3.a Flashcards
(12 cards)
What are the key features of an individual account?
Has only one beneficial owner. The owner has total control over the account. Can have a Transfer on Death (TOD) designation, which allows assets to pass directly to a named beneficiary, avoiding probate.
What are the general rules for all joint accounts?
Two or more adults are co-owners. All owners must sign the new account agreement. Checks for distributions must be made payable to all owners. Suitability is based on the entire group, not just one person.
What happens to the account assets when one owner dies in a JTWROS account?
The deceased owner’s share passes directly to the surviving owner(s). The assets avoid probate. Ownership is always equal. Can have a TOD designation.
What happens to the account assets when one owner dies in a TIC account?
The deceased owner’s share passes to their estate, not the other account owners. Ownership can be unequal (e.g., 60% / 40%). Cannot have a TOD designation.
What is a Tenants by the Entirety (TBE) account?
A special type of joint account available only to legally married couples. It functions like a JTWROS, but one spouse cannot sell or use the assets as collateral without the other’s consent.
How is a sole proprietor account treated?
It is treated like an individual account. The business is not a separate legal entity. All business income and liabilities are the owner’s personal responsibility.
What document is required to open a partnership account?
A partnership agreement. This document specifies which partners are authorized to execute trades for the account. Taxes on profits/losses are passed through to the individual partners.
How are C Corporations treated for tax and liability purposes?
Liability: It is a separate legal entity, so the corporation is liable for its debts, not the shareholders. Taxes: It is a separate tax-paying entity. It pays taxes on its income, and shareholders may also be taxed on dividends they receive (‘double taxation’).
What is the main advantage of an S Corp or an LLC compared to a C Corp?
They provide the liability protection of a corporation but function like a partnership for taxes. This means profits and losses are passed through to the owners/members, avoiding the ‘double taxation’ of C Corporations.
An S Corp is limited to 100 members.
What is a fiduciary?
A person or entity legally appointed to manage another person’s (the beneficiary’s) assets. The fiduciary has a legal duty to act in the best interest of the beneficiary. Examples include a trustee, guardian, or custodian.
What are the key parties in a trust?
- Grantor (or Trustor): The person who creates and funds the trust. 2. Trustee: The fiduciary who manages the trust’s assets. 3. Beneficiary: The person(s) who receive the assets or income from the trust.
What are the key rules for a custodial account?
- Established for one minor. * Managed by one custodian (an adult fiduciary). * Any gifts to the account are irrevocable (cannot be taken back). * The account is registered in the minor’s name and Social Security number, and the minor is responsible for any taxes. * Almost all states have adopted the UTMA (Uniform Transfer to Minors Act).
