SIE - Unit 22 Nonqualified Accounts
If three individuals have a tenants in common (TIC) account with your firm and one individual dies, then A. the two survivors continue as cotenants, along with the decedent's estate. B. the account must be liquidated and the proceeds split evenly between the two survivors and the decedent's estate. C. trading is discontinued until the executor names a replacement for the deceased. D. the account is converted to joint tenants with rights of survivorship.
A. In a TIC, the estate replaces the decedent tenant. Eventually the decedent's portion of the account will be distributed to the estate's beneficiaries. LO 22.a
All of the following are true of a 529 college savings plan except A. distribution must be complete by the beneficiary's 30th birthday B. there are no taxes due for distributions used for qualified education expenses C. there is no income limit for the person making a contribution D. there is no annual contribution limit.
A. There is no beneficiary age limit for 529 plans, either for contributions or distributions. LO 22.f
A corporation opening a brokerage account must present all of the following documents except A. a new account form B. an authorization from the state department of corporations C. a copy of the corporate charter D. a resolution of the board of directors
B. A corporation does not (normally) need authorization from the state to open an account. LO 22.c
A trust formed during the grantors lifetime that may be modified only by the original grantor(s) is normally called A. an irrevocable living trust. B. a revocable living trust. C. an A-B trust. D. a life insurance trust.
B. If a grantor forms and funds a trust in his lifetime, it is a living trust. If anyone has the power to modify the trust, it is the revocable trust. An A-B trust is a type of revocable living trust used for estate planning purposes and not expected to appear on the test except, as you see here, a distraction. LO 22.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 three children. She also wants the ability to change the allocation in the event that conditions change and one 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. as a joint account with right of survivorship. B. as a joint account with tenants in common. C. as an individual transfer on death (TOD) account. D. under a discretionary power.
C. An individual account with a TOD designation would be best for this customer. A joint account would make the children owners of the account, and a discretionary power does not accomplish the owner's desire to transfer the account on her death. LO 22.b
Which of the following investments would not be allowed in a custodial account? A. covered call options B. small-company stocks from an emerging market C. Blue-chip stocks D. uncovered call options
D. Uncovered call options with their inherent (unlimited) risk are not appropriate for a custodial account. Covered calls are allowed, as are most common stocks. LO 22.e
