A tax basis, or joint irrevocable trust, might be suggested in which situation?

Question 5 (1 point)

A tax basis, or joint irrevocable trust, might be suggested in which situation?

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  1. With a very large estate where each spouse owns significant assets.
  2. With a cheap client.
  3. With a smaller estate where one spouse owns a majority of appreciated assets.

Question 5 options:

II
I and II
II and III
III

Question 8 (1 point)

Caribon Cruise Tours has a traditional 401(k) plan for employees.  Last year, payroll for employees covered under the plan was $500,000 and employee elective deferrals amounted to $100,000.  Which of the following is true?

Question 8 options:

Caribon Cruise Tours can deduct up to $150,000 for federal income tax purposes
Caribon Cruise Tours can deduct no more than $125,000 for federal income tax purposes
employees paid income and payroll taxes on the amounts they chose to defer
a and c
a and b

Question 9 (1 point)

Sam has a daughter, Mary, to whom he would like to leave the bulk of his estate. All but which provision in Sam’s will would generally affect how much Mary will receive under Sam’s will?

Question 9 options:

The debts clause
The tax clause
The attestation clause
The residuary clause

Question 10 (1 point)

Quincy Winstar, age 50, has $200,000 in a traditional IRA and is considering conversion to a Roth IRA in 2009. Quincy earns $125,000 per year and his wife, Shawna earns $50,000. They file separate tax returns. As his financial advisor, you tell Quincy

Question 10 options:

he is not eligible for making an IRA conversion
he would have to pay income tax on any amounts rolled over from the traditional IRA to the Roth IRA
he would have to pay a 10% penalty in addition to tax on any monies rolled over since he is under age 59½
he can make a tax free rollover from a traditional IRA to a Roth IRA
he can minimize the tax consequences of the rollover by using a series of annual partial conversions rather than one large conversion

Question 11 (1 point)

Sam, a U.S. citizen, died in 2011. At his death, he owned real estate in Canada and in Ohio. Sam received the Ohio real estate 15 years earlier from his brother’s estate. The brother’s estate had paid federal estate tax on the Ohio real estate. Assume Sam’s estate paid death taxes to Canada and Ohio. A deduction or credit is not available to Sam for federal estate tax purposes for which of the following?

Question 11 options:

State death taxes paid to Ohio
The unified credit
Any of the estate tax paid by Sam’s brother on the prior transfer.
Foreign death taxes paid to Canada

Question 12 (1 point)

Minnie and Micky Pluck are married, filing jointly in 2009. Minnie earns $60,000 a year and takes full advantage of her employer’s qualified retirement plan. Micky is not employed.

Question 12 options:

Micky cannot make an IRA contribution
both Micky and Minnie can make a nondeductible IRA contribution
Minnie can make a nondeductible IRA contribution, but Micky cannot make an IRA contribution because he has no earned income
Micky can receive a full deduction for an IRA contribution
Micky can receive a partial deduction for an IRA contribution

Question 13 (1 point)

Elsie and her husband Zeb were married 55 years before he died last year.  When Zeb retired at age 65, he began receiving benefits from Social Security and Medicare Part A.  As a life-long homemaker, Elsie receives spouse benefits from Social Security.  Earlier this year, at age 75, Elsie was in a car accident, breaking her hip and cracking 4 ribs.  After two weeks in the hospital, she was transferred to a skilled nursing facility for 10 more days.  After her discharge, a visiting nurse came by her home once a week.  Which of the following services are covered under Medicare Part A for Elsie?

Question 13 options:

post-hospital extended care in a skilled nursing facility home and health service benefits
inpatient hospital care only
inpatient hospital care, post-hospital extended care in a skilled nursing facility home and health service benefits
inpatient hospital care and home health service benefits
inpatient hospital care and post-hospital extended care in a skilled nursing facility

Question 14 (1 point)

Michelle Fenner is the qualified plan trustee for the defined benefit plan held by Flatt Tire Company. Flatt Tire uses life insurance as part of their qualified defined contribution plan.  Currently, the cash value of the life insurance policies in the plan amounts to $50,000. Ms. Fenner can borrow against the cash value of the life insurance policies held in the plan.

Question 14 options:

True
False

Question 15 (1 point)

Bardwell Manufacturing, Inc. began 15 years ago.  The two co-owners now earn $300,000 per year each.  Four supervisors earn $40,000 each annually and have been with the company for 10 to 11 years.  Fifteen line employees earn a total of $300,000 and have been with the company from 2 months to 5 years.  All employees are over age 21.  The co-owners want to install a 15% money purchase plan and structure the plan in a way that maximizes their plan contributions. Which vesting schedule would be most appropriate for Bardwell?

Question 15 options:

6 year graded vesting
100% immediate vesting
2 to 6 year vesting
3 year cliff
3 to 7 year vesting

Question 16 (1 point)

With respect to when it is appropriate to consider updating a will, all of the following are true except:

  1. Whenever federal and/or state law changes.
  2. Whenever the testator moves to another state.
  3. Whenever the testator has a disagreement with a family member.

Question 16 options:

I only
II only
III only
I, II, and III

Question 17 (1 point)

Ocatagon Industries has an age weighted profit sharing plan that uses a fixed age-weighted formula for allocating employer contributions.  The plan covers 50 employees.  The owner and 2 key employees are highly compensated, each earning $500,000 per year.  Average pay for the rank and file employees is $35,000 per year. This year, the company allocated $1,000 to each employee’s retirement account. The tax implications of such an allocation include which of the following:

Question 17 options:

because the plan is top-heavy, Ocatagon cannot receive a tax deduction until an employee withdraws funds from his or her retirement account
participant does not pay income tax on employer contributions and earnings until the plan participant withdraws the funds
plan distributions for hardship withdrawals made to employees before age 59 1/2  are tax free
a and c

Question 18 (1 point)

Bankroll Corp. sponsors a profit-sharing plan in which Bankroll’s 4 employees made elective deferrals. The payroll of Bankroll Corp. is $500,000.  Bankroll’s deduction under the limits enacted by EGTRRA 2001 is:

Question 18 options:

$40,000
$75,000
$125,000
$165,000
$500,000

Question 19 (1 point)

The IRS caught the plan trustee for Hopper Manufacturing violating the prohibited transaction rules.  Hopper Manufacturing:

Question 19 options:

must pay a initial penalty equal to 5% of the amount involved
must pay a 100% penalty if the transaction is not corrected within time limits set by the IRS
may face penalties for breech of fiduciary responsibility
all of the above
only a and b

Question 20 (1 point)

William Best is completing a retirement plan for a client. Which of the following sources of his client’s income would William ignore when estimating client’s income sources?

Question 20 options:

current and future asset income
current and future asset income
rent from a duplex owned by the client
income tax refunds
Social Security income

Question 21 (1 point)

Corporation has purchased a key person life insurance policy on its President, a 51% shareholder. President dies. What impact does the key person policy have in determining the value of the President’s gross estate?

Question 21 options:

Since the corporation owned the policy, there is no impact on the gross estate
51% of the death benefit proceeds will be included in the President’s gross estate
As long as the key person is payable to the President’s personal beneficiary, no portion of the death benefit proceeds will be included in the President’s gross estate
51% of the death benefit proceeds will determine the value of the corporate stock to be included in the President’s gross estate

Question 22 (1 point)

At death, the decedent’s property may transfer by which of the following methods?

Question 22 options:

Only by contract
Only by will
Only by a trust
It depends on how the property was owned on the date of the decedent’s death

Question 23 (1 point)

Under which of the following circumstances may the IRS attack the validity of a family limited partnership?

Question 23 options:

The family limited partnership has a valid business purpose
The assets within the partnership should be included within the decedent’s estate since decedent retained a lifetime income interest in the property
Family limited partnerships have withstood all IRS attacks
There is a written FLP agreement setting forth the rights of all the partners

Question 24 (1 point)

Pamela Renquist, owner of Advance Software Solutions, Inc., wants to install a stock-based retirement plan for herself and her employees.  She has a young company that has averaged 5% a year growth since opening 5 years ago.  Pamela has asked you, her financial advisor, to help her understand which type of plan would be more advantageous for Advance Software Solutions, a stock bonus plan or an ESOP.  You tell Pamela that

Question 24 options:

both plans are identical except that an  ESOP can be integrated with Social Security while a stock bonus plan cannot, making an ESOP less expensive to provide
only a stock bonus plan requires a “put” option, making it more difficult to retire employees when company cash is short
the ability to use the ESOP to borrow money with tax deductible dollars could be advantageous to a young and growing business
an ESOP will dilute company ownership, but the diversification requirements in a stock bonus plan prevent that from happening
only an ESOP can be used to fund a corporate buy-sell agreement and should be used if Pamela want to control business succession

Question 25 (1 point)

The 5/5 power relates to:

Question 25 options:

Limiting a gift of the property upon lapse of a general power of appointment
The ascertainable standard
The amount of income tax to be paid by the holder of a general power of appointment
The rule against perpetuities

Question 26 (1 point)

All of the following are trusts that will qualify for the marital deduction except:

Question 26 options:

QTIP Trust
Estate Trust
Portability Trust
Power of Appointment Trust

Question 27 (1 point)

Bob D. Builder, owner of Bob’s Construction, would like to install a retirement plan that would help reduce turnover.  Bob should consider using a

Question 27 options:

an age weighted plan
401(k) plan
A profit sharing plan
a savings plan
a defined benefit plan

Question 28 (1 point)

Jane Jones, a widow with two adult sons (Sam, Dave) is in a combined 48% federal and state estate tax bracket. Jane is charitably minded, so she transfers $1,000,000 of appreciated IBM stock to a charitable remainder annuity trust (CRAT), retaining a 6% annuity interest for herself. After Jane’s death, the CRAT assets will pass to the American Heart Association. If Jane does not set up a wealth replacement trust, Sam and Dave will inherit:

Question 28 options:

$1,000,000
$940,000
$520,000
$480,000

Question 29 (1 point)

June Tandy is covered under a SIMPLE IRA at Barker Jones Auction House, where she is employed. This year, no salary deductions or employer contributions were allocated to her SIMPLE IRA. If June makes a contribution to her personal IRA this year, her deduction limit will be based on those applying to a person who is not an active participant in a qualified retirement plan.

Question 29 options:

True
False

Question 30 (1 point)

The local government in Central City is considering using an alternative to a Tax Deferred Annuity as a retirement plan.  Which of the following could Central City Government use?

Question 30 options:

401(k) plan
SIMPLE IRA
SIMPLE 401(k)
Section 403(b)
city governments can only use a Tax Deferred Annuity

Question 31 (1 point)

All of the following statements regarding disclaimers are true except:

Question 31 options:

A disclaiming party has absolutely no tax consequences associated with a qualified disclaimer
A disclaimer is a refusal by a beneficiary to accept benefits from a lifetime or testamentary transfer
Qualified disclaimers may be utilized as a flexible post-mortem estate planning strategy
The testator may rely on disclaimers to satisfy his estate planning objectives

Question 32 (1 point)

Jay Casteel, age 29, ran a small water ski and jet ski rental shop in Gulf Shores.  Unfortunately, near the end of the last season, a sudden storm with hurricane force winds damaged or destroyed over half of his inventory.  Revenues since the storm have been meager due to massive clean up efforts and slower tourist trade.  Jay is beginning to be pressured by some of his creditors.  Jay has heard that the small Keogh fund that he started can be seized by his creditors if he cannot work out a repayment plan.  You tell him that this is:

Question 32 options:

True
False

Question 33 (1 point)

Acorn Booksellers is a small business interested in adopting a qualified retirement plan.  The owner of Acorn wants to be able to choose from more than one financial institution when implementing the plan. Acorn’s owner also wants to determine such things as the vesting schedule, and the contribution or benefit formula.  As a small business, Acorn wants to keep costs down. You recommend that Acorn use

Question 33 options:

a prototype plan because it gives small employers a tax credit for implementation
a prototype plan because it would give Acorn choice in funding institution or medium while keeping installation and implementation costs low
a master plan because it would give Acorn choice in funding institution or medium while keeping installation and implementation costs low
a small business plan because it is specifically designed for small businesses
a master plan, because no determination letter is needed

Question 34 (1 point)

Which of the following statements best describes the tax ramifications to the beneficiary of a DBO plan?

Question 34 options:

There will never be any tax ramifications to the beneficiary
The distributions will be taxed as salary to the beneficiary and subject to ordinary income tax
The distributions may be taxed as either ordinary income or capital gains depending on the employee’s contributions on the date of death
Payments received will be treated as gifts and taxed accordingly

Question 35 (1 point)

Angela Snider, age 32, has $19,000 in her qualified retirement plan.  The maximum amount that Angela can borrow against her account is

Question 35 options:

zero – qualified retirement plans do not permit loans
$8,000
$ 9,500
$10,000
$50,000

Question 36 (1 point)

John creates an irrevocable trust into which he transfers income producing property. The trust provides income to his children for life; remainder to the grandchildren. John has appointed his wife, Sue, as the Trustee of the trust. Sue, as the Trustee, is given the power to apply trust income to purchase life insurance on John’s life. Who is responsible for the payment of the income tax liability attributed to the trust income?

Question 36 options:

Sue, as an individual
The children and grandchildren as trust beneficiaries
Sue, as the Trustee, and the children and grandchildren based upon the DNI calculation
John, as the Grantor of the trust

Question 37 (1 point)

Mandy Thomas, age 47, is the owner of The Golf Pro Shop.  Mandy wants to retire at age 55. The company adopted a defined benefit plan 2 years ago, 3 years after the business opened.  Mandy wants to increase the amount that she contributes to her own retirement. Mandy can

Question 37 options:

increase the amount, but maximum benefit will be cut in half because the plan is less than 10 years old
increase the amount within limits set by the Internal Revenue Code
she cannot increase her contribution
increase the amount without limit
increase the amount, but must also contribute to all other company employee accounts by the same proportion

Question 38 (1 point)

Donor made a gift of property to donee. At the time of the gift, the donor had a $90,000 basis in the property, the property had a fair market value equal to $80,000, and the donor paid gift tax of $10,000 with respect to the gift. If the donee sells the property for $75,000, the donee’s basis for purposes of determining loss is equal to

Question 38 options:

$75,000
$80,000
$90,000
$100,000

Question 39 (1 point)

Reed Collier works for Encyclopedia, Inc.  He has an informally funded nonqualified deferred compensation plan.  Encyclopedia, Inc. can use life insurance to fund this plan.

Question 39 options:

True
False

Question 40 (1 point)

Under which of the following circumstances would a revocable trust become irrevocable?

  1. When the Grantor dies.
  2. When the trust beneficiary dies.
  3. When the trustee resigns

Question 40 options:

I only
I and III
III only
II and III

Question 41 (1 point)

Bob Thomas died at a time when his closely held business was valued at $4,500,000. His gross estate was $6,500,000. Administrative costs, debts and expenses totalled $500,000. Federal estate taxes totalled $300,000. The amount of taxes which can be deferred under IRC Section 6166 is equal to

Question 41 options:

$0
$208,000
$225,000
$300,000

Question 42 (1 point)

Jane Tally has a thrift/savings plan with her employer.  She knows

Question 42 options:

her contribution to the plan is voluntary and made with after-tax dollars
100% of her contribution to her account is vested immediately
her employer’s contributions to her account must comply with Internal Revenue Code requirements for qualified plans
all of the above
only a and b

Question 43 (1 point)

Anchor Hardware Store has a SEP and a qualified profit sharing plan. When Anchor Hardware makes a contribution to the SEP, contributions to the qualified profit share plan are not affected.

Question 43 options:

True
False

Question 44 (1 point)

With regard to post mortem income tax elections all of the following are true if the decedent transferred property before death, except:

Question 44 options:

 If a decedent made an installment sale, the estate can elect of of installment reporting
If property of the decedent was involuntarily converted (i.e., destroyed by natural disaster, condemned) the estate or successor may be able to replace it and avoid taxation of gain to decedent for income tax purposes
A decedent must be declared of sound mind before transferring any property before death
A decedent has the right to make transfers of property before death

Question 45 (1 point)

Decedents will was drafted by Attorney A. The will names Executor and suggests Executor use Attorney A or his law partner Attorney B as attorney for the estate. Executor should:

Question 45 options:

Use Attorney A as attorney for the estate
Use Attorney B as attorney for the estate
Use any attorney other than Attorney A or Attorney B as attorney for the estate
Select the attorney to use for the estate

Question 46 (1 point)

When Mary died, a qualified domestic trust was created for her husband Tim. All but which of the following would cause imposition of the estate tax on the QDOT?

Question 46 options:

Income is distributed to Tim’s daughter
A distribution is made to Tim on account of hardship
Tim dies
Capital is distributed to Tim.

Question 47 (1 point)

Question 48 (1 point)

Which of the following are alternatives to an UGMA/UTMA account?

  1. Crummey trust
  2. 2503(c) trust
  3. QTIP

Question 48 options:

II only
II and III
I and II
I and III

Question 49 (1 point)

Juan T. B. and I. B. Cool were married 8 years ago.  Their divorce was finalized this week.  At age 65, I. B. is eligible for Social Security benefits under Juan’s work record.

Question 49 options:

True
False

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