Domain II - CPWA
Grantor trusts, both foreign and domestic, may provide asset protection for the trust's
grantor. The following are potential benefits of a grantor trust except:
A. tax-favored treatment of trust income
B. control and flexibility
C. protection of pre-marital assets
D. option to include spendthrift provisions in the trust document - answerA
Self cancelling installment note vs. Private annuity:
A __________ always ends on death of annuitant; a __________ can end earlier if
principal is completely paid. - answerprivate annuity, SCIN
All of the following statements regarding taxation of trusts are true except:
A. Trust income may be taxed to the trust, the trust beneficiaries, or the grantor of the
trust.
B. Income generated within irrevocable trusts is taxable to the beneficiaries to the extent
the income is distributed to them.
C. Income earned within a grantor trust is taxed to the grantor, or settlor of the trust
unless the grantor does not receive the income directly.
D. Trusts are taxed as separate entities and have their own tax rate schedule. -
answerC
By definition, the ________________ identifies the percentage of the appreciation of an
investment that has created a taxable event.
A. liquidity ratio
B. inflation adjusted real return
C. capital gains realization rate
D. relative wealth measure - answerC
A more helpful metric for measuring after-tax efficiency for separate accounts is the:
A. relative wealth measure.
B. Morningstar tax-cost ratio.
C. capital gains realization rate.
D. portfolio turnover rate. - answerA
The _________________ works well in ______________________.
, A. consultant capture ratio / upward-sloping smooth markets
B. relative wealth measure / upward-sloping smooth markets
C. relative wealth measure / choppy or downward-sloping markets
D. consultant capture ratio / choppy or downward-sloping markets - answerA
Your client owns all of the assets below and each plays an important role in the asset
selection you have chosen. Two assets must be owned through a taxable account while
the other two may be held in a tax-deferred IRA account. Assuming no other
information, which two assets would be most tax-efficient if held in the IRA account?
I. Limited partnership with significant UBT
II. Real Estate Investment Trust (REIT)
III. Zero-coupon bond
IV. Equity index ETF
A. III and IV only
B. IV and I only
C. II and III only
D. I and II only - answerC
The capital-gains realization rate formula is best represented by the following equation:
__________________ divided by the total gain in the fund.
A. capital gains distribution
B. long-term capital gains
C. short-term capital gains
D. capital gains realized - answerA
This tax-efficiency measurement reveals the percentage of return that is retained by
taxable investors and is calculated by dividing the after-tax return by the return before
tax.
A. accountant's ratio
B. capital gains realization rate
C. consultant capture ratio
D. relative wealth measure - answerC
__________ turnover measures how often assets are ________ or sold (usually within
a time period like a year).
It is a simple measure of potential taxation, but not usually the best measure of tax
efficiency. - answerportfolio, bought
____________ gains realization rate is the percentage the manager chose to realize.
Grantor trusts, both foreign and domestic, may provide asset protection for the trust's
grantor. The following are potential benefits of a grantor trust except:
A. tax-favored treatment of trust income
B. control and flexibility
C. protection of pre-marital assets
D. option to include spendthrift provisions in the trust document - answerA
Self cancelling installment note vs. Private annuity:
A __________ always ends on death of annuitant; a __________ can end earlier if
principal is completely paid. - answerprivate annuity, SCIN
All of the following statements regarding taxation of trusts are true except:
A. Trust income may be taxed to the trust, the trust beneficiaries, or the grantor of the
trust.
B. Income generated within irrevocable trusts is taxable to the beneficiaries to the extent
the income is distributed to them.
C. Income earned within a grantor trust is taxed to the grantor, or settlor of the trust
unless the grantor does not receive the income directly.
D. Trusts are taxed as separate entities and have their own tax rate schedule. -
answerC
By definition, the ________________ identifies the percentage of the appreciation of an
investment that has created a taxable event.
A. liquidity ratio
B. inflation adjusted real return
C. capital gains realization rate
D. relative wealth measure - answerC
A more helpful metric for measuring after-tax efficiency for separate accounts is the:
A. relative wealth measure.
B. Morningstar tax-cost ratio.
C. capital gains realization rate.
D. portfolio turnover rate. - answerA
The _________________ works well in ______________________.
, A. consultant capture ratio / upward-sloping smooth markets
B. relative wealth measure / upward-sloping smooth markets
C. relative wealth measure / choppy or downward-sloping markets
D. consultant capture ratio / choppy or downward-sloping markets - answerA
Your client owns all of the assets below and each plays an important role in the asset
selection you have chosen. Two assets must be owned through a taxable account while
the other two may be held in a tax-deferred IRA account. Assuming no other
information, which two assets would be most tax-efficient if held in the IRA account?
I. Limited partnership with significant UBT
II. Real Estate Investment Trust (REIT)
III. Zero-coupon bond
IV. Equity index ETF
A. III and IV only
B. IV and I only
C. II and III only
D. I and II only - answerC
The capital-gains realization rate formula is best represented by the following equation:
__________________ divided by the total gain in the fund.
A. capital gains distribution
B. long-term capital gains
C. short-term capital gains
D. capital gains realized - answerA
This tax-efficiency measurement reveals the percentage of return that is retained by
taxable investors and is calculated by dividing the after-tax return by the return before
tax.
A. accountant's ratio
B. capital gains realization rate
C. consultant capture ratio
D. relative wealth measure - answerC
__________ turnover measures how often assets are ________ or sold (usually within
a time period like a year).
It is a simple measure of potential taxation, but not usually the best measure of tax
efficiency. - answerportfolio, bought
____________ gains realization rate is the percentage the manager chose to realize.
