Ctfa - Practice Exam #1 Question
"Constructive cReceipt" cis cnormally capplicable cto cthe ctax ctreatment cof... c- cCORRECT cANS✔✔N
cCompensation cPlans
Non-Qualified cDeferred cCompensation c- cCORRECT cANS✔✔TCHRA: cCompensation cthat cis cno
cnot cqualify cunder cERISA cfor ctax cexemption. cTaxation coccurs conce cthe cindividual creceives cthe
A c1035 cexchange crefers cto ca ctax cfree cexchange cof... c- cCORRECT cANS✔✔Annuities
1035 cExchange c- cCORRECT cANS✔✔IRS callows ctax-free ctransfer cof ccash cvalues cbetween c2 c
cAnnuity cto cAnnuity, cor cLife cto cAnnuity).
If ca cbank cuses cits cown cproprietary cmutual cfunds cfor cfiduciary caccounts cthen cit cshould cdo cthe
cANS✔✔-Be cable cto csubstantiate cthe creasonableness cof cusing cthese cfunds
-Explain cthe cfees cassociated
-Monitor cthe cfund's cinvestment cperformance
A csimple ctrust cearned c$27,000 cin cdividends. cIt cpaid c$4,000 cin ctrustee cfees. c1/2 cfrom cIncome
cDNI? c- cCORRECT cANS✔✔$23,000
T/F: cIn ca csimple ctrust, ctrustee cfees care cdeducted cfrom cDNI ceven cthe cfees cthat ccome cout cof c
cANS✔✔True
Sprinkling ctrust c- cCORRECT cANS✔✔A ctrust cin cwhich cthe cincome cor cprincipal cis cdistributed ca
cdesignated cclass cin camounts cand cproportions cas cmay cbe cdetermined cin cthe cdiscretion cof cthe
ccalled cspraying ctrust.
, Assuming cAmy ccreated ca cfive-year cgrantor cannuity ctrust c(GRAT) cin c2015 cwith ca c25% cannuity
c2018 c- cCORRECT cANS✔✔Amy ccould chave cused cher cclosely cheld cbusiness cor ca cpublicly ctra
Barney, can cinsurance cagent, cshows cMyron cwhy che cneeds c$250,000 cof cadditional ccoverage. cM
cyoung cchildren. cHe cis cinvestment-minded cand clikes cto cplay cthe cmarket. cWhich cof cthe cfollowin
cMyron c- cCORRECT cANS✔✔$250,000 cvariable cuniversal clife cpolicy
Compared cto cconventional cmortgage cloans, cjumbo cmortgage cloans ctypically c- cCORRECT cANS
crate
Currently, ca cretired cworker, cwho cis c67 cyears cof cage, creceives c$22,500 cof cemployment cearning
cwill cbe creduced cby: c- cCORRECT cANS✔✔0%
Donor-advised cfunds creceive cthe csame ctax ctreatment cas ccontributing cto c- cCORRECT cANS✔✔
T/F: cFiduciary cpowers cgenerally capply cjointly cand cseverally cto ceach cfiduciary cif cthere care cco-f
cANS✔✔True
Filing ca cdecedent's cfinal ctax creturn cis cthe cresponsibility cof cthe cdecedent's c- cCORRECT cANS✔
Herman c(age c72) cis creceiving cannuity cpayments cof c$1,850 cper cmonth cfrom ca cfixed cannuity cp
cbasis. cHerman's cwife cKathleen cis c68 cyears cold. cRegarding chis cannuity cplan, cif cHerman cdies c
cCORRECT cANS✔✔the cannuity cpayments cwill ccontinue cuntil cKathleen's cdeath cwith ca cportion c
cher cas cordinary cincome
How cdoes can cinvestment cadvisor cprudently cinclude cbehavioral cfinance cinto cdeveloping cinvestm
cANS✔✔Objectively cmeasures chow chuman cemotion chinders cprofit-making cdecisions.
Howard creceived cthe cfollowing clast cyear: c• cA c$10,000 cbonus cfrom chis cemployer c• c1,000 cshar
cstock cthat che cinherited cwhen chis cmother cdied c• cA c$1,000 cdividend ccheck cfrom cStarbuck's c• c
cpay cfor chis cthree cmonths cof cactive cduty. cRegarding cHoward's cincome ctax, cthe cstock cis c- cCO
Husband cmade cthe cfollowing cgifts cthis cyear: c• c$30,000 cof cMicrosoft cstock cto chis cwife c• c$15,0
cfor chis caunt's crecent csurgery c• c$70,000 cto ca c529 cplan cfor cthe cbenefit cof chis cniece c• c$20,000
ccollege cloan. cWith cregard cto cthe creportability cand ctaxation cof cthese ctransfers, cthe cgift cto chis c
cCORRECT cANS✔✔not creportable cand ctotally cexcludable cfrom ctaxation
If ca ctrust cdistributes cproperty cin ckind, cand celects cto crecognize cgain cor closs cupon cdistribution, c
cproperty cis c- cCORRECT cANS✔✔the cfair cmarket cvalue cupon cdistribution
In cJanuary, cRich ccreated cand cfunded can caccount cunder cthe cUniform cTransfer cto cMinors cAct c
cwho cis cnine. cRich cdied cin cMarch—three cmonths clater. cWould cRich's cestate cinclude cthe cvalue
c- cCORRECT cANS✔✔Yes
Jake chas cone cliving cchild c(C1). cC1 chas cone cchild, c(GC1) cJake's cother cchild c(C2) cdied cin c200
cJake calso chas ca cgrandnephew c(GN1) cwhose cfather c(Jake's cnephew) cdied cin c1998. cThis cyea
coutright cto ceach cof cGC1, cGC2 cand cGN1. cWhich cof cthese crecipients care cskip cpersons cfor cge
cpurposes? c- cCORRECT cANS✔✔GC1 cand cGN1
Jenny cis cthe cbeneficiary cof ca cqualified cdomestic ctrust c(QDOT) cestablished cby cher cdeceased ch
cthe ctrustee. cYour ctrust cdepartment cdetermines cthat cJenny cwill creceive ca cdiscretionary cdistribu
ca cdistribution cof cincome cfrom cthe ctrust. cWhen cthe cdistribution cis cmade, cwhich cof cthe cfollowin
cANS✔✔An cestate ctax cwill cbe cdue cequal cto cthe cfederal cestate ctax cthat cwould chave cbeen cpai
cbeen cincluded cin cthe cdeceased cspouse's cestate.
"Constructive cReceipt" cis cnormally capplicable cto cthe ctax ctreatment cof... c- cCORRECT cANS✔✔N
cCompensation cPlans
Non-Qualified cDeferred cCompensation c- cCORRECT cANS✔✔TCHRA: cCompensation cthat cis cno
cnot cqualify cunder cERISA cfor ctax cexemption. cTaxation coccurs conce cthe cindividual creceives cthe
A c1035 cexchange crefers cto ca ctax cfree cexchange cof... c- cCORRECT cANS✔✔Annuities
1035 cExchange c- cCORRECT cANS✔✔IRS callows ctax-free ctransfer cof ccash cvalues cbetween c2 c
cAnnuity cto cAnnuity, cor cLife cto cAnnuity).
If ca cbank cuses cits cown cproprietary cmutual cfunds cfor cfiduciary caccounts cthen cit cshould cdo cthe
cANS✔✔-Be cable cto csubstantiate cthe creasonableness cof cusing cthese cfunds
-Explain cthe cfees cassociated
-Monitor cthe cfund's cinvestment cperformance
A csimple ctrust cearned c$27,000 cin cdividends. cIt cpaid c$4,000 cin ctrustee cfees. c1/2 cfrom cIncome
cDNI? c- cCORRECT cANS✔✔$23,000
T/F: cIn ca csimple ctrust, ctrustee cfees care cdeducted cfrom cDNI ceven cthe cfees cthat ccome cout cof c
cANS✔✔True
Sprinkling ctrust c- cCORRECT cANS✔✔A ctrust cin cwhich cthe cincome cor cprincipal cis cdistributed ca
cdesignated cclass cin camounts cand cproportions cas cmay cbe cdetermined cin cthe cdiscretion cof cthe
ccalled cspraying ctrust.
, Assuming cAmy ccreated ca cfive-year cgrantor cannuity ctrust c(GRAT) cin c2015 cwith ca c25% cannuity
c2018 c- cCORRECT cANS✔✔Amy ccould chave cused cher cclosely cheld cbusiness cor ca cpublicly ctra
Barney, can cinsurance cagent, cshows cMyron cwhy che cneeds c$250,000 cof cadditional ccoverage. cM
cyoung cchildren. cHe cis cinvestment-minded cand clikes cto cplay cthe cmarket. cWhich cof cthe cfollowin
cMyron c- cCORRECT cANS✔✔$250,000 cvariable cuniversal clife cpolicy
Compared cto cconventional cmortgage cloans, cjumbo cmortgage cloans ctypically c- cCORRECT cANS
crate
Currently, ca cretired cworker, cwho cis c67 cyears cof cage, creceives c$22,500 cof cemployment cearning
cwill cbe creduced cby: c- cCORRECT cANS✔✔0%
Donor-advised cfunds creceive cthe csame ctax ctreatment cas ccontributing cto c- cCORRECT cANS✔✔
T/F: cFiduciary cpowers cgenerally capply cjointly cand cseverally cto ceach cfiduciary cif cthere care cco-f
cANS✔✔True
Filing ca cdecedent's cfinal ctax creturn cis cthe cresponsibility cof cthe cdecedent's c- cCORRECT cANS✔
Herman c(age c72) cis creceiving cannuity cpayments cof c$1,850 cper cmonth cfrom ca cfixed cannuity cp
cbasis. cHerman's cwife cKathleen cis c68 cyears cold. cRegarding chis cannuity cplan, cif cHerman cdies c
cCORRECT cANS✔✔the cannuity cpayments cwill ccontinue cuntil cKathleen's cdeath cwith ca cportion c
cher cas cordinary cincome
How cdoes can cinvestment cadvisor cprudently cinclude cbehavioral cfinance cinto cdeveloping cinvestm
cANS✔✔Objectively cmeasures chow chuman cemotion chinders cprofit-making cdecisions.
Howard creceived cthe cfollowing clast cyear: c• cA c$10,000 cbonus cfrom chis cemployer c• c1,000 cshar
cstock cthat che cinherited cwhen chis cmother cdied c• cA c$1,000 cdividend ccheck cfrom cStarbuck's c• c
cpay cfor chis cthree cmonths cof cactive cduty. cRegarding cHoward's cincome ctax, cthe cstock cis c- cCO
Husband cmade cthe cfollowing cgifts cthis cyear: c• c$30,000 cof cMicrosoft cstock cto chis cwife c• c$15,0
cfor chis caunt's crecent csurgery c• c$70,000 cto ca c529 cplan cfor cthe cbenefit cof chis cniece c• c$20,000
ccollege cloan. cWith cregard cto cthe creportability cand ctaxation cof cthese ctransfers, cthe cgift cto chis c
cCORRECT cANS✔✔not creportable cand ctotally cexcludable cfrom ctaxation
If ca ctrust cdistributes cproperty cin ckind, cand celects cto crecognize cgain cor closs cupon cdistribution, c
cproperty cis c- cCORRECT cANS✔✔the cfair cmarket cvalue cupon cdistribution
In cJanuary, cRich ccreated cand cfunded can caccount cunder cthe cUniform cTransfer cto cMinors cAct c
cwho cis cnine. cRich cdied cin cMarch—three cmonths clater. cWould cRich's cestate cinclude cthe cvalue
c- cCORRECT cANS✔✔Yes
Jake chas cone cliving cchild c(C1). cC1 chas cone cchild, c(GC1) cJake's cother cchild c(C2) cdied cin c200
cJake calso chas ca cgrandnephew c(GN1) cwhose cfather c(Jake's cnephew) cdied cin c1998. cThis cyea
coutright cto ceach cof cGC1, cGC2 cand cGN1. cWhich cof cthese crecipients care cskip cpersons cfor cge
cpurposes? c- cCORRECT cANS✔✔GC1 cand cGN1
Jenny cis cthe cbeneficiary cof ca cqualified cdomestic ctrust c(QDOT) cestablished cby cher cdeceased ch
cthe ctrustee. cYour ctrust cdepartment cdetermines cthat cJenny cwill creceive ca cdiscretionary cdistribu
ca cdistribution cof cincome cfrom cthe ctrust. cWhen cthe cdistribution cis cmade, cwhich cof cthe cfollowin
cANS✔✔An cestate ctax cwill cbe cdue cequal cto cthe cfederal cestate ctax cthat cwould chave cbeen cpai
cbeen cincluded cin cthe cdeceased cspouse's cestate.
