Series 65 Unit 16
William died in 2019 with the following assets and liabilities: $200,000 in securities left to his wife, $650,000 home left to his wife (the home cost $150,000), $250,000 life insurance policy with his daughter named as beneficiary, and $75,000 in debts and estate expenses. What is William's net estate?
$175,000 add up assets, minus amount to wife, minus debts and expenses
A highly compensated customer owns 200 shares of Datawaq. He bought it 20 years ago, and it is now trading at 90. If he donates the stock to a 501(c)(3) charity, how much can he claim as a tax deduction for this donation?
$18,000 Securities can be gifted to charity and deducted at their fair market value, as long as they have been held more than one year. The fair market value of the deduction allowed for 200 shares is 200 multiplied by the current market price of the stock, or $18,000.
If a businessowner's goal is to establish an entity that features ease in raising capital, which of these entities is the most appropriate?
A limited liability company (LLC)
If a trust has been established under which the father is to receive income for life and his son is to receive the trust principal on the father's death, which of the following statements is true? A) The trustee is not required to notify the son when an income distribution is made to the father. B) The trustee can withhold income distributions to the father to preserve principal to the son. C) The trustee does not need to keep records of the income distributions to the father. D) The trustee must notify the son each time an income distribution is made to the father.
A) The trustee is not required to notify the son when an income distribution is made to the father.
An investment adviser could enter into an advisory contract with any of the following except A) a person declared mentally incompetent. B) a political subdivision. C) the custodian for a minor. D) an LLC.
A) a person declared mentally incompetent.
All of the following actions must be completed prior to customers entering their first option trade except A) receipt of a completed options agreement B) approval by a designated options supervisor C) delivery of the options disclosure document (ODD) D) completion of the new account form
A) receipt of a completed options agreement
When does a customer have to receive the OCC Options Disclosure Document?
At or prior to the time the account is approved for options trading
Which of the following would generally not result in any income tax liability? A) Profits generated by an S corporation B) Death benefit proceeds from a life insurance policy C) Qualified dividends from common stock D) Profits generated by a sole proprietorship
B) Death benefit proceeds from a life insurance policy
A Schedule K-1 would not be used for tax reporting to the owners by which of the following business entities? A) S corporation B) Sole proprietorship C) LLC D) Limited partnership
B) Sole proprietorship
The president of a business entity opens an account in the name of the business. When determining the suitability of recommendations to the account, knowing the president's personal financial condition is necessary for each of the following forms of business structure except A) an LLC. B) a C corporation. C) an S corporation. D) a sole proprietorship.
B) a C corporation.
When comparing a private equity fund to a public one, it would be incorrect to state that the private fund has A) higher risk. B) stronger governance. C) lower reporting costs. D) less liquidity.
B) stronger governance.
Which of the following business accounts does not require considering the suitability of the owners? A) General partnership B) Sole proprietorship C) C corporation D) S corporation
C) C corporation
Your client recently sold his business for $5 million. He is 55 and feels that he is too young to retire. He plans to start a new business venture and will be funding the $250,000 start-up costs with his own funds. With substantial personal assets, he could limit his personal exposure by using any of the following business structures except A) a limited liability company. B) an S corporation. C) a sole proprietorship. D) a C corporation.
C) a sole proprietorship.
Which of the following statements about S corporations is not correct? A) Stockholders of S corporations are taxed on the net profits of the corporation even if they do not receive taxable dividends. B) An S corporation may have no more than 100 shareholders. C) An S corporation may have only one class of stock. D) S corporation status offers greater opportunity for raising additional capital than do other forms of business structure.
D) S corporation status offers greater opportunity for raising additional capital than do other forms of business structure.
Under the provisions of the Internal Revenue Code, which of the following business forms is not required to file a separate tax return? A) LLC B) S corporation C) Limited partnership D) Sole proprietorship
D) Sole proprietorship
A registered broker-dealer would not be able to open an account for A) the CEO of a company whose stock is NYSE-traded. B) two unrelated individuals. C) the estate of a deceased individual. D) a person deemed mentally incompetent.
D) a person deemed mentally incompetent.
All the following information must be obtained from new individual customers except A) Social Security number B) physical address C) date of birth D) educational background
D) educational background
If a married couple establishes a JTWROS account with a balance of $25 million and the wife dies, what is the husband's estate tax liability?
He pays no estate tax.
One of your customers purchased a variable life insurance contract through your firm. After 14 years, he had deposited $15,000 in premiums, and his death benefit had grown to $80,000. Shortly after taking out a loan against cash value of $10,000, he was killed in an automobile accident. What will be the tax consequences of this situation to the death benefit?
His beneficiary need not pay taxes on the death benefit.
Which of the following is (are) advantages of irrevocable insurance trusts? I. Provide estate liquidity. II. Insurance proceeds are removed from the estate of the insured for tax purposes. III. The insured has the flexibility to alter the trust arrangements. IV. Once set up, no changes may be made.
I and II
Which of the following accounts could be opened with a TOD designation? I. Individual II. Joint tenants in common III. Joint tenants with rights of survivorship IV. UTMA
I and III
J.B. Rich founded Rich, Inc., and he owns a substantial block of stock with a very low cost basis. Which of the following statements are true regarding the disposition of J.B.'s stock? I. If it is given away, the recipient of the gift assumes J.B.'s cost basis. II. If it is given away, the recipient of the gift receives a stepped-up basis to the market value as of the date of the gift. III. If it is inherited, the beneficiary assumes J.B.'s cost basis. IV. If it is inherited, the beneficiary receives a stepped-up basis to the market value as of the date of J.B.'s death.
I and IV
Which of the following statements regarding an S corporation owner and an owner of an LLC are true? I. Creditors have very limited recourse rights to the owners. II. They may not be nonresident aliens. III. They both are considered stockholders. IV. Both receive the tax benefit of owning flow-through entities.
I and IV
Several entrepreneurs form an S corporation. Under which of the following circumstances will the entrepreneurs risk losing their tax benefits? I. 150 new investors buy into the corporation during the year. II. 1 new member is a nonresident alien. III. 50% of the corporation's income is derived from passive investments in limited partnerships. IV. The corporation issues several classes of stock.
I, II, III, and IV
Which of the following statements regarding estates are correct? I. Estate taxes are due on April 15 of the first year following the death of the deceased. II. Estate taxes are due nine months after the date of death of the deceased. III. Assets are valued based on their market value as of the date of death or, alternatively, six months later. IV. Assets are valued based on their cost or, alternatively, six months after the date of death.
II and III
A man is planning to start his own glass-sculpturing business. He wants to be able to deduct his anticipated losses for the first 2 years. He anticipates that the enterprise will borrow money from lenders and is willing to personally guarantee the debt. He also wants to attract other investors but does not want to give up control of the day-to-day business decisions. What business form do you recommend?
Limited partnership A limited partnership with him as general partner would allow for additional investment capital without giving up management control.
When are estate taxes due?
Nine months after death
A client is completing a new account form that contains questions about the investor's investing experience and knowledge. More than likely, what type of account is being opened?
Options
Agatha has an account with her Aunt Sally, which is registered as TIC. If Sally predeceases Agatha, the assets in the account go to
Sally's estate
When opening an account for a trust, which of the following sets of terms are synonymous?
Settlor/grantor
If a client wishes the assets in her account to pass directly to specific beneficiaries after her death, her account should be titled
TOD.
A married couple wishes to open an account at your firm. Which choice of registration would you recommend if they insist that no trading be done without the consent of both of them?
Tenants by the entirety
Keisha has three married children, each with children of their own. She wishes to leave equal shares of her estate to each of her children. What happens if one of those children dies before Keisha?
The share belonging to the deceased child is distributed per stirpes.
A customer and his spouse own shares in the ABC Fund as joint tenants with rights of survivorship. If the customer dies, what happens to the shares in the account?
The spouse would own all the shares.
Gloria wishes to set up a trust where income must be annually distributed to her daughter. Gloria wants her daughter to pay any income taxes because her daughter is in a lower tax bracket. What should Gloria do?
Use a simple trust with her daughter as irrevocable beneficiary
Your advisory client is an 86-year-old woman who is presently in the hospital, unable to communicate due to a severe stroke. For the past 6 years, she has followed the practice of making annual gifts of stock to her children and grandchildren on her birthday. Because her 87th is coming up later this month, her oldest son approaches you and asks you to continue the policy.
Without a proper durable power of attorney being produced, you cannot do anything.
Your clients, a married couple, are trying to decide whether to open an account as joint tenants with right of survivorship or tenants by the entirety. You might point out to them that one of the differences to consider is that:
a JBE account requires the consent of both parties to make a trade.
Among the advantages of forming an S corporation rather than a C corporation for a new business enterprise is
any losses flow through to the investors.
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
as an individual TOD account.
The benefits of structuring a business as a general partnership include
avoidance of taxation at the entity level so the partners are not taxed twice.
Richard, Tim, Sam, and Fred have a regular golf foursome every weekend. During one of their outings, they decide it is time they did something constructive with their money by opening an account with a brokerage firm. If the account is opened tenants in common, suitability information would be required on
each of the four individuals
Two sisters might wish to open an account as tenants in common (TIC) rather than JTWROS in order to
ensure that their respective shares go to their heirs instead of the surviving sister.
A living will is used to
express the author's end-of-life wishes.
An S corporation is characterized by
flow-through tax treatment
A deceased individual with two surviving children and a spouse had established a trust for his family. The trust document appointed both children as cotrustees. The surviving spouse is to receive current income, and his two children will receive equal shares of the remaining principal upon the spouse's death. As the adviser to the account, you
follow the instructions of the trustees.
One of your customers has been told that an irrevocable trust is something to consider. Probably the most significant reasons for this type of trust is that
it generally avoids estate tax.
Property included in a deceased's gross estate is generally valued for estate tax purposes at
its fair market value (FMV) on the date of the deceased's death.
An individual established an irrevocable trust. The individual's two adult children were named equal beneficiaries of the trust. Several years after the death of the grantor, one of the children fell upon hard times and asked the trustee for a greater share of the trust's income. Under trust law, the trustee
must be impartial when following the terms of the trust.
A woman wants to buy from an agent who is not registered in her state. She decides to use a friend's address in the state in which the agent is licensed. This action is
not acceptable because there are no circumstances under which you are permitted to use someone else's address as yours
A client with a sizable estate would probably find it most efficient to pay estate taxes with
proceeds from a life insurance policy.
When comparing the tax treatment of C corporations, S corporations, and LLCs, it would be correct to state that
the C corporation is the only one that pays taxes.
One of your clients dies. You could legally take instructions regarding the individual's estate from
the administrator in intestacy.
One of the portions of the USA PATRIOT Act of 2001 that affects the opening of an account for a new customer is
the customer identification program.
If a customer of your firm receives stock from the estate of her mother, the stock's cost basis in the hands of the customer is
the market value at date of death.
If a father makes a gift of securities to his 10-year-old daughter, gift taxes would be based on
the market value of the securities on the date of gift.
One of the situations that investment adviser representatives may encounter is the death of a client. When that happens, orders may be accepted from
the trustee in intestacy.
A client has just finalized her divorce and intends to sell her gold wedding band. Because the price of gold has risen significantly since she married 20 years ago, she will be able to realize a profit on the sale, but she does not know what to use as the cost basis. You suggest she speak to a tax specialist who will tell her to
use the original cost of the ring.
If the executor of an estate containing a substantial stock portfolio is of the opinion that the economy is about to enter a down cycle, estate taxes could be reduced by
using the alternative valuation date.
