EXAM 2_1

Walter is 40 and wants to retire in 25 years. He expects to live until age 95. He currently has a salary of $100,000 and believes that he needs to accumulate a total of $1 million (future dollars) for retirement by age 65 and he will be fine. He currently has $150,000 saved for his retirement that is earning 9%. He is able to save $20,000 towards his retirement. However, he is willing to use some or all of this amount to fund education for his grandchild, Finn, who was born today, if and when hi

$0 - Dad has it covered.

What is the present value of all college education for 5 children ages 0, 1, 1, 3, and 5 if the cost of education is today's dollars is $17,000 per year, education inflation is 5%, and the parents expected portfolio rate of return is 8.5%? The children are expected to be in college 4years and they will each start at age 18.

$192,007.89. Rationale

Julio and Glenda Garza have two children in college and a third who is taking graduate courses while working. One of the children in college is a senior and the other is a freshman. The cost of college is $12,000 annually, and the cost of the tuition for the graduate courses is $10,000. The Garzas pay half of the graduate school tuition and the child pays half from his earnings. The Garzas have an adjusted gross income of $100,000, and their filing status is married filing jointly. All three chi

$2,000. Rationale

Skyler will be starting her freshman year of college this fall (2023). The cost of attendance at the school she would like to attend is $37,000. The expected family contribution, as calculated from Skyler's FAFSA information, is $12,000. Skyler will receive a merit scholarship of $3,000 and expects to participate in a work-study program earning $5,000. What is the amount of Skyler's financial need as calculated in the federal financial aid formula?

$25,000. Rationale

Amita has 4 children ages 1, 3, 5, and 7. The current cost of college is $25,000. The children will begin college at age 18 and be in college for 4 years. Education inflation is expected to be 6% and the parents portfolio rate of return is 8%. How much does Amita have to save annually at year end through the education of the youngest child to pay all college costs?

$29,921.11. Rationale

Johnny wants to save some money for his daughter Alexis's education. Tuition costs $12,500 per year in today's dollars. Alexis was born today and will go to school starting at age 18. She will go to school for 4 years. Johnny can earn 11% on his investments and tuition inflation is 7%. How much must Johnny save at the end of each year, if he wants to make his last savings payment at the beginning of his daughter's first year of college? A

$3,176.43. Rationale

Derek and Morgan are planning to save for their daughter Penelope's college education. Penelope was born today and will attend college for 4 years, starting at age 18. Tuition currently costs $15,000 per year and tuition inflation is expected to be 6%. They believe they can earn 9% on their investments. How much must Derek and Morgan save at the end of each year, if they want to make their last savings payment at the beginning of Penelope's first year of college?

$3,978.53.

What is the present value of the cost of college education for 4 children ages 1, 3, 5, and 7. The current cost of college is $25,000. The children will begin college at age 18 and be in college for 4 years. Education inflation is expected to be 6% and the parents portfolio rate of return is 8%.

$300,000

George has been in academia his entire career and wholeheartedly believes that education is the key to success. He has two daughters, Cindy and Susie. Cindy is a lingerie and swimsuit model who also believes in education, as well as fashion. Cindy has two children, Red and Mauve, who are ages 4 and 2 today. She is also headed to the hospital at this very moment to deliver her third child, who will be named Olive. Susie is an engineer, who used to play rugby in college and also believes in educat

$377,520. Rationale

Roshan is a freshman at Florida State University where his tuition is $4,000. Shante, his older sister, is a graduate student at Expensive University, where tuition is $25,000. What is the maximum tax credit Roshan and Shante's parents can take? A

$4,500

Charlie and Rose want to take tax-free withdrawals from accounts established to pay for their daughter, Berta's, qualified education expenses when she attends college. Which of the following withdrawals would be taxable?

$6,000 from a Section 529 plan to pay for a car that Berta will use to commute to college her freshman year. Rationale

Which of the following tasks are the primary responsibilities of the personal representative of an estate?1. Inventory the estate2. File income tax returns for all beneficiaries3. Contest payment of all debts of the estate4. Probate the will

1 and 4

Which of the following is an undivided ownership in the property that, upon death of one owner, automatically passes to the surviving owner?1. Tenants by the Entirety2. Tenants in Common3. Community Property4. Joint Tenancy with Rights of Survivorship A

1 and 4.

A tenancy by the entirety may be terminated in which of the following ways?1. Death, whereby the survivor takes the entire tenancy2. Mutual agreement3. Divorce, which converts the tenancy into a tenancy in common or a joint tenancy4. Severance, whereby one tenant transfers his or her interest to a third party with or without the consent of the other tenant

1, 2 and 3. Rationale

Which of the following is/are considered a disadvantage(s) of probate?1. The process can result in delays.2. The process may be expensive.3. The process provides clear title to heirs and legatees.4. The process is open to public scrutiny.

1, 2 and 4.

Which the following is a risk of failing to plan for the estate?1. Property transfers contrary to the client's wishes.2. The client's family may not be provided for financially.3. The estate suffers liquidity problems at the client's death.4. The estate may bear higher transfer costs.

1, 2, 3, and 4. Rationale

Of the following types of ownership, which is available for married couples?1. Tenancy by the entirety2. Tenancy in common3. JTWROS4. Tenants by marriage

1, 2, and 3

Which of the following is included in the definition of estate planning?1. Asset management2. Accumulation of wealth3. Asset preservation

1, 2, and 3. Rationale

Which of the following are advantages of allowing property to pass through the probate process?1. Assets do not need to be retitled if they pass though probate.2. There are limitations on creditors' time to make claims against the estate.3. There is stricter supervision of the disposition and management of assets.4. The probate process is private.

2 and 3. Rationale

Custodial arrangements are usually preferable to the direct transfer of property to a child to fund his or her education, for which of the following reasons?1. There are no restrictions on permissible investments under a UGMA custodial account.2. Almost any type of property may be placed in a UTMA custodial account.3. The UTMA and UGMA arrangements assure that the funds will be used for the educational purpose intended.

2 only.

Alan and Judith want to plan for the education of their son, Jake, age 6. They expect to send Jake to college when he is 18 and may want to send him to a private high school. Their AGI is $120,000 now, and they expect it to increase by 5% annually. They want to invest so that they avoid taxes on the funds. What techniques will provide tax-free funds to finance both private school and college for Jake? 1. Series EE bonds.2. Sec. 529 plan. 3. Municipal bonds in a UTMA account.4. Coverdell ESA.

2, 3, and 4

Ronnie and Jocelyn are contemplating making a contribution to their grandchildren's education fund. They are both retired, have a significant amount of discretionary income and are concerned about estate transfer taxes. Which of the following education planning techniques would you recommend?

529 Savings Plan.

What is one of the primary differences between a Coverdell ESA and a 529 Savings Plan?

A Coverdell has contribution limits far below those of 529 Savings Plans

This estate planning tool will cause assets to be included in non-grantor holder's gross estate:

A general power of appointment that is unexercised

The unrestricted ability to ultimately name beneficiaries of income and corpus of a trust is known as:

A general power of appointment. Rationale

Which of the following would meet the requirements for the annual exclusion under the gift tax rules?

A gift to a trust in which the income is distributed to the grantor's daughter each year and the principal is distributed to the grantor's grandson upon the death of the daughter. Rationale

Which of the following items will be retitled through probate?

A house subject to a mortgage and owned fee simple (sole ownership) by the decedent. Rationale

Which of the following statements will have the LEAST negative impact on need-based financial aid in 2023?

A qualified distribution from a Section 529 plan with the parent as the owner and the child as beneficiary. Rationale

Which of the following does not need estate planning? A

All of the above need estate planning. Rationale

A person or entity entitled to act on behalf of another is known as:

An attorney-in-fact. Rationale

Walden is 45 years old and has always managed his credit well, allowing him to maintain a high credit score and receive the best terms on loans. Walden's son, Ashton, is 25 years old and recently married Mila. Ashton would like to go to graduate school and will need to borrow money via a private student loan to do so. Unfortunately, Ashton and Mila both have a few negative items on their credit reports and cannot qualify for any loans at a rate that they can afford. Ashton has asked Walden to co

Both 1 and 2

If Priscilla died with each of the following property interests, which will be excluded from her probate estate?

Death proceeds of life insurance payable to a living stranger. Rationale

Which of the following documents appoints a surrogate decision-maker for health care?

Durable power of attorney for health care. Rationale

Which of the following statements is the best definition of estate planning?

Estate planning is the process of accumulation, management, conservation, and transfer of wealth considering legal, tax, and personal objectives. Rationale

A general power of appointment. Rationale

Heirs receive property with clear title. Rationale

Beibei decides to prepare his will, but does not want to seek the help of an attorney. Beibei handwrites, signs and dates all of the provisions of the will but does not have it witnessed by anyone. What type of will does Beibei have, if any? A

Holographic

Which type of will is handwritten and does not generally require a witness?

Holographic. Rationale

Twenty-two years ago, Heath and Ennis began dating, and 19 years ago, they began living together. Last year, Heath inherited over $9,000,000 from his grandfather. He wants to ensure that if he dies first, Ennis will be taken care of for the rest of his life. Despite your insistence, Heath does not have a will, and you have advised him previously that state intestacy laws do not protect unmarried partners. Which of the following asset ownership options would fulfill Heath's goal of transferring

Joint tenancy with rights of survivorship. Rationale

While he was in the hospital, Cyrus told his wife that if he died he wanted to give his fishing tackle to his son, Huck; his golf equipment to his son, Fitz; his truck to his daughter, Olivia; and everything else to her (his wife). Cyrus died the next day without writing anything that he told his wife, but a nurse and another patient were in the room and heard his declarations. What type of will does Cyrus have, if any?

Nuncupative. Rationale

Mitch and Nina have AGI of $125,000 and have not planned for their children's education. Their children are ages 17 and 18 and the parents anticipate paying $20,000 per year, per child for education expenses. Which of the following is the most appropriate recommendation to pay for the children's education?

PLUS Loan. Rationale

Which of the following types of aid are not need-based?

Parent Plus Loan. Rationale

The following type of financial aid is awarded to students with a low EFC, and funds are guaranteed to be available if a student qualifies

Pell Grant

Rory agreed to sell his house to his brother, but could not attend the closing date of the sale (act of sale). Of the following options, which would allow Rory's mother to attend the closing and sign the necessary documents on Rory's behalf? A

Power of attorney. Rationale

Which of the following is not a party to a trust?

Principal. Rationale

A spendthrift clause:

Protects the trust assets from the claims of the beneficiary's creditors. Rationale

Which type of will complies with the statutes of the domiciliary state and is drawn by an attorney?

Statutory. Rationale

Moira has a son, David (age 18), a freshman at Tulane University with tuition of $30,000 per year. Moira's AGI is $45,000. She takes a withdrawal of $20,000 from her 529 Savings Plan and pays the remaining $10,000 in tuition out of her checking account. Which of the following would you recommend?

Take a American Opportunity Tax Credit (AOTC) of $2,500. Rationale

Clyde and Bonnie have been married for six years. They are about to buy their first home and have come to you with some questions that they have regarding titling of the home. In your explanation of the different property ownership arrangements, which of the following titling structures can only be entered into by spouses?

Tenancy by the entirety. Rationale

If grandparents contributed $170,000 (in 2023) to a 529 Savings Plan for their grandchild, elected to split the gift and treat it ratably over a 5-year period, and one of the grandparents died during the next year, which of the following statements is correct?

The gross estate of the deceased grandparent would have to include $51,000 of the contributions to the 529 plan. Rationale

Which of the following assets will be countable in the financial aid formula for a college student?

The investments in a 529 Savings Plan owned by the student's parents

Which of the following is a disadvantage of the probate process? A

The probate process requires several court filings. Rationale

Hank established a Section 529 Savings Plan for his son, Saul, several years ago. It is now time to pay Saul's first-year college costs. The current value of the fund is $80,000. If Hank withdraws $20,000 to pay qualified tuition expenses, how will the distribution be taxed?

There will be no federal taxes

Which statement regarding financial aid is not correct?

Unsubsidized Stafford loans are need-based loans, and the government pays the interest until 6 months after a student leaves school.

Jose created a joint bank account for himself and his friend, Amparo. At what earliest point has a gift been made to Amparo?

When Amparo withdraws money from the account for her benefit. Rationale