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Flashcards in Quiz 2 Deck (17):

An employer can self-fund which benefits under a 501(c)(9) VEBA (voluntary employees beneficiary association)?

1) death benefits
2) medical benefits
3) unemployment benefits
4) retirement benefits
5) deferred compensation benefits

1, 2 and 3. No retirement and no deferred comp.


If someone owns a business and wants to remove life insurance from their estate, should they sell it to the business or gift it to their family member?

Gift it. They want to remove it from the estate, it's not asking about cross purchase buy and sell.


If a buy sell agreement with life insurance on two business owners, who gets a step up in basis when one dies?

Both experience a step up in basis. One for the death step up in the estate and the other for purchasing the other's share in the business.


If your client is retiring and annuitizes his retirement plan, what form of annuity will achieve the highest payment in his first year?

The life annuity. It always has the highest payout.


If your client, the grantor of a QPRT, dies during the retained interest term, what is the effect on the tax liability?

The grantor's estate is left with no greater tax liability than it would have had if nothing had been done at all. The entire value will be included in their estate regardless of any other facts.


When clients retire, what is the least concerning element of their retirement: their income taxes, investment performance, risk tolerance or life expectancy?

Income taxes. The other elements mentioned are very important to quality and longevity of retirement, whereas typically income tax brackets for retirees are very low.


If a US investor has bonds or securities in a foreign currency and country, what do they want to happen?

They want the value of the dollar to to weaken. US interest rates going down would improve their foreign bond return. An increase in foreign rates would also improve their foreign bond return.


When a questions says the client would like to reduce their AMT payable, what should they do?

Choose the answer that makes them increase their income, like exercising nonqualified stock options (NSOs) or anything that increases ordinary income tax for that year.


Are private universities public charities?

Yes. They are "30%" charities.


Can a partner buy a life insurance policy on the other partner from the other partners 2nd company?

Jim has a policy at X but is leaving to open Y. Can Jim's new partner at Y buy his policy at X?

Yes. His new partner can purchase his old policy at X and use it as a cross-purchase policy in their new company, Y.


What kinds of policies can be integrated with social security?

Money purchase plan
Stock bonus plan
Defined Benefit Plan

Which cant?
-401k plans where the company doesn't match or contribute anything


Do S corporation owners always ger tax-free benefits?

Yes. They do.


If your client and his wife are both clients and the husband asks for money from the joint account to pay off his mistress, should you terminate the relationship, or tell him you need his wife's consent?

You should tell him you have a conflict of interest and need the wife's consent. If you terminate the relationship, she will ask why and you'll have to tell her under obligation. Don't stir the pot.


Under the endorsement method, if an insurance policy has the following data, what would a client have to pay to buy it from their company?

Death Benefit: $1.2m
Cash Value: $120k
Premiums Paid: $100k

They'd have to pay $120k. The cash value of the policy. This is by definition under the endorsement method.


Which education credit denies access due to a criminal felony conviction, the American Opportunity Credit, or the Lifetime Learning Credit?

The American Opportunity Credit. Think of it like: convictions take away your american opportunities.


What receives a step up in basis at death:

A bond
An annuity

Only the Bond gets a step up because it is the only security.

The CD, IRA and Annuity are ordinary income products, not securities.


In certain questions that involve "educating the client", should you choose educating them most of the time?

Yes. The CFP Board usually wants you to pick the choice that involves teaching the client.