CTFA - Practice Exam #1 Questions with
Detailed Verified Answers
"Constructive Receipt" is normally applicable to the tax treatment of...
ANSWER: Non-Qualified Deferred Compensation Plans
Non-Qualified Deferred Compensation 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... ANSWER: Annuities
1035 Exchange 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) ANSWER: -Be able to substantiate the
reasonableness of using these funds
-Explain the fees associated
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-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? ANSWER:
$23,000
T/F: In a simple trust, trustee fees are deducted from DNI even the fees
that come out of Principal? ANSWER: True
Sprinkling trust 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? 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? ANSWER: This is ok
but you should require that trust contain broad language specifying
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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? 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, 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? 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 ANSWER: Amy could
have used her closely held business or a publicly traded stock to fund
the GRAT
Detailed Verified Answers
"Constructive Receipt" is normally applicable to the tax treatment of...
ANSWER: Non-Qualified Deferred Compensation Plans
Non-Qualified Deferred Compensation 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... ANSWER: Annuities
1035 Exchange 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) ANSWER: -Be able to substantiate the
reasonableness of using these funds
-Explain the fees associated
,2 | Page
-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? ANSWER:
$23,000
T/F: In a simple trust, trustee fees are deducted from DNI even the fees
that come out of Principal? ANSWER: True
Sprinkling trust 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? 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? ANSWER: This is ok
but you should require that trust contain broad language specifying
, 3 | Page
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? 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, 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? 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 ANSWER: Amy could
have used her closely held business or a publicly traded stock to fund
the GRAT
