Unit 18 - Type of Client

Samantha Wells, a British citizen temporarily working in the United States, wants to form a business venture with other investors. She is looking for favorable tax treatment of earnings and losses. She also wants to limit the number of investors, but is willing to share control of the enterprise with others to attract them. What business form do you advise to her? A) General Partnership B) S Corporation C) C Corporation D) Limited Partnership

A) General Partnership Limited partnerships would not work because the other investors have limited say in how the enterprise is run. C corporations do not provide favorable tax treatment of gains or losses. While an S corporation appears to be the right answer, only U.S. citizens or resident aliens can own one.

If a customer who has granted a durable power of attorney to her son dies, which of the following statements regarding the power of attorney is TRUE? A) It is canceled on the death of either principal. B) It remains in effect only if the son is the sole heir to the estate. C) It remains in effect until the executor of the estate cancels it. D) It remains in effect until the son cancels it.

A) It is canceled on the death of either principal.

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 minor. B) a trust. C) an insurance company. D) a bank

A) a minor.

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) Before accepting the customer's first order to trade options covered by the ODD

A customer has just died. If his wife asks you what amount of federal estate tax will be imposed on the transfer of their personal property to her name, which of the following responses would be best? A) The amount of tax will depend on your late husband's tax bracket. B) The amount of tax will depend on the size of the estate to be transferred. C) Consult a qualified tax specialist. D) The amount may be prorated over the next 4 years.

C) Consult a qualified tax specialist. Specific tax advice should be referred to a qualified tax adviser such as an accountant or tax attorney. No federal estate tax is imposed as a result of the marital exclusion as long as the spouse is a U.S. citizen.

Alvin's spouse is a trustee of a trust established by Henrietta Flood, which directs income from the trust be paid to Alvin, for as long as he lives. Alvin's son, Floyd, will receive the principal upon Alvin's death. Floyd would like to receive some of the principal before Alvin's death, and Alvin does not object. How should his spouse, the trustee, act in this situation? A) Distribute part of the income to Floyd. B) Distribute all of the principal to Floyd. C) Follow the trust terms, continuing to distribute the income to Alvin and the principal to Floyd upon Alvin's death. D) Distribute part of the principal to Floyd

C) Follow the trust terms, continuing to distribute the income to Alvin and the principal to Floyd upon Alvin's death.

According to the USA PATRIOT Act of 2001, account identification and verification procedures should be applied to which of the following? I. New individual accounts II. New business accounts III. Existing individual accounts IV. Existing business accounts A) III and IV B) II and IV C) I and IV D) I and II

D) I and II

A broker-dealer would not be able to open an account for A) the estate of a deceased person. B) a city. C) a trust. D) a deceased person

D) a deceased person

A client of yours is getting older and is concerned about having her wishes met relating to medical issues when she is no longer capable of communicating them. The most appropriate vehicle for her would be A) a life support will B) a joint and survivors will C) an incapacitation will D) a living will

D) a living will

As with all investors, it is important that trusts have an investment policy statement (IPS). If the beneficiary of a trust requests that the trustee use trust assets to enter an order that is considered a prohibited transaction under the IPS, the trustee should A) follow the trust's IPS and refuse the order. B) contact the grantor of the trust. C) amend the IPS and process the order. D) follow the beneficiary's instructions.

A) follow the trust's IPS and refuse the order.

The federal legislation that requires broker-dealers to verify the identity of any person opening an account is A) the USA PATRIOT Act of 2001 B) the Insider Trading and Securities Fraud Enforcement Act of 1988 C) the Uniform Securities Act of 1956 D) the Securities Exchange Act of 1934

A) the USA PATRIOT Act of 2001

A major benefit of a revocable trust is A) the grantor retains control of the assets. B) the assets are not included in the grantor's estate. C) the grantor saves on income taxes. D) the settlor cannot also be the beneficiary.

A) the grantor retains control of the assets.

Which of the following would be used to provide end-of-life instructions once a person becomes incapacitated? A) An incapacitated will B) A living will C) A durable power of attorney D) A living trust

B) A living will

Which type of individual account allows for investments held in that account to go straight to a named beneficiary outside of probate? A) Account titled JTWROS B) TOD account C) Advisory account D) Testamentary account

B) TOD account

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 I. ease of dissolution II. ease of raising additional capital III. flow-through of income or loss IV. limited liability A) II and IV B) I and II C) I and III D) III and IV

C) I and III

Which of the following are fiduciaries? I. Executor of an estate II. Administrator of a trust III. Custodian of an UGMA account IV. Investment adviser representative granted with discretionary authority over the account A) I and II B) I, II and III C) I, II, III and IV D) II, III and IV

C) I, II, III and IV

Which of the following pieces of customer information must an agent attempt to obtain when opening a new account? I. Emergency contact person II. Financial condition III. Investment objective IV. Education A) II and IV B) I and IV C) II and III D) I and II

C) II and III

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) Limited partnership D) C corporation

C) Limited partnership

Two sisters might wish to open an account as tenants in common (TIC) rather than JTWROS in order to A) allow the spouse of each sister to have access to the account. B) provide for an undivided interest in the assets of the account. C) ensure that their respective shares go to their heirs instead of the surviving sister. D) limit the right of each party to withdraw assets from the account.

C) ensure that their respective shares go to their heirs instead of the surviving sister.

One of your clients dies. You could legally take instructions regarding the individual's estate from A) a CPA who prepared the deceased's tax return B) a person with durable power of attorney C) the spouse of the deceased D) the administrator in intestacy

D) the administrator in intestacy