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Questions and Answers of Personal Financial Planning

Madge and Brent Jones want to establish an education account for their minor child, Tahoe. The Joneses do not want to incur the expense of establishing a trust and they want to gift parcels of real
Which of the following are examples of income in respect of a decedent?I. Dividends declared but not received at the time of death.II. Medical expenses accrued prior to the time of death.III. Salary
Mr. Waters is age 70; which one of the following is a skip person for him?A. His certified public accountant, age45.B. His granddaughter, whose parents died in an automobile accident.C. His
Mr. Able Nord is a 50 percent owner with Ms. Beatrice Wilson of the AB Bottling Company, Inc. They are considering a funded cross-purchase buy-sell agreement.How should the life insurance contract on
Pat and Angie McDonald are married and, by every measure, considered very wealthy. Six weeks ago, Pat passed away unexpectedly. In meeting with their estate attorney, Angie discovers that the bypass
Which of the following statements about self-canceling installment notes is not correct?A. Buyer pays a premium for the seller taking on the mortality risk.B. Buyer’s remaining payments are
Which of the following is not an incident of ownership in a life insurance policy?A. Right to assign.B. Right to make premium payments.C. Right to name beneficiaries.D. Right to terminate the policy.
Which of the following is another name for a marital trust?A. A Trust.B. B Trust.C. Revocable Trust.D. Portability Trust.
The Suffolk family owns a large ranching operation in Texas. It has been in the family for generations. Hal Suffolk, Sr. owns 25 percent of the ranch, and his interest represents 75 percent of his
Mrs. Adams, owner of a large cosmetics manufacturing company, transfers a portion of her stock into a GRAT with a five-year term. One year after granting the trust, she dies in a skiing accident in
Mr. Watson transferred the following life insurance contracts within three years of his death. Which of the following policies is not included in his gross estate?A. A life insurance contract on his
Which of the following resources may be used to pay for a long-term care stay in a nursing home that exceeds 100 days?A. Medicaid.B. Medicare.C. Medicare supplement insurance.D. Medigap insurance.
Paul Baker is a more-than-2 percent shareholder of Gemstone Brokers, Inc., an S Corporation. The corporation pays the premium for Paul Baker’s personally owned disability income insurance contract.
Who of the following is eligible to establish a health savings account?A. An individual participating in a high-deductible health plan.B. An individual eligible for Medicare.C. An individual claimed
Which of the following is not an essential health benefit under the Affordable Care Act (ACA)?A. Ambulatory patient services.B. Laboratory services.C. Maternity and newborn care.D. Vision care.
Under the employer shared responsibility provision of the ACA, which of the following is correct?A. Employers with 50 or more full-time employees who offer health insurance coverage, and have at
Susan Jones, owner of HyperTech, LLC decided that her storefront windows need to be washed in order to attract more foot traffic. The business sells iDevices, which are visible from the windows on
An insurance payment in excess of the adjusted basis of destroyed property will result in a___________ .A. Current gain.B. Gain.C. Tax free gain.D. Taxable gain.
Workers’ compensation is an example of which of the following types of liability?A. Absolute liability.B. Joint liability.C. Strict liability.D. Vicarious liability.
A few years ago, Mr. Steed purchased a deferred annuity for \($150,000.\) It is currently worth \($200,000.\) He has decided to retire and begin periodic payments. His life expectancy is 16 years. If
What is the function of the National Association of Insurance Commissioners?I. Enact legislation for regulation of the insurance industry.II. Oversee state accreditation programs.III. Promote law and
What type of investment risk is associated with an S&P index fund?A. Diversifiable risk.B. Nondiversifiable risk.C. Nonmarket risk.D. Nonsystematic risk.
A self-assessed risk-averse client wants to accumulate wealth. Of the following, which is the most critical action the personal financial planner should accomplish to assist the client in the
Components of an investment policy statement include all of the following except:A. Asset allocation strategy.B. Client constraints.C. Duties and responsibilities of the client and the personal
Susan Adams’s marginal tax rate is 25 percent. She is contemplating the purchase of either a corporate bond that has a 3.5 percent coupon or a newly issued tax-exempt municipal bond paying2.5
Hunter Martin is considering the purchase of a bond to round out the asset allocation for his investment portfolio.Hunter is in the 25 percent marginal tax bracket. Which bond provides the highest
What is the investment objective for Elizabeth and Charles Wilson?A. Education funding.B. Growth.C. Liquidity.D. Tax minimization.
Alternative investments are obtained through the use of A. Commodities.B. Exchange traded funds.C. Hedge funds.D. Mutual funds.
Which are performance benchmarks for the IPS of Elizabeth and Charles Wilson?I. Barclay’s aggregate.II. CPI – U + 2 percent.III. MSCI ACWI ex-US.IV. S&P 1500.A. III, IV.B. I, III, IV.C. IV.D. I,
Who is the investment manager for Ann Marie’s 529 college savings plan?A. Hometown Wealth Management, LLC.B. Paraklete® Financial, Inc.C. T. Rowe Price.D. Vanguard.
Which accounts are managed by Hometown Wealth Management, LLC for Charles L. Wilson?I. Rollover IRA.II. Roth IRA.III. SEP.IV. Traditional IRA.A. I, II.B. II, III.C. II, IV.D. III, IV.
Which of the following factors least affects a defined contribution plan participant’s account balance?A. Investment return.B. Inflation.C. Employer contributions.D. Life expectancy.
Alice Jones is a participant in Shield, Inc.’s ESOP. Over the years, Shield, Inc. has contributed stock with a cost basis of \($100,000\) to Alice’s account. Alice is planning to retire, and the
Pat’s 58-year-old husband Dennis recently died. He was employed by FastFood, Inc. at the time of his death. She brings Dennis’ retirement plan summary description to you for review. The
Which of the following retirement plans will qualify for NUA lump-sum treatment?I. Profit-sharing 401(k) plan.II. SEP/IRA.III. 403(b).IV. ESOP.A. All of the above.B. I, III, IV.C. I, II, IV.D. I, IV.
What is an exception to the tax penalty for the modification of a series of substantially and equal periodic payments within 5 years of the date of the first payment or, if later, age 59½?A.
Herbert Johnson, age 55, participates in Miller Hospital’s 403(b) plan. His compensation for 2016 is $60,000. What is his maximum salary deferral for 2016?A. He can defer $12,000.B. He can defer
Harmony Services, Inc. has 58 employees. The company would like to implement an employer-sponsored retirement plan with flexible contributions. The census indicates that integration with Social
Richard Thomas, the owner of Green Scapes Lawn Services, Inc., is age 57.He began the company 30 years ago, and at times it was a real struggle. Richard would like to retire at age 67. Because the
Angie Walters retired from Hanson, Hanson and Roberts, LLLP on her 70th birthday on June 10. If Angie accomplishes a direct rollover to an IRA, when must she take her first RMD?A. April 1 of the
Which of the following retirement plans is eligible for a QDRO?I. 403(b).II. 401(k).III. SEP.IV. SIMPLE IRA.A. I, II.B. II.C. I, III, IV.D. III, IV.
Jack works for Peterson Millworks, is married, and has two children. Peterson Millworks offers a PPO to its 50 employees. If Jack and his wife Alice were to divorce, which of the following is or are
Which fringe benefits are income taxable?A. Employee achievement awards.B. On-premise athletic facilities.C. Prepaid legal services.D. Occasional personal use of a company copying machine.
Who qualifies for a dependent care assistance plan?I. A dependent child who was under the age of 18 when the care was provided.II. A dependent who is mentally or physically challenged.III. A relative
Which pays a fixed amount and only provides benefits when the insured is hospitalized?A. Hospital indemnity.B. Managed care plan.C. Point of service.D. Surgical indemnity.
An employee may exclude from wages the value of certain planning services provided by an employer maintaining a qualified retirement plan.A. De minimis.B. Fringe benefit.C. Prepaid investment
Which is eligible to be considered an employee achievement award by an employer?A. Cash.B. Tangible personal property.C. Tickets to a sporting event.D. Vacation.
Which is required in order to participate in an HSA?A. Health maintenance organization.B. Point of service.C. Preferred provider organization.D. Qualified high-deductible plans.
Which is considered an indirect gift by an employee to a trust?A. Contributions to an adoption assistance program.B. Irrevocable assignment of group term life insurance.C. The revocation of a Crummey
Dr. Dante DeMarco, dermatologist, wants to provide fringe benefits to his staff. Which fringe benefits can be provided income-tax free to his employees?I. 50 percent off on microdermabrasion.II.
Benefits from which employer-provided plans will be received by the employee income-tax free?A. $7,000 in educational assistance.B. Group disability plan paid for by the employer.C. Prepaid legal
Under an endorsement form of split-dollar life insurance, the insured’s spouse is which of the following?A. The owner of the life insurance contract.B. The beneficiary of the life insurance
The___________ is an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.A. Employment agreement.B.
Income is taxable to a cash basis taxpayer in the year in which it is paid, or made available to the taxpayer. This is the doctrine of_____________ .A. Constructive receipt.B. Economic benefit.C.
All of the following are required for a qualified employee stock purchase plan except:A. All eligible employees must be allowed to participate in the plan.B. An employee may not purchase more than
Which of the following is Section 1244 stock?A. Ledger stock.B. Qualified employee stock purchase plan.C. Restricted stock unit.D. Unrestricted stock unit.
The need for a rabbi trust would be indicated in which of the following situations?I. An acquisition.II. Bankruptcy.III. Hostile takeover.IV. Mergers.A. I, IV.B. I, II, III.C. II, III.D. I, III, IV.
With the opening of a local casino, the Bank of Red River is having record earnings. The bank’s increased profits and the new casino are the direct result of the bank’s president, Mortimer Rock.
Which of the following are correct about a nonqualified deferred compensation plan?I. A nonqualified deferred compensation plan is an unsecured promise of a future benefit.II. Nonqualified deferred
Which of the following trusts is a top-hat plan?A. ERISA trust.B. Grantor trust.C. Rabbi trust.D. Secular trust.
Restricted stock is taxable as____________ in the year_________ .A. Long term capital gains/it is granted.B. Long term capital gains/it is sold.C. Ordinary income/it is granted.D. Ordinary income/it
Which of the following are true about a pooled income fund?I. It is a fund that is established and maintained by a public charity.II. It is a trust that is established and maintained by a public
Jack and Alice McWilliams made a charitable cash contribution of \($50,000\) to a 50 percent organization and \($30,000\) charitable cash contribution to a 30 percent organization. The McWilliams’
The IRC allows individuals and businesses to make noncash contributions to qualifying charities and to claim deductions for these contributions on their income tax returns. The Internal Revenue
Gene MacArthur, a wealthy 55-year-old widower, wants to reduce his taxable estate, supplement his current income, provide an inheritance for his children, and benefit his alma mater. He doesn’t
What is the required minimum payout rate to a qualified charity from a CLT?A. 0 percent.B. 5 percent of the initial corpus.C. 5 percent of the corpus valued annually.D. 5 percent of the fair market
Dr. Dirk Mallard donated stock he purchased six months ago to his employer, State University. He purchased the stock for \($50,000.\) The current fair market value is \($60,000.\) Dr. Mallard’s
Which organization allows for a charitable deduction to a foreign organization?I. U.S. “Friends of” organizations.II. Donor-advised funds—foreign.III. Public foundations—foreign.IV.
In which does a donor transfer cash, marketable securities, or other assets to a qualified charitable organization in exchange for a commitment by the organization to pay the donor a specified amount
Which of the following is a 50 percent organization?A. Literary organizations.B. Nonprofit cemetery organizations.C. The Benevolent and Protective Order of Elks.D. Veterans organizations.
A pooled income fund is a_______ created by a________ .A. Charity/trust.B. Foundation/university.C. Nonprofit/donor.D. Trust/charity.
A condition that may increase either the severity or frequency of an economic loss is:A. Adverse selection.B. Hazard.C. Peril.D. Risk.
Which of the following are considered moral hazards?I. Driving while intoxicated.II. Failing to lock your front door, which results in the theft of a computer and other personal effects.III.
Which of the following risks are considered insurable risks?I. Investment risk.II. Peril risk.III. Pure risk.IV. Speculative risk.A. I, IV.B. II.C. II, IV.D. II, III.
Which of the following is an element of insurable risk?A. The loss must be unexpected or accidental.B. The loss must be catastrophic.C. The loss produced by the risk cannot be measurable.D. The loss
Wearing a seat belt when driving an automobile is which of the following responses to risk?A. Risk avoidance.B. Risk transfer.C. Risk retention.D. Risk reduction.
Which of the following is the most suitable response for risks that involve high loss severity and low loss frequency?A. Risk avoidance.B. Risk diversification.C. Risk reduction.D. Risk transfer.
Which of the following is an example of a hazard?A. Bringing a new product to market in Chicago.B. Building a residence on the Intracoastal Waterway in Miami.C. Making a bet while visiting Las
Which of the following is not an element of an insurable risk?A. A sufficiently large number of homogeneous exposure units.B. Catastrophic loss.C. A definite loss.D. A fortuitous loss.
With regards to self-insurance which of the following is/are true?I. A concentration of risk exposures is a fortuitous loss.II. The law of large numbers will not operate.III. The possibility of
There is a 5 percent probability of loss (theft) each month for hotel towels. How would this loss be described using the frequency-severity method, and what is the appropriate response?A. High
Which of the following statements regarding forms of health insurance is incorrect?A. In a PPO, plan participants may or may not use the PPO physician; the choice is up to the participant.B. In an
Which of the following statements regarding Medigap insurance is correct?A. It is an alternative to the traditional Medicare plans.B. It is also known as a Medicare Advantage Plan.C. It is provided
Which of the following is a benefit provided by Medicare Part B?A. Ambulance services.B. Long-term care (100 days or less).C. Non-durable medical equipment.D. Prescription drugs.
Which one of the following describes the convertibility provision in a life insurance contract?A. The insured is guaranteed the right to exchange a term insurance product for a permanent insurance
Which of the following are true about HSA distributions?I. HSA distributions can be used to pay the premiums for qualified long-term care insurance.II. HSA contributions must be made by either the
Tom Jones is of modest means and is about to be married. He wants a life insurance contract with the lowest initial premium, a level death benefit, and that would provide forhis new spouse in the
Barbara Wilson is 65 years old and newly widowed (two years ago). As a result of poor estate planning and her husband’s untimely death, her taxable estate has been left with substantial assets and
Alex Taylor just became a partner at a law practice. He is funding his retirement plan with the maximum contributions allowed, as well as saving 10 percent of his gross income in an after-tax
Regarding contributions to an HSA, which of the following statements is incorrect?A. Contributions can be made by the employer or the individual, or both.B. Contributions made by the employer are
Regarding contributions to an HSA, which of the following statements is incorrect?A. Contributions can be made by the employer or the individual, or both.B. Contributions made by the employer are tax
Mrs. Monroe, 67, is a widow. Her husband Paul passed away a few years ago. In order to make up for the reduction in Social Security benefits, she rents a furnished room in her home to a local
Which statements are correct?I. Form HO-3 is an open form policy.II. Form HO-4 is a broad form policy.III. Form HO-6 is a broad form policy.IV. Form HO-5 is a hybrid policy.A. II, IV.B. I, III.C. II,
Which are exclusions that apply to all of the homeowners insurance forms?I. Earth movement.II. Explosion.III. Intentional loss.IV. Neglect.A. I, II, III.B. I, III, IV.C. II, III, IV.D. Ill, IV.
Christopher Bentley purchased a 10-year-old Saab with 130,000 miles on its odometer for $2,000. His state mandates that he have automobile insurance for the vehicle. The cost of insurance may be more
Jerry and Paula Ranch are finally retired. All of their years of hard work have finally paid off. They purchased a second home on the beach decades ago. It was a “teardown,” and they have slowly
Which annuity payment option is most appropriate for a retired married couple with limited means and no other sources of income?A. Joint and survivor annuity.B. Single life annuity.C. Interest only
Which are disadvantages of a single life annuity?I. Annuitant has irrevocably given up the principal payment.II. Annuitant may die before the return of the principal payment.III. Annuitant receives
Which is true about long-term care expenses?A. At age 65 and older, premiums paid for qualified longterm care insurance are fully deductible.B. Unreimbursed medical expenses are subject to 7.5
Robert purchased a single life annuity for \($100,000.\) His lifetime monthly payment is \($1,000.\) According to actuarial tables, Robert’s life expectancy is 10 years. Which is correct?A. If

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