CH 11: Questions

The party who manages the property of a trust is known as the: a. Trustee b. Trustor c. Administrator d. Beneficiary

a. Trustee Correct! The trustee manages the property of a trust on behalf of the trustor.

corporations

a corporation differs from a partnership in that a corporation is a legal entity separate from its stockholders, whereas a partnership has no legal standing apart from that of its partners.

To avoid paying corporate income tax, a REIT must maintain the following percentage of its assets in real estate: a. 75 percent b. 50 percent c. 95 percent d. 25 percent

a. 75 percent

A syndicate for real estate purposes would MOST LIKELY be a: a. Limited partnership b. Corporation c. General partnership d. Unincorporated association

a. Limited partnership Correct! The syndicate is a group joining together for a common purpose. A limited partnership is the most likely selection from the answer choices given in this question because the limited partnership provides liability protection for the investor and eliminates the double taxation of a corporation. In recent years real estate syndicates are primarily formed using the Limited Liability Company.

Which of the following WOULD apply to a Limited Liability Company? a. Members b. Unlimited duration c. Unlimited liability d. Stockholders

a. Members Correct! The owners of a limited liability company are known as MEMBERS.

A limited liability company provides a real estate investor all of the following, EXCEPT: a. Organization without filing with the Arizona Corporation Commission b. Limited personal liability exposure c. Partnership income tax benefits d. Full management participation and control

a. Organization without filing with the Arizona Corporation Commission Correct! A Limited Liability Company is formed by filing Articles of Organization with the Arizona Corporation Commission.

A limited partner may NOT: a. Participate in management b. Retain limited liability c. Demand an accounting d. Share in the profits

a. Participate in management Correct! When a limited partner participates in the management of the partnership the limited liability shield will be lost.

What form of financing is controlled by the Federal Securities Law: a. R.E.I.T. b. ARMLS c. GPM d. ARM

a. R.E.I.T. Correct! A Real Estate Investment Trust (REIT) is generally subject to federal security laws since there must be a minimum of 100 owners.

It always takes a minimum of 100 people to form a: a. Real Estate Investment Trust b. Real estate syndicate c. Limited partnership d. Corporation

a. Real Estate Investment Trust Correct! There must be 100 hundred owners in order to take advantage of the favorable tax provisions of a Real Estate Investment Trust (REIT).

A trust established in a will a taking effect upon the maker's death is a: a. Testamentary trust b. Blind trust c. Land trust d. Living trust

a. Testamentary trust Correct! A testamentary trust is set up in a will and takes effect upon the maker's death.

To avoid paying corporate income tax, a REIT must distribute the following percentage of its gains to investors each year: a. 50 percent b. 95 percent c. 25 percent d. 75 percent

b. 95 percent

A limited liability company provides a real estate investor all of the following, EXCEPT: a. Limited personal liability exposure b. Organization without filing with the Arizona Corporation Commission c. Partnership income tax benefits d. Full management participation and control

b. Organization without filing with the Arizona Corporation Commission Correct! A Limited Liability Company is formed by filing Articles of Organization with the Arizona Corporation Commission.

Which of the following creates the GREATEST liability for the investor? a. Corporation b. Subchapter S corporation c. General partnership d. Limited partnership

c. General partnership Correct! A general partnership involves an association of two or more persons who share in the management, operation of the business and in the profits and losses. Each partner has unlimited liability for all the debts and obligations of the partnership.

Which of the following types of ownership is LEAST likely to be subject to securities regulations? a. Limited partnership b. Joint venture c. Joint tenancy d. Subchapter S corporation

c. Joint tenancy Correct! As a general rule, securities regulations relate to the sale of securities, which are defined as investments in which the investor depends on others for the successful return on the investment. Ownership as joint tenants would not be transferring any management of the investment to others, as it would most likely be a general partnership.

An incorporated developer wants to raise capital for improvements without creating any liens or incurring new debt. The developer could: a. Become a Subchapter S corporation b. Sell bonds c. Sell stock d. Use a blanket encumbrance

c. Sell stock Correct! Selling stock in the corporation is bringing in additional owners of the entity and is known as equity capital. The increase in equity capital is not an increase in the debt of the entity but a change in the ownership equity.

to form an Arizona corporation the articles of incorporation are filed with the Arizona

corporation commission

an REIT must meet all of the following requirements except: -75% of its assets must be in real estate -there must be at least 100 owners -corporation income tax on its profits must be paid annually -95% of the income must be distributed annually

corporation income tax on its profits use be paid annually

The maximum number of shareholders allowed in a subchapter S corporation is: a. 50 b. 35 c. 75 d. 100

d. 100 to be able to elect under the subchapter s corporation

All of the following are reasons for selecting a real estate investment entity to be treated as a partnership for income tax purposes, EXCEPT: a. Taxable income and cash distributions to the individual partners are taxed only one time. b. The entity does not pay taxes on its taxable income. c. Entity losses are allocated to partners for inclusion on their individual tax returns d. A partnership entity does not file an income tax return.

d. A partnership entity does not file an income tax return. Correct! The partnership does file an income tax return, but any taxable income or loss is passed through to the individual partners. The partnership does not pay any income tax so there is not double taxation.

The passive investor in a real estate syndication WOULD MOST likely be a: a. Beneficiary b. General partner c. Trustee d. An LLC Member

d. An LLC Member Correct! A passive investor is one who does not materially participate in the management of the entity. A passive investor also desires to limit the risk of personal liability. An LLC Member is the only choice that limits the risk of personal liability.

A corporate officer's authority to make an offer can be checked in the: a. Corporation code b. Corporate charter c. State Department of Corporation regulations d. Corporate bylaws

d. Corporate bylaws Correct! The authority of a corporate office is generally set forth in the corporate by-laws. An escrow officer in closing a real estate transaction will generally request that the officer provide a certified resolution of the Board of Directors stating that the officer is authorized to execute any documents related to that transaction.

The owner of a commercial office building transfers his interest to a trustee who manages the office building for the benefit of the trustor. What type of trust has been formed? a. R.E.I.T. b. Testamentary Trust c. Reconveyance d. Intervivos Trust

d. Intervivos Trust Correct! An Intervivos Trust ( also known as a Living Trust) is created and takes effect during the trustor's lifetime. It relieves the trustor of the responsibility of handling the estate.

A limited partner is ALWAYS: a. An active partner b. Liable for debts in excess of his investment c. Limited as to profits received d. Limited as to liability

d. Limited as to liability Correct! A limited partner's risk is limited, but only if he or she does not participate (inactive) in the management of the partnership; meaning that his or her liability is limited to the limited partner's investment.

if the beneficiary does not extend the period of the land trust, the trustee must obtain a written agreement from the truster to sell the property

false

since a corporation reports its income and pays taxes, its distributions to shareholders are not taxed to the individual recipient.

false

the owners of a limited liability company are knowns as shareholders

false

a general partnership involves two or more personals who have limited liability for the partnership's debts.

false they have unlimited liability

to establish a trust you must have all of the following except: -regulator -trustor -trustee -beneficiary

regulator

a corporation is a legal entity that can buy and sell real and personal property

true

a limited partnership must have a general partnering a written limited partnership agreement.

true

a limited partnership must include his share of the interest and deductions from the partnership in his personal income tax return.

true

a subchapter s corporation can be an effective vehicle for ownership of investment property, because the corporation's income or loss flows through to the individual shareholders.

true

an advantage of a real estate investment trust is that a small investor can participate in large real estate projects free from management responsibility.

true

an intervivos trust takes effect during the truster's lifetime

true

limited liability companies combine the limited liability advantages of corporations with the tax advantages of general and limited partnerships.

true