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CHFC > Contemporary Planning > Flashcards

Contemporary Planning Flashcards

1
Q

What are the components of the Code of Ethics/ Responsibility?

A 
o	Objectivity 
o	Competence  
o	Fairness
o	Confidentiality
o	Professionalism
o	Diligence
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2
Q

What does a planner do in complex ethical decisions?

A
  1. Facts & rational analysis
  2. Examine existing options & determine new ones
  3. Evaluate options
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3
Q

What step of the financial plan, may require a team?

A

analyze & evaluate

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4
Q

What can you do during the scope of engagement?

A

Terms of confidentiality

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5
Q

Financial planning is an economic discussion of what?

A

resource allocation & economic constraints

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6
Q

qualitative goal

A

big picture statement (intangible happiness, success, freedom)

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7
Q

Goal-based planning software

A

goals independently

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8
Q

Cash-flow planning software

A

goals within income and expenses

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9
Q

Life insurance illustration

A

happens independently of comprehensive financial planning
o Loans w/ cash value not subject to income tax
o Dividends are not guaranteed and should be modeled sparingly
o Cash value insurance policy can be used for retirement/ college if will not make it lapse

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10
Q

Complex reallocation goals

A

pay down debt, make large purchase

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11
Q

Dying without a will

A

property passes through intestate succession

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12
Q

Effective tax rate

A

simplifies planning (“on the fly” calculations), predictable/ stable income clients

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13
Q

Lump-sum insurance

A 
o	Burial expenses
o	6-12 living expenses
o	Short-term income replacement
o	Debt repayment
o	Travel/ bereavement costs
o	Legacy planning 
o	Inheritance
o	Buy/sell needs
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14
Q

Cash flow insurance

A 
o	Debt payments not covered by lump-sum
o	Savings needs (retirement, college)
o	Insurance premiums
o	Living expenses (ongoing)
o	Unique/ “gap” expense coverage
o	Ongoing pledge/ contractual obligations
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15
Q

state laws

A

community property overrides will, definitely of children, etc.

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16
Q

Testamentary trust

A

established for benefit of children.

  • pour-over trust - proceeds of estate go into the trust
  • set up after death
  • does not avoid probate (assets push through probate before transferring to the estate)
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17
Q

Estate Plan fact finding

A
  1. Gather data
  2. Key decisions (guardian, executor…)
  3. Inventory
  4. Debts
  5. Business interests
  6. Desires
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18
Q

Estate plan elements

A
  1. Advisor meeting
  2. Plan
  3. Documents
  4. Legal transaction (will ceremony)
  5. Financial transaction
  6. Communication
  7. Monitor
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19
Q 
Taxation:
•	Gift
•	Wins something 
•	Bequest 
•	Bequest w/ state tax =
A
  • Gift = gift tax
  • Wins something = income tax
  • Bequest = transfer tax
  • Bequest w/ state tax = estate tax & inheritance tax
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20
Q

Irrevocable Life Insurance Trust

A

•Gift tax– donor can use both annual gift tax exclusion & life time exclusion for gifts of premiums

•Estate tax – outside of gross estate tax
Estate availability – can be structured to lend money to estate or buy assets

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21
Q

Alternate valuation date

A

6 months after death for estate tax

22
Q

50-50 rule

A

50% of date of death value of jointly-held property w/ right of survivorship or tenancy of entirety included

23
Q

Life insurance included in gross estate

A

=decedent held any incidents of ownership or payable to individual’s estate

24
Q

Deductions taken from gross estate

A

o Funeral
o Administrative expenses
o Debts

25
Q

Descendent survivor’s unused exemption (DSUE)

A

executor of descendent files return electing to make unused marital deduction available to survivor (allows deceased estate to use deduction)

26
Q

Residuary trust planning

A

2 trusts (1 with exclusion qualifying expenses and 1 with marital deduction)

27
Q

Section 2503 (c)

A

special statutory rule for minors & qualify for present interest gift
o Property/ income for minor until 21
o Pass to donee at 21 (if done dies, pass to donor estate)

28
Q

Federal estate tax steps

A
  1. Gross estate
  2. Adjusted gross estate- subjecting funeral, administrative, debts, taxes & losses from gross
  3. Adjusted gross estate- subjecting marital, charitable, or state death
     Adjusted – estate = tentative tax
  4. Estate tax – gift tax (post-1976 gifts) – tentative tax
    5.Federal estate tax
29
Q

TCJA exclusion

A

= exclusion has been doubled for a period of years

**date of death important

30
Q

Grantor Trust

A
  1. Assets in trust are removed from grantor’s estate
  2. Receiving income without paying income tax
  3. Income tax paid to grantor = gift to donees & not subject to gift taxation
31
Q

Estate freezing

A
  1. Sell a business (subject to value of the sale not date of death value)
  2. Lifetime gift (calculated as date of gift value not death)
  3. Charitable remainder trust – split between income and charitable interest
32
Q

Basis

A

amount the taxpayer paid + improvements

33
Q

Adjusted Gross Income (AGI)

A

base amount used to determine how taxpayer must treat other items

34
Q

Above-the-line deductions

A

available to all taxpayers (regardless of taking a standard deduction or itemizing)

35
Q

Below-the-line deductions

A

itemized deductions (taken in lieu of standard

36
Q

ABLE account

A

= alternative to special needs trust (more flexibility)

  • Contributions not tax deductible, made by anyone, limited to $15,000 per year per account
  • Earned income is tax-free
  • Disbursements for “qualified disability expenses”
  • to qualify: disabled before age 26 & already receive SSI/DI
  • first $100,000 is not counted as resources for SSI eligibility test (over will cause SSI suspension)
37
Q

Self-settled SNT

A

= special needs individual has/ expected significant assets & allow him to qualify for SSI/ Medicaid

  • funds not considered income/ assets of bene for SSI/Medicaid qualification  supplemental income
  • only under age 65 = not appropriate for beneficiary needed SSI/ Medicaid
  • payback at death to remainder of beneficiaries (not payback the state)
  • corporate trustee required
  • terms should prevent distributions of cash directly to special needs bene
38
Q

ILIT

A

= third party supplemental needs trust that helps for life insurance of parents, grandparents of special needs bene (quality of life benefits)

  1. Disposition of trust assets
  2. Grantor gift tax annual exclusion
  3. GST exemption
  4. No estate tax
  5. No probate
  6. Liquidity of grantor estate
    * at death, remainder distributed to benes without diminishing Medicaid benefits
39
Q

IRC SEC. 1041

A

= property transfer is incident to divorce if made 1 year after marriage terminates

  • HSA or MSA no taxable transfers
  • no gain/ loss recognized (non recognition treatment)
40
Q

Spousal support

A

= deducted by payer & included on payee’s income for divorces before 1/1/19

  • divorces after 1/1/19 = not deductible & payee cannot claim taxable income
  • under divorce, in cash, no designation, cannot live in same household, end at death, not child support, cannot file jointly
41
Q

IRC Sec. 1031(like-kind exchange)

A

= to avoid cashing out investments, roll into more expensive property (defer taxable gains)

42
Q

QTIP (“C trust”)

A

= allows decedent to qualify a transfer for marital = deduction at death yet still control ultimate disposition of property
o Holds property for benefit of surviving spouse & income distributions
o Blended family – protects parent w/ natural children

43
Q

Neoclassical Economic theory

A

= full information, utility maximization & rational preferences
* can infer what people want from how behave w/ their money

44
Q

Consumption Theory

A

= in a utility function, the increase in happiness/satisfaction is slightly less than unit before

45
Q

Best interest requirement

A

= best interest of plan/ IRA at time of the transaction

*disclose compensation when requested by the client

46
Q

Level-fee advisor

A

– no additional compensation may be charged on sale  provides investment advisor to a covered entity

47
Q

3.8% tax on net investment income

A

= applies to interest, dividends & capital gains (S corporation)

48
Q

Estate planning for business owner selling the business

A 
o	business assets to support lifestyle
o	transferring control
o	reduce size of taxable estate at death
o	disposition to heirs 
o	increase liquidity to owner’s estate
49
Q

Gross estate of decedent for federal will estate tax

A

o Property owned at time of death
o Property items transferred within 3 years of death
o Transfers during life in which retained right to
o Property owned with jointly with rights to survivorship
o Benefits from qualified retirement plans
o Property interests w/ general power
o Life insurance

50
Q

Section 6166

A

= business value included in gross estate must exceed 35% of adjusted gross estate
* if partnership, LLC or corporation – decedent must owned 20% of business (business no more than 15 owners)

CHFC (8 decks)

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