Unit 18: Type of Client

Question 1

Tenants in common (TIC)

Answer 1

provides that a deceased tenant’s fractional interest in the account is retained by that tenant’s estate and is not passed to to the surviving tenants, ownership is divided unequally

• do not avoid probate

Question 2

Joint tenants with right of survivorship (JTWROS)

Answer 2

a deceased tenant’s interest in the account passes to the surviving tenants, ownership is equal and undivided

• whenever the test uses the term joint tenants, it means JTWROS

Question 3

Tenants by the entirety (TBE)

Answer 3

only for married persons, the consent of the other tenant is required before the other tenant can sell or give away his interest in the property, upon death of one of the spouses the interest passes to the surviving spouse

• Most commonly used for ownership of real estate

Question 4

Checks or distributions from a joint account must be

Answer 4

made payable in the account name and endorsed by all parties

Question 5

Suitability for a joint account is based on the tenant with:

Answer 5

the lowest common denominator (example where one tenant is an accredited investor and the other is a non-accredited investor)

Question 6

Opening of options accounts sequence:

Answer 6

1. Obtain essential facts from the customer
2. Obtain approval from a qualified supervisor
3. Enter the initial order
   Obtain a signed options agreement within 15 days

Question 7

General Partnership

Answer 7

• Partners are responsible for debts of the business
• Easy to form and dissolve but generally not suited for raising large sums of capital
• Avoids double taxation

Question 8

Limited Liability Company (LLC)

Answer 8

business structure that combines benefits of incorporation (limited liability) with the tax advantages of a partnership, owners are members and are not personally liable for the debts of the LLC

Question 9

S Corporation

Answer 9

offers investors the limited liability associated with corporations in general, profits and losses are passed through directly to the shareholders in proportion to their ownership

• May not have more than 100 shareholders
• Shareholders may only deduct losses to the extent of their basis (money contributed or lent)

Question 10

C Corporation

Answer 10

distinguishes the company as a separate entity from its owners

• If a business expects to need significant capital, this form is almost always the preferred choice
• Subject to double taxation

Question 11

Benefits of structuring a business as a general partnership, an LLC, or an S corporation would include

Answer 11

no double taxation

Question 12

Only the sole proprietorship and the C Corporation are taxed on their income.

Answer 12

The sole proprietorship’s is the on the owner’s personal tax return and the corp’s is on a Form 1120.

Question 13

The only logical choice where a large amount of capital is to be raised is the

Answer 13

C Corporation.

Question 14

The ones that have limited liability for owners as well as flow-through of income/loss is the

Answer 14

limited partnership, LLC, and S corp

Question 15

Which business structures survive the death of their owners?

Answer 15

Corporations and LLCs

Question 16

Which business structure has the easiest transfer of ownership?

Answer 16

C corportion

Question 17

Orders entered after the time of the death of the grantor,

Answer 17

even if the purchase or sale was decided upon before death, are not accepted.

Question 18

The grantor of the trust can also be the

Answer 18

trustee and/or beneficiary

Question 19

Remainderman

Answer 19

the person who received the remaining balance

Example: A husband dies and has arranged for his wife to use their home until she passes away. Any surviving children then inherit the home - they are the remaindermen

Question 20

Simple Trusts

Answer 20

all income earned on assets must be distributed during the year it is received

Question 21

Complex trust

Answer 21

may accumulate income

Question 22

The key difference between a simple and a complex trust is that:

Answer 22

the simple trust must distribute all of its annual income, whereas complex trust is not obligated to do so.

Question 23

Living Trust (inter vivos trust)

Answer 23

established during the maker’s lifetime and they maintain complete control over it. Changes can be made (revocable)

Question 24

Testamentary Trust

Answer 24

the settlor retains control over assets until death (“last will and testament”)

Question 25

Living Will

Answer 25

individual’s instructions for end-of-life situations, such as withholding medical care of organ donation.
A living will is used to express the author’s end-of-life wishes

Question 26

Philanthropic Funds

Answer 26

wealthy individuals may set up donor-advised funds that allow for flexibility and tax advantages. Foundations are generally funded by their founders who usually give those managing the money greater flexibility.

Question 27

Impact Investments

Answer 27

the charity commits a portion of its funds to those companies or industries which align with its specified goal.

• Example, the Cancer Society probably would not have tobacco stocks in its portfolio.
• Subset of Socially Responsible Investing (SRI) that attempts to generate positive social good in addition to the goals typically outlined in an SRI approach.
• The acronym ESG is also frequently found = Environment, Social, and Corporate Governance

Question 28

Program-Related Investments

Answer 28

the foundation make a charitable distribution

Question 29

Transfer-on-Death (TOD)

Answer 29

avoids probate but does not avoid estate taxes

• May also “payable-on-death” (POD) although the term is used far more frequently for bank accounts
• The only types of accounts that may have the Transfer on Death (TOD) designation are individual and JTWROS.

Question 30

Grantor Retained Annuity Trusts (GRATs)

Answer 30

estate planning tool designed to pass assets to beneficiaries (usually children) in a way to minimize gift and/or estate taxes

• Any income from the trust is taxed to the grantor
• The annuity portion is paid for a specified number of years. At the end of that term, the beneficiaries get wherever is left and that could be free of estate and gift taxes.

Question 31

Estate Accounts

Answer 31

an account that is directed by fiduciary on behalf of the beneficiary of an estate

Question 32

Per Stirpes

Answer 32

the deceased intended that a beneficiary’s share of the inheritance is to go to an heir

Question 33

Per Capita means

Answer 33

“by total head count”