CRPC PRACTICE EXAM 1 2024 ACTUAL EXAM
QUESTIONS WITH DETAILED VERIFIED SOLUTIONS A
RATIONALES A+ GRADE ASSURED
A lump sum payment of the proceeds of a life
insurance policy that is made to the beneficiary upon
the insured's death - CORRECT ANSWER is
generally exempt fromincome taxation.
The lump sum proceeds of a life insurance policy (even
if a MEC) paid to a beneficiary are generally exempt
from income taxation. Withdrawals and loans from a
MEC maybe taxable. Life insurance proceeds, however,
are subjectto estate taxes if the deceased owned a life
insurance policy. If the deceased owner was also the
insured, the death benefits are included in his estate. If
the deceased owner is not also the insured, the current
value of the policy is in the deceased owner's gross
estate.
All of the following are reasons reverse mortgages
maybecome more common in the future except:
A)reverse mortgage fees must be rolled into the
loan.
B)reverse mortgages are a potential tool for
combatingsequence of return risk.
• many older Americans have large amounts of equity
intheir homes but lack liquid assets capable of
sustaining their lifestyle.
,• government regulatory changes in 2013
standardizedHome Equity Conversion Mortgage
(HECM) rules to a great extent. - CORRECT
ANSWER --A
Fees may be rolled into the reverse mortgage, but that
isnot required. Until the late 1990s American tax law
had strong incentives to purchase ever more expensive
homes. This effect lingers on today. Next, people have
tolive somewhere. Buying a home is a forced savings
plan as the mortgage is repaid each month. In addition,
increases in home prices over time help accrue wealth.
Reverse mortgages have the potential to fight
sequence ofreturn risk in several ways. First, reverse
mortgage loans can pay off the original mortgage and
thus eliminate the need for the original mortgage
amount each month.
Lowering income needs reduces the monthly need.
Reducing the monthly need takes pressure off the
portfolio. Also, money from a reverse mortgage is tax
free (like all other loans received). Additionally, during a
marketdownturn, monthly payments from a reverse
mortgage canbe substituted for portfolio withdrawals. In
fact, the monthly reverse mortgage amount can be
smaller than thenormal withdrawal from a non-Roth
retirement plan because the amount of income tax
required with the retirement plan withdrawal is not
needed when the monthly income is coming from a
reverse mortgage.
,All of the following are ways that a person can
voluntarily transfer estate assets to another person or
entity at deathexcept:
A) by will
substitute.
B) by gift.
• transfer on death (T.O.D.).
• by probate. - CORRECT ANSWER -- B
Probate and will substitute are ways that a person can
voluntarily transfer estate assets to another person or
entity at death. Gifting is one of the two ways that a
personcan voluntarily transfer estate assets to another
person or entity during life, not at death. T.O.D. passes
the brokerage account to the named person when the
owner of the account dies. P.O.D. (payable on death)
transfers a bank account in the same way.
Which one of the following statements regarding
Henry,who recently married for the first time, is
correct?
• Items received by a gift or inheritance during
themarriage are considered community property.
• In a community property state, Henry's spouse
isdeemed to have a vested 50% interest in all of
the property Henry owned at the time of the
marriage.
, • In a community property state, any property
Henryowns at death will go to his spouse by right of
survivorship.
• In a community property state, Henry's earnings
fromhis job subsequent to the date of his marriage will
be considered community property. - CORRECT
ANSWER
--D
Only property acquired after marriage is considered
community property unless separate property
acquired before marriage is later commingled with
community property. Community property does not
have a right of survivorship feature. Also, spouses
can own property intheir sole names in a community
property state. Items received during the marriage by
gift or inheritance are separate property.
Which one of the following statements regarding
differentforms of property co-ownership is correct?
• JTWROS, TBE, and CP are all forms of co-
ownership that do not require a probate proceeding
when one tenantdies.
• Joint tenancy with right of survivorship (JTWROS),
tenancy by the entirety (TBE), and community property
(CP) are all forms of co-ownership that can be used by
ahusband and wife.
• Payable on death (P.O.D.) and transfer on death
(T.O.D.) designations are completed gifts that give
the named person the right to handle the account
while theoriginal owner is alive.
QUESTIONS WITH DETAILED VERIFIED SOLUTIONS A
RATIONALES A+ GRADE ASSURED
A lump sum payment of the proceeds of a life
insurance policy that is made to the beneficiary upon
the insured's death - CORRECT ANSWER is
generally exempt fromincome taxation.
The lump sum proceeds of a life insurance policy (even
if a MEC) paid to a beneficiary are generally exempt
from income taxation. Withdrawals and loans from a
MEC maybe taxable. Life insurance proceeds, however,
are subjectto estate taxes if the deceased owned a life
insurance policy. If the deceased owner was also the
insured, the death benefits are included in his estate. If
the deceased owner is not also the insured, the current
value of the policy is in the deceased owner's gross
estate.
All of the following are reasons reverse mortgages
maybecome more common in the future except:
A)reverse mortgage fees must be rolled into the
loan.
B)reverse mortgages are a potential tool for
combatingsequence of return risk.
• many older Americans have large amounts of equity
intheir homes but lack liquid assets capable of
sustaining their lifestyle.
,• government regulatory changes in 2013
standardizedHome Equity Conversion Mortgage
(HECM) rules to a great extent. - CORRECT
ANSWER --A
Fees may be rolled into the reverse mortgage, but that
isnot required. Until the late 1990s American tax law
had strong incentives to purchase ever more expensive
homes. This effect lingers on today. Next, people have
tolive somewhere. Buying a home is a forced savings
plan as the mortgage is repaid each month. In addition,
increases in home prices over time help accrue wealth.
Reverse mortgages have the potential to fight
sequence ofreturn risk in several ways. First, reverse
mortgage loans can pay off the original mortgage and
thus eliminate the need for the original mortgage
amount each month.
Lowering income needs reduces the monthly need.
Reducing the monthly need takes pressure off the
portfolio. Also, money from a reverse mortgage is tax
free (like all other loans received). Additionally, during a
marketdownturn, monthly payments from a reverse
mortgage canbe substituted for portfolio withdrawals. In
fact, the monthly reverse mortgage amount can be
smaller than thenormal withdrawal from a non-Roth
retirement plan because the amount of income tax
required with the retirement plan withdrawal is not
needed when the monthly income is coming from a
reverse mortgage.
,All of the following are ways that a person can
voluntarily transfer estate assets to another person or
entity at deathexcept:
A) by will
substitute.
B) by gift.
• transfer on death (T.O.D.).
• by probate. - CORRECT ANSWER -- B
Probate and will substitute are ways that a person can
voluntarily transfer estate assets to another person or
entity at death. Gifting is one of the two ways that a
personcan voluntarily transfer estate assets to another
person or entity during life, not at death. T.O.D. passes
the brokerage account to the named person when the
owner of the account dies. P.O.D. (payable on death)
transfers a bank account in the same way.
Which one of the following statements regarding
Henry,who recently married for the first time, is
correct?
• Items received by a gift or inheritance during
themarriage are considered community property.
• In a community property state, Henry's spouse
isdeemed to have a vested 50% interest in all of
the property Henry owned at the time of the
marriage.
, • In a community property state, any property
Henryowns at death will go to his spouse by right of
survivorship.
• In a community property state, Henry's earnings
fromhis job subsequent to the date of his marriage will
be considered community property. - CORRECT
ANSWER
--D
Only property acquired after marriage is considered
community property unless separate property
acquired before marriage is later commingled with
community property. Community property does not
have a right of survivorship feature. Also, spouses
can own property intheir sole names in a community
property state. Items received during the marriage by
gift or inheritance are separate property.
Which one of the following statements regarding
differentforms of property co-ownership is correct?
• JTWROS, TBE, and CP are all forms of co-
ownership that do not require a probate proceeding
when one tenantdies.
• Joint tenancy with right of survivorship (JTWROS),
tenancy by the entirety (TBE), and community property
(CP) are all forms of co-ownership that can be used by
ahusband and wife.
• Payable on death (P.O.D.) and transfer on death
(T.O.D.) designations are completed gifts that give
the named person the right to handle the account
while theoriginal owner is alive.
