA) are phased out at high income levels for a donor, whereas the income level of a donor has no impact on contributions made into a Section 529 plan.
grantor
person who dies
Marsha, Jane, Cynthia, Craig, Jim, and Robert are owners of an account JTWROS. If Craig, Jim, and Robert pass away then their interest in the account A) is identified and distributed with the decedent's estate. B) is distributed through the probate process. C) is divided in half and one half of the account is distributed evenly to the decedent's beneficiaries. D) remains in the account and is now the property of the surviving tenants.
remains in the account and is now the property of the surviving tenants. In a joint tenants with rights of survivorship (JTWROS), the assets of the decedent simply remain in the account and are property of the survivors. There is no probate process for these assets, but they are still a part of the decedent's estate for tax purposes.
All of the following are true of a revocable living trust except A) the primary purpose of the trust is to avoid estate taxes for the grantor. B) the grantor can add items to the trust. C) the grantor can remove items from the trust. D) the grantor is subject to the tax consequences of the trust while alive.
the primary purpose of the trust is to avoid estate taxes for the grantor.
The primary use for a revocable living trust is to A) use as a substitute for a will. B) limit the grantor access to items in the estate. C) avoid tax consequences for the grantor. D) prevent the grantor from liquidating his estate prior to death.
use as a substitute for a will. While the grantor is alive he has full control of the trust. It is mainly used in place of a will.
Three brothers open a joint account instructing you that if they die, they want the cash and securities in the account to go to the remaining parties to the account. The account should be opened A) with rights of survivorship. B) as a transfer on death (TOD) account. C) as a tenants in common (TIC) account. D) as a custodial account.
with rights of survivorship. Under joint tenants with right of survivorship (JTWROS), each brother's interest in the account would go to the surviving brother. Although JTWROS accounts may be opened with a TOD designation, that is not the best answer to this question - that is a feature that would be added to the account. From time to time, you will see questions on the exam where it will be a challenge to choose between two good-looking answers. The key is to pick the one that is the most appropriate to the specific question.
