Unit 14

A business organized as a sole proprietorship wishes to open an advisory account. when preparing an investment policy statement, the IA would have to consider the objectives of A. the sole proprietor B. the partners C. the stockholders D. the members

A. A sole proprietorship only has 1 owner. Therefore, the account would focus on the needs of the individual. Partnerships have partners; corporations have stockholders; LLCs have members.

For which fo the following types of clients would the suitability requirements be somewhat more relaxed? A. a high net worth individual B. a charity C. a foundation D. an executor

A. Of the choices listed, the one account ate would generally have the most relaxed suitability requirements would be the high net worth client. The regulators generally take the position that individuals like that need fewer investment protections. Even when the charity or foundation is very large, there usually is the requirement to meet high suitability standards.

Sam Jones has been a successful businessman and is concerned that his youngest daughter will not be able to live within her means. To protect his from happening, Mr. Jones places certain sum of money into a trust for the benefit of the daughter. Because Mr. Jones knows he won't live forever, he arranges for the Fidelity Bank and Trust Company to have control over the assets. In this case: I. Sam Jones is the generator II. Asm Jones is the Trustee III. Fidelity Bank and Trust Company is the trustee IV. Same Jones's daughter is the beneficiary A. I, III and IV B. I and III C. II and III D. II, III and IV

A. The person who funds the trust in the grantor or settlor. The bank has been about to be trustee, and the daughter is the beneficiary of the trust.

A client has an account where, upon her death she desires the her only son will receive 50% of account value and her 4 daughters will receiver 12.5% each. The easiest way to accomplish this would be to title the account A. TOD B. JTROS C. Tenants in common D. In trust for the children

A. Transfer on death requires no additional legal work and allows the account owner to designate beneficiaries in whatever percentages she wants. Furthermore, changes can be made at any time prior to death.

Three friends plan to start a new business. It is anticipated it will be several years before the business turns a profit. Which of the following types of business organization would be best if they wish to limit their liability while, at the same time, being able to receive favorable tax treatment for the expected losses? A. C corporation B. S corporation C. General partnership D. sole proprietorship

B. the only way to limit liability is through a corporation (or LLC or Limited partnership - neither of which is offered here as a choice). The S corporation allow for the flow-through of operating losses to the shareholders while the C corp does not.

A limited liability company is A. an insurance company B. traded on major exchanges C. a company with tax consequences similar to a partnership D. a limited partnership

C. A limited Liability company (LLC) is a form of business entity in which the shareholders (called members) are taxed individually at their respective tax rates as is the case in a partnership.

In a trust account, the person who makes the account management decisions is the: A. beneficiary B. Non-trustee custodian C. Investment adviser representative D. trustee

D. A trust is a legal entity that designates a person (the trustee) to among the trust's assets for the benefit of another person (the beneficiary or beneficial owner).

The most appropriate term to use when referring to a trust that is established upon the death of the grantor is A. revocable trust B. Irrevocable trust C. living trust D. testamentary trust

D. A trust that first goes into effect upon the death of the grantor (the individual who established the trust) is properly refereed to as a testamentary trust. Yes, it is an irrevocable trust beaus the deceased cannot make any changes, but irrevocable trusts can refer to trusts that don't involve the death of the grantor; testamentary trusts cannot. On the exam, you will sometimes have to choose from the best of two possible answers.

A professional tennis player comes to you seeking advice on setting up a trust. She is interested in giving to charity and also wants discretion as to when income is distributed to the beneficiaries, her parents. Which trust do you advise she use? A. Charitable lead trust B. Simple trust C. charitable remainder trust D. complex trust

D. Only complex trust allows the two features which she requires. Simple trusts may not make charitable contributions, and provide no discretion on income distribution. The two types of charitable trusts mentioned provide no ongoing discretion as to when income is distributed or who the beneficiaries are.

Several investors open an account in joint tenancy. Financial information is required on which of the following investors? A. The majority of the investors B. The largest investor only C. Only the one authorized to trade the account D. All of the investors

D. when a joint account is opened, finical information should be obtained on all of the account owners.