Part 2 Unit 17

Question 1

What is direct participation program (DPP)?

Answer 1

Alt investment category in which economics of a business is flow-through to the investor. Passive income.
General partner: business managers
Limited partner: Investor

considered illiquid

Question 2

GP

Answer 2

-Unlimited Liability
-Fiduciary duty
-Profit after dist. to limited partners
-Must maintain at least 1% interest in the business

Question 3

LPs

Answer 3

Units of investment is called interest rather than shares.

Question 4

Exchange Traded Notes (ETNs)

Answer 4

Registered under securities act of 1933 as debt instruments
returns linked to a market index or other benchmarks

Question 5

What are risks inherited in ETNs

Answer 5

Credit risk (unsecured loans)
market risks
liquidity risk
early redemption and acceleration risk
conflicts of interest

Question 6

Viatical/Life settlements

Answer 6

Viatical: applies to those with terminal illness with life less than 24 months
Life settlements: generally less than 65, are in good health with life expetency of at least 2 years.
Products buying other people’s death benefits for more than cash value but less than the benefits.

Question 7

TIC

Answer 7

one owner’s fractional interest can be passed to estate and not to the survivors. Also, can be unequally. Also, among many individuals

Question 8

JYWROS

Answer 8

Each has equal ownership and is passed to the survivor.

Question 9

Trust accounts:

Answer 9

Legal entity offers flexibility for individuals who wish to transfer property.
3 parties must be specified:
1. Settlor: Supplies the property for the trust. (AKA maker, grantor, trustor, donor)
2. Trustee: Holding legal title to property held for the benefit of another person.
is responsible for investing, administering, and distribution of trust assest.
3. Beneficiary: Ind. for whose benefit property is held in trust.

Question 10

Simple trusts

Answer 10

ll assets must be distributed during the year it is received.

Question 11

Complex trust

Answer 11

May accumulate income.Trusteed can distribute the principle too. The key diff between this and simple trust is that simple trust must distribute all of its annual income, whereas in complex trust you do not have to.

Question 12

Living trust

Answer 12

Established during maker’s lifetime. Revocable living trust, that indi. has complete control over it. Can edit as much as they want to and contains instructions for managing trust after death.

Question 13

Testamentary trust

Answer 13

Settlor retains control over assets until death, and then will stipulate that upon death, the property is to be placed in trust for the benefit of one or more beneficiaries. Can not avoid probate.

Question 14

Living will:

Answer 14

Nothin like living tust. It is just in terms of medical care directives

Question 15

Types of estate accounts:

Answer 15

Tranfer-on-death (TOD): does not avoid estate taxes if applicable. Owners specifies a beneficiary. No legal documentation necessary. Accounts opened can be individual, JTWROS, and tenants by the entirety accounts.

Totten Trust: Old ways where bank accounts were transferred to beneficiaries upon death.

Revocable trust: Terms can be changed during lifetime. income is taxable to the grantor under grantor trust rules. Grantor is subject to income taxes even though he does not receive any income. Kinda like living trust.
Vs. irrevocable trust; Settlor gives up all ownership in property transferred into the trust. Not included in trustors income or federal tax purposes.

Grantor retained annuity trusts (GRATS): Benefits in children in a way that minimizes gift/estate taxes.
Taxed to the grantor. Paid in a specific number of years.

Question 16

Estate accounts:

Answer 16

If there is a will, the executor takes care of it. If there is no will, the court appoints an administrator. Either way, they make investment, management, and distribution decisions for the account.

Per stirpes: deceased intended that a beneficiary’s share of the inheritance is to go to an heir. One of the children dies but his children then become the heirs.

Per capita:
Per person heired.

Question 17

CDs

Answer 17

-Eliminate interest rate risk (except Jumbo cds?
-Not savings accounts
-As an asset on BS
-Preferred answer for capital preservation
-Insured by FDIC
-Banks sets the interest rate on those

Question 18

OASDI (old age survivors and disability income

Answer 18

-At least 40 quarters of employment
-Wait till age 79 to claim gives a rate of 8% compound from full retirement age.
-If you are divorced and were married for at least 10 yrs, you are eligible for some of your ex’s social security. (you must be unmarried)
(Both ex, current, and the man receive benefits)

Question 19

Tax planning

Answer 19

Asset and income shifting:
-Investment assets and income to shift to another person. Usually to a child with lower tax bracket or for aging parents who have lower tax bracket.
-Tax deferral: contribution to a qualified retirement plan.
-Tax free income: municipal bonds (529s, Roth IRAs, etc.)