UNIT 22 SIE

Under whose Social Security number is the custodial account established?

The minor's -Assets in a custodial account are the minor's property, so the minor's Social Security number is used.

One difference between an UTMA account and an UGMA account is

an UTMA account has a wider set of allowed investments. -UTMA accounts allow real estate holdings, an UGMA account does not. Neither accounts are tax deferred and both accounts are irrevocable. The UGMA transfers at the age of majority, the UTMA may transfer as late as age 25.

All of the following accounts are for unincorporated businesses except

corporate accounts. -Sole proprietorship accounts, partnership accounts, and limited liability companies are not incorporated. Corporations are incorporated.

Sam Malloy owns a small business and has built a substantial estate both with his business success and his early career as a pro athlete. He would like to begin to move assets out of his estate in a way that will allow him to benefit from the assets, but also allows for an easy transfer to his heirs when he dies. He needs to lower the size of his estate before he passes and hates the idea of a public hearing that is part of probate. Sam should

establish an irrevocable living trust. -An irrevocable living trust will accomplish his goals. The assets in a revocable trust remain part of his estate as do the assets in a TOD account and a will. Also, a will must be probated.

All of the following accounts would allow all parties with access to the account to authorize withdrawals except

individual account with a limited power of attorney (LPOA). -Individual accounts with limited POA allow a designated person to place trades but not make withdrawals. All the other answer choices do allow withdrawals as well as placing trades by all parties with access to the account.

John and Tara Bourne have two children, Henry and Avery, who they want to set up custodial accounts for. Which of the registrations of the accounts are allowed?

John Bourne custodian for Henry Bourne -Only one adult and one minor are allowed on each account.

If the beneficiary of a custodian account dies, the securities in the account pass to

the minor's estate. -If the beneficiary of a custodial account (minor) dies, the securities in the account must pass to the minor's estate, not to the parents' or custodian's estate.

Many investors like to put a transfer on death (TOD) designation on their brokerage accounts. Which of these are benefits of doing so? I. The TOD designation avoids estate taxes. II. The TOD designation avoids probate. III. The account holder is relieved of decision making in the account. IV. There is flexibility to change beneficiaries as conditions dictate.

II and IV -The transfer on death (TOD) designation allows the account holder to name a specific beneficiary (or beneficiaries) to receive the account's assets upon death. Those named persons may be changed whenever the account holder wishes. Although this bypasses probate, it does not avoid estate taxes. TOD has nothing to do with giving investment discretion.

Which of the following accounts would allow the assets of a single father's account to go directly to his daughter while avoiding probate but not a let her have access while he is alive?

Individual with transfer on death (TOD) -Individual with TOD exactly meets his requirements. JTWROS and TIC and individual with POA would all allow the daughter access to the account while he is still alive.

John and Tara Bourne have two children—Henry and Avery—for whom they want to set up custodial accounts. Which of the registrations of the accounts are allowed?

John Bourne, custodian for Henry Bourne -Only one adult and one minor are allowed on each account.

A client and his spouse own shares in the KAPCO Fund as tenants in common. He has a 60% ownership interest in the account and the spouse has the balance. If the client dies, what happens to the shares in the account?

40% of the shares would belong to his spouse and the remaining balance would be distributed to his estate. -In a TIC account, securities owned by the decedent pass to the deceased owner's estate—in this case, 60% of the assets. The 40% belonging to the spouse is retained by the spouse.

Craig and Judy have just married. It is a second marriage for both of them and they both have kids from a prior marriage. Craig would like his portion of their account to go to his kids when he dies and Judy would like her portion to go to her kids when she dies. As new partners in marriage, while they are both alive they would both like to have full access to the account. What type of account(s) should they set up?

Joint tenants in common (TIC) -The TIC account does exactly what the requested the JTWOS does not separate their assets at death. Instead the whole account would go to the surviving spouse individual accounts with limited POA and TOD would not give both full access to the account. The partnership account is for business accounts.

Which of the following is a benefit of 529 plans but not Coverdell Education Saving Accounts?

No income restrictions -Coverdell plans have income restrictions; 529 plans do not.

A married couple have two children, both still minors. Which of the following UTMA accounts could be opened?

Parent as custodian for one of the children -In an UTMA account, only one adult can be the custodian for one minor. Joint custodians or joint beneficiaries to a single account are not permitted.

Your customer, Jim, wants to deposit money into a 529 College Savings plan for his great-niece Penelope. He states four reasons why he likes the 529 plan. Unfortunately, you need to tell him he is incorrect on one point. Which of his following points is not considered a feature of a 529 College Savings Plan?

She has to use the money by the time she turns 30, so she will not be able to put it off too long. -529 plans grow tax deferred and the funds may be withdrawn tax-free if used for qualified education expenses. These plans may be used to fund secondary education (pre-college). There is no age limit to when the funds must be used.

Which of these is not correct?

A 529 plan's assets must be used by age 30, an ESA does not. -An education savings account (ESA) must be used by age 30, a 529 plan has no such limit. As of January 1, 2018, both plans may be used for pre-college education costs.

Which of these business structures would pass through the results of the business to the owners and protect the owners from the liabilities of the company?

An LLC -The LLC is the only one of these that both passes the income and losses through while providing liability protection. C Corps protect but do not pass through losses. General partnerships and sole proprietorships passes results through, but offer no protection.

All of the following accounts would allow all parties with access to the account to make withdrawals except

individual with limited POA. -Individual accounts with limited POA (power of attorney) allow a designated person to place trades but not make withdrawals. All the other do allow withdrawals as well as placing trades by all parties with access to the account.

Alan and Barbara Collins have three minor children; Dan, Ellen, and Frank. Which of the following UTMA accounts could be opened?

Barbara Collins as custodian for Ellen Collins -In an UTMA account, one adult is custodian for one minor. There is no such thing as joint custodians or joint beneficiaries.

Marsha, Jane, Cynthia, Craig, Jim, and Robert are owners of an account JTWROS. If Craig, Jim, and Robert pass away then their interest in the account

remains in the account and is now the property of the surviving tenants. -In a joint tenants with rights of survivorship (JTWROS), the assets of the decedent simply remain in the account and are property of the survivors. There is no probate process for these assets, but they are still a part of the decedent's estate for tax purposes.

All of the following are true of a revocable living trust except

the primary purpose of the trust is to avoid estate taxes for the grantor. -In a revocable living trust the grantor has complete control over the trust while alive and because of this, the grantor is also subject to any tax implications of the trust.

The primary use for a revocable living trust is to

use as a substitute for a will. -While the grantor is alive they have full control of the trust it is mainly use in place of a will.

A married couple have equal 50% ownership interests in a tenants in common account (TIC). If one party to the account dies, what happens to the shares in the account?

Half, or 50% of the shares, would belong to the remaining party and the balance would be distributed to the estate of the deceased party. -In a tenants in common (TIC) account, securities owned by the decedent pass to the decedent's estate—in this case, 50% of the assets. The other 50% is retained by any remaining living parties to the account.

Which of the following are characteristics of a revocable living trust? I. It is established before the grantor dies II. The grantor can change beneficiaries III. The grantor can add or remove items from the trust IV. The grantor is subject to tax on income that remains in the trust

I, II, III, and IV -In a revocable living trust the grantor has complete control over the trust while alive, and because of this, the grantor is also subject to any tax implications of the trust.

Which of the following statements are true of an irrevocable trust? I. The grantor may change the terms of the trust II. The grantor must give up ownership of items placed in the trust III. The structure of the trust may reduce estate taxes IV. The grantor may retain ownership of items placed in the trust

II and III -The grantor may be able to avoid some of the tax consequences because he gives up ownership of items in the trust and cannot change the terms of the trust once established.

An investor has opened an individual brokerage account for use in a small business and has given a business partner a power of attorney (POA) over the account. Which of the following persons may have access to the account for trading purposes? I. The attorney who administers to the business's legal needs II. The investor's partner who was given the POA III. The investor who opened the account IV. A secretary at the business, but only in an emergency

II and III -The owner of an individual account and anyone who has power of attorney (POA) over the account are the only persons who may have access. This would exclude the business's attorney, secretary, or anyone else not having the POA.