FINC 355 FINAL

FINC 355 RETIREMENT AND ESTATE PLANNING

FINAL EXAMINATION

DIRECTIONS: Here is the Final Examination. Use the Final Examination Answer Sheet for your responses to the questions. When you have completed the Final Examinaiton submit the Answer Sheet to your Final Examination Assignment Folder. Keep in mind that the Final Examination is comprehensive. Late Final Examinations will not be accepted. There will be no make-up exams unless for documented emergencies. The Final Examination is to be your work and your work alone, with no assistance from others Please submit your Final Examination in MS Word fromat with the following file name: LastNameFirstInitial_FinalExamAnswerSheet.docx. For example, if you name is John Smith, the file name of your Answer Sheet should be SmithJ_FinalExamAnswerSheet.docx.

1. 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?

A. 401(k) plan B. SIMPLE IRA C. SIMPLE 401(k) D. Section 403(b) E. city governments can only use a tax deferred annuity

2. A guardian is: A. A person appointed by court to manage people who are not legally able to mange for

themselves. B. The same as a trustee but for minor children. C. Responsible for the supervision of the ward, only to the extent described in the Will. D. Always a relative of the deceased and the ward.

3. Cathy Atwater is 60, 5 years away from retirement. The most accurate method for her to use in calculating her income needs during retirement is the

A. expense method B. replacement ratio method

4. A person should define his or her wishes for the disposition of property at death in a document called a

A. Durable Power of Attorney B. Trust C. Will D. Living will

5. If a person wons real estate, and that ownership is not shared with others, the ownership is known as:

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FINC 355 RETIREMENT AND ESTATE PLANNING

FINAL EXAMINATION

A. Joint tenancy B. Tenancy by the entirely C. Tenancy in common. D. A Fee simple estate

6. Makework Corp. has an unfunded nonqualified deferred compensation plan. Employees covered under the plan can defer taxes on plan contributions if plan funds are

A. available to company creditors B. subject to substantial risk of forfeiture C. placed in a designated trust D. a and b E. b and c

7. By using inter vivos gifts, an estate owner can: A. Maintain control over property while removing it from the estate B. Distribute estate property prior to to his or her death C. Distribute estate property after his or her death according to the terms of the Will D. Eliminate the need for estate planning

8. Bob D. Builder, owner of Bob’s Construction, would like to offer a retirement plan that would

help reduce turnover. Bob should consider using a(n) A. 401(k) plan B. profit sharing plan C. savings plan D. age-weighted plan E. defined benefit plan

9. If insurance on the life of the decedent is payable to the decedent’s estate, it is:

A. Included in the estate B. Included in the estate unless the policy is owned by a life insurance trust C. Included in the estate but the estae gets a credti for the proceeds if they are used to

pay federal estate taxes D. Included in the estate unless the policy is owned by the spouse

10. Maria Valquez is a public school teacher. Her employer provides a tax deferred annuity (TDA).

She began working for this employer 4 years ago and started her TDA at that time. Over those 4 years, she has contributed $1,000, $2,500, $3,000, $3,000 to her TDA through salary reduction. Her employer matches $1 for $1 up to $100 and offers graded vesting at the rate required by law for TDA accounts. Currently, Maria’s vested interest in the plan is

A. 9,500 B. 9,580 C. 9,660 D. 9,740 E. 9,900

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FINC 355 RETIREMENT AND ESTATE PLANNING

FINAL EXAMINATION

11. In a per stripes distribution, policy proceeds are paid: A. To a trust for the benefit of the surviving spouse and children. B. To the state of the decedent C. To each surviving named beneficiary equally D. To each name beneficiary, if living, and to the children of any deceased beneficiaries

12. All of the following requirements must be met in order for a surviving spouse to receive a mother’s or father’s benefit, except

A. the child is the survivor’s own child or is legally adopted B. the surviving spouse is unmarried C. no widow’s or widower’s benefit is available D. the surviving spouse is caring for a child under age 18, or disabled before age 22

13. In most states, the effect of leaving assets in a trust for “support, care, and maintenance” of a disabled person is:

A. That they cannot be claimed by the state for the cost of care of the disabled person B. That they cannot be used to offset the cost of case for the disabled person C. The same as leaving it directly to the disabled person D. That payments for care in a sate-run facility are directed to the specific facility for the

care of the specific disabled person

14. Gifts to charitable organizations described in Internal Revenue Code Section 501©(3): A. Are limited to $10,000 per organizations for federal estate tax purposes B. Receive favorable federal estate tax treatment C. Are not included in the gross estate D. Are treated as a credit against estate taxes.

15. 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.

A. true B. false

16. The applicable unified credit is:

A. An allowable adjustment to the gross estate B. A credit against the estate tax due C. A deduction against the tacable estate D. Disallowed if the material deduction is in use

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FINC 355 RETIREMENT AND ESTATE PLANNING

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17. Quincy Winstar, age 50, has $200,000 in a traditional IRA and is considering conversion to a Roth IRA in 2013. 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

A. he is not eligible for making an IRA conversion B. he would have to pay income tax on any amounts rolled over from the traditional IRA to

the Roth IRA C. he would have to pay a 10% penalty in addition to tax on any monies rolled over since

he is under age 59½ D. he can make a tax-free rollover from a traditional IRA to a Roth IRA E. he can minimize the tax consequences of the rollover by using a series of annual

partial conversions rather than one large conversion

18. The federal esate ax is due and payble:

A. April 15th following the date of death B. Immediately at death C. Nine months after death D. At the end of the calendar year following the date of death

19. 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. A. true B. false

20. The gift tax is the responsibility of A. The person receiving the gift B. The person making the gift C. The executor / administrator D. The donor and the donee jointly

21. The owner of Hilton Tours is considering installing a money purchase plan and integrating it with Social Security. Which of the following is true? A. Social Security integration will allow Hilton Tours to make greater contributions to

higher-paid employees B. Hilton’s owner must use the excess method for integrating defined contribution

formulas with Social Security C. Hilton’s owner must use the offset method for integrating defined contribution formulas

with Social Security D. A and B E. A and C

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FINC 355 RETIREMENT AND ESTATE PLANNING

FINAL EXAMINATION

22. Last year, the owner of Quinton Enterprises decided to contribute an additional $4,000 to each

employee’s 401(k) account. This amount was about four times the average annual contribution made by rank-and-file employees, but about even with the average annual contribution of the highly compensated employees. The $4,000 was about double the amount that the owner had contributed to employees’ accounts the prior year. The form of employer contribution used at Quinton Enterprises is A. formula matching B. discretionary matching C. pure discretionary D. formula contributions E. proportional contributions

23. The ownership arrangement for married couples in which neither can act independently wihtou the agreement of the other is known as: A. Join tenancy B. Tenancy by the entirety C. Tenancy in common D. A fee simple estate

24. If a spouse is to be the beneficiary of an IRA or a qualified plan, it is generally preferrable to leave the IRA or qualified plan A. to a bypass trust B. to a QTIP trust C. to the participant’s estate D. outright to the spouse

25. Amalgamated Industries, Inc., wants to install a plan that will be effective in January of next

year. Amalgamated Industries uses a calendar year for tax reporting. Which of the following must happen before December of next year? A. corporate board must pass a resolution adopting the plan B. either a trust agreement needs to be signed and established under state law or an

application for a group pension contract must be made and accepted by an insurance company

C. the plan must be communicated to employees, orally or in writing D. all of the above E. only a and b

26. The proceeds of a life insurance policy are paid to a beneficiary

A. According to the state’s intestacy laws B. If the beneficiary is a joint tenance with right of suvivorship C. According to the terms of the contract D. After it passes through probate

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FINC 355 RETIREMENT AND ESTATE PLANNING

FINAL EXAMINATION

27. In a rush to get a qualified retirement plan installed before the deadline for the year, the owner of Baxter Concrete failed to get a determination letter from the IRS. Five years later, Baxter is audited. If the IRS finds a disqualifying provision or if an essential provision is missing from Baxter’s plan A. Baxter’s tax deduction for the year being audited could be lost B. Baxter’s employees could be required to pay tax on their vested benefits C. Baxter’s plan fund could lose its tax-exempt status D. all of the above E. only a and b

28. The purpose of the probate process is to: A. Determine that the Will distributes property according to the state’s intestacy laws B. Validate the Will and supervise the distribution of property C. Collect estate taxes for the federal government D. Determine if the distribution is equitable to all parties

29. A trust that the grantor has no power to change is known as : A. A revocable trust B. An irrevocable trust C. A testamentary trust D. A perpetuity

30. To be eligible for a business tax credit for startup costs or employee education expenses

incurred in connection with adoption of a retirement plan, A. the employer must have 100 or fewer employees B. employees covered in the plan must have earned more than $5,000 for the previous

year C. the plan must cover at least one nonhighly compensated employee D. all of the above E. only a and b

31. Typically, naming a minor child the beneficiary of a life insurance policy is:

A. Almost always a mistake because minors do not know how to handle money B. Almost always advised if the proceeds of the policy are for the benefit of the child C. Almost alwys a mistake because minors do not have the legal capacity to execute a

contract D. Almost always preferred by insurance companies because it makes settling a claim

easier

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FINC 355 RETIREMENT AND ESTATE PLANNING

FINAL EXAMINATION

32. Which of the following is (are) true regarding “retroactive amendments”? A. the retroactive amendment procedure allows plan sponsors to retroactively eliminate

certain disqualifying provisions B. retroactive amendments can be made up to the employer’s tax filing date, excluding

extensions C. retroactive amendments can be made up to the employer’s tax filing date, including

extensions D. a and b E. a and c

33. The primary purpose of estate planning is to assure that: A. Property is distributed according to its owner’s wishes B. Taxes are minimized, if not avoided C. The distribution of the estate avoides the probate process D. All heirs are euqitably treated

34. Quality Lawncare’s tax year runs from January to December. In December of last year, Quality Lawncare legally adopted a qualified retirement plan. Quality Lawncare must wait until the following January before a tax deduction for contributions to the plan can be taken. A. true B. false

35. To qualify as a gift of preesnt interest,m the recipient must have: A. An unrestricted, immediate right to use it B. The right to use it, even if the right is a future right C. Permission of the donor to use it D. The right to use it, even if the right is restricted

36. In a rush to get a qualified retirement plan installed before the deadline for the year, the owner of Baxter Concrete failed to get a determination letter from the IRS. Five years later, Baxter is audited. If the IRS finds a disqualifying provision or if an essential provision is missing from Baxter’s plan A. Baxter’s tax deduction for the year being audited could be lost B. Baxter’s employees could be required to pay tax on their vested benefits C. Baxter’s plan fund could lose its tax-exempt status D. all of the above E. only a and b

37. Which of the following is an example of an income tax? A. An employment tax, such as the Social Security tax B. An estate or gift tax C. A tax on liquor and cigarettes D. A sales tax

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FINC 355 RETIREMENT AND ESTATE PLANNING

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38. Amalgamated Industries, Inc., wants to install a plan that will be effective in January of next year. Amalgamated Industries uses a calendar year for tax reporting. Which of the following must happen before December of next year? A. corporate board must pass a resolution adopting the plan B. either a trust agreement needs to be signed and established under state law or an

application for a group pension contract must be made and accepted by an insurance company

C. the plan must be communicated to employees, orally or in writing D. all of the above E. only a and b

39. Which of the following propety passes directly to beneficiaries without passing through probate? A. Stock left to a named charity B. A house jointly owned by a married couple C. Land left by Will to a daughter D. A life insurance policy that names the estate as beneficiary

40. Advantages of using life insurance in a qualified plan include all of the following except

A. predictable plan costs for employer B. life insurance is a very safe investment C. retirement benefits can be guaranteed by insurance company and employer D. low-cost installation and service of the plan E. greater rates of return on insurance cash value than alternative investments

41. Which of the following statement represent a common purpose of estate planning?

I. The best estate plan is always one that minimized taxes.

II. Intestate successon laws generally provide for he distribution of property in accordance with a decedant’s wishes

A. I only B. II only C. Both I and II D. Neither I nor II

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FINC 355 RETIREMENT AND ESTATE PLANNING

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42. 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 A. increase the amount without limit B. increase the amount within limits set by the Internal Revenue Code C. increase the amount, but must also contribute to all other company employee accounts

by the same proportion D. increase the amount, but maximum benefit will be cut in half because the plan is less

than 10 years old E. she cannot increase her contribution

43. A pension plan is considered fully insured for the plan year if it meets all of the following requirements, except A. the plan is funded exclusively by the purchase of individual insurance contracts B. the plan permits only highly compensated employees the right to purchase life

insurance contracts from the plan at cash surrender value C. no rights under the contracts have been subject to a security interest during the plan

year D. premiums have been paid without lapse (or the policy has been reinstated after a

lapse) E. no policy loans are outstanding at any time during the plan year

44. Which of the following statement concerning gifting is (are) correct?

I. For gift tax purposes, gift splitting treats the transfer as though each spouse made on- half of the gift.

II. The donee’s basis in the gifted property is the adjusted basis of the donor.

A. I only B. II only C. Both I and II D. Neither I nor II

45. Harold Walters, age 39, runs a tax accounting service. He employs five people. He wants to install a defined benefit plan for himself and his employees funded with life insurance, but he wants to retain some control over the plan investments. As his financial advisor, you tell Harold that the type of funding that would best meet his requirements is a(n)

A. fully funded plan B. envelope funding plan C. plan funded with whole life insurance D. plan funded with term insurance E. combination plan

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FINC 355 RETIREMENT AND ESTATE PLANNING

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46.All of the following are ways that proprety can be transferred EXCEPT A. Distributed at death B. Sold or exchanged for valuable consideration C. A promise to sell the property in the future D Made as a gift of either present or future interest

47. Which plan has benefit levels that are guaranteed by both the employer and the Pension Benefit Guaranty Corporation (PBGC)?

A. money purchase plan B. target benefit plan C. cross tested plan D. defined benefit plan E. tax-deferred annuity

48. 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 its 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. A. true B. false

49. Disadvantages of defined benefit plans include A. employee bears investment risk B. higher installation and administrative costs as compared with a defined contribution

plan C. older employees will receive a lower retirement benefit than younger employees D. a and b E. a and c

50. Well Corporation has a life insurance policy on the life of the owner Ben Well as part of his defined benefit plan. Ben plans to retire in five years at the age of 65. At that time, he will receive $2,000 per month. The face value of his insurance policy is $210,000. The IRS will treat Ben’s life insurance plan as an incidental death benefit. A. true B. false

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