CTFA PRACTICE EXAM QUESTIONS AND ANSWERS
"Constructive Receipt" is normally applicable to the tax treatment of... - CORRECT ANSWER✅✅Non-
Qualified Deferred Compensation Plans
Non-Qualified Deferred Compensation - CORRECT ANSWER✅✅TCHRA: Compensation that is not
immediately taxable. It does not qualify under ERISA for tax exemption. Taxation occurs once the
individual receives the compensation or "property"
A 1035 exchange refers to a tax free exchange of... - CORRECT ANSWER✅✅Annuities
1035 Exchange - CORRECT ANSWER✅✅IRS allows tax-free transfer of cash values between 2 LIKE
policies (i.e. Life to Life, Annuity to Annuity, or Life to Annuity).
If a bank uses its own proprietary mutual funds for fiduciary accounts then it should do the following (3)
- CORRECT ANSWER✅✅-Be able to substantiate the reasonableness of using these funds
-Explain the fees associated
-Monitor the fund's investment performance
A simple trust earned $27,000 in dividends. It paid $4,000 in trustee fees. 1/2 from Income and 1/2 from
P. What is the DNI? - CORRECT ANSWER✅✅$23,000
T/F: In a simple trust, trustee fees are deducted from DNI even the fees that come out of Principal? -
CORRECT ANSWER✅✅True
Sprinkling trust - CORRECT ANSWER✅✅A trust in which the income or principal is distributed among
the members of a designated class in amounts and proportions as may be determined in the discretion
of the trustee or other party. Also called spraying trust.
A US dollar can buy 33 Thai Baht. What is a characteristic of the Thai Baht? - CORRECT ANSWER✅✅The
Thai Baht is a medium f exchange to facilitate trade and of itself has no intrinsic value.
, A very wealthy client created a trust that names your bank as a co-trustee with an individual following
the client's death. Upon reviewing the trust document, you notice that the individual trustee is granted
sole and complete responsibility for all trust investment decisions. Is that acceptable? What should you
follow up with? - CORRECT ANSWER✅✅This is ok but you should require that trust contain broad
language specifying that the bank will be exonerated (exculpated) from any decision made individual
trustee.
Al, Bob and Chuck purchased a $300,000 piece of real property. They each contributed $100,000 to the
purchase. Which of the following forms of property ownership would automatically pass the property to
Bob and Chuck if Al dies first? - CORRECT ANSWER✅✅JTWROS
Assume Ann, 45, leaves her job at Google and takes a similar position at Facebook. If she instructs
Google's human resource department to distribute her existing 401(k) balance to an IRA, - CORRECT
ANSWER✅✅Google may distribute Ann's full account balance without withholding any amount.
Assume that the United States is experiencing a larger than normal GDP growth and the Federal Reserve
wants to "cool things off" with an interest rate hike. Which of the following BEST describes the
mechanism to accomplish this objective? - CORRECT ANSWER✅✅Pursue open market activities (OMA)
to sell bonds.
Assuming Amy created a five-year grantor annuity trust (GRAT) in 2015 with a 25% annuity payment,
and she dies in 2018 - CORRECT ANSWER✅✅Amy could have used her closely held business or a
publicly traded stock to fund the GRAT
Barney, an insurance agent, shows Myron why he needs $250,000 of additional coverage. Myron is
young and has three young children. He is investment-minded and likes to play the market. Which of the
following is the best option for Myron - CORRECT ANSWER✅✅$250,000 variable universal life policy
Compared to conventional mortgage loans, jumbo mortgage loans typically - CORRECT
ANSWER✅✅have a higher interest rate
Currently, a retired worker, who is 67 years of age, receives $22,500 of employment earnings. Social
Security benefits will be reduced by: - CORRECT ANSWER✅✅0%
"Constructive Receipt" is normally applicable to the tax treatment of... - CORRECT ANSWER✅✅Non-
Qualified Deferred Compensation Plans
Non-Qualified Deferred Compensation - CORRECT ANSWER✅✅TCHRA: Compensation that is not
immediately taxable. It does not qualify under ERISA for tax exemption. Taxation occurs once the
individual receives the compensation or "property"
A 1035 exchange refers to a tax free exchange of... - CORRECT ANSWER✅✅Annuities
1035 Exchange - CORRECT ANSWER✅✅IRS allows tax-free transfer of cash values between 2 LIKE
policies (i.e. Life to Life, Annuity to Annuity, or Life to Annuity).
If a bank uses its own proprietary mutual funds for fiduciary accounts then it should do the following (3)
- CORRECT ANSWER✅✅-Be able to substantiate the reasonableness of using these funds
-Explain the fees associated
-Monitor the fund's investment performance
A simple trust earned $27,000 in dividends. It paid $4,000 in trustee fees. 1/2 from Income and 1/2 from
P. What is the DNI? - CORRECT ANSWER✅✅$23,000
T/F: In a simple trust, trustee fees are deducted from DNI even the fees that come out of Principal? -
CORRECT ANSWER✅✅True
Sprinkling trust - CORRECT ANSWER✅✅A trust in which the income or principal is distributed among
the members of a designated class in amounts and proportions as may be determined in the discretion
of the trustee or other party. Also called spraying trust.
A US dollar can buy 33 Thai Baht. What is a characteristic of the Thai Baht? - CORRECT ANSWER✅✅The
Thai Baht is a medium f exchange to facilitate trade and of itself has no intrinsic value.
, A very wealthy client created a trust that names your bank as a co-trustee with an individual following
the client's death. Upon reviewing the trust document, you notice that the individual trustee is granted
sole and complete responsibility for all trust investment decisions. Is that acceptable? What should you
follow up with? - CORRECT ANSWER✅✅This is ok but you should require that trust contain broad
language specifying that the bank will be exonerated (exculpated) from any decision made individual
trustee.
Al, Bob and Chuck purchased a $300,000 piece of real property. They each contributed $100,000 to the
purchase. Which of the following forms of property ownership would automatically pass the property to
Bob and Chuck if Al dies first? - CORRECT ANSWER✅✅JTWROS
Assume Ann, 45, leaves her job at Google and takes a similar position at Facebook. If she instructs
Google's human resource department to distribute her existing 401(k) balance to an IRA, - CORRECT
ANSWER✅✅Google may distribute Ann's full account balance without withholding any amount.
Assume that the United States is experiencing a larger than normal GDP growth and the Federal Reserve
wants to "cool things off" with an interest rate hike. Which of the following BEST describes the
mechanism to accomplish this objective? - CORRECT ANSWER✅✅Pursue open market activities (OMA)
to sell bonds.
Assuming Amy created a five-year grantor annuity trust (GRAT) in 2015 with a 25% annuity payment,
and she dies in 2018 - CORRECT ANSWER✅✅Amy could have used her closely held business or a
publicly traded stock to fund the GRAT
Barney, an insurance agent, shows Myron why he needs $250,000 of additional coverage. Myron is
young and has three young children. He is investment-minded and likes to play the market. Which of the
following is the best option for Myron - CORRECT ANSWER✅✅$250,000 variable universal life policy
Compared to conventional mortgage loans, jumbo mortgage loans typically - CORRECT
ANSWER✅✅have a higher interest rate
Currently, a retired worker, who is 67 years of age, receives $22,500 of employment earnings. Social
Security benefits will be reduced by: - CORRECT ANSWER✅✅0%
