Deck 14: Professional Financial Planning

Question 1

The main financial problem associated with the early adult years is:

A) compensating for loss of income to the family in the event of a premature death of main wage earner
B) loss of retirement income in the event of a premature death of main wage earner
C) the problem of paying estate taxes
D) providing lifelong income for the children

Answer 1

A

Question 2

When an insured dies with an incident of ownership in a life insurance contract:

A) the face amount is included in the gross estate
B) the face amount is not taxed at all due to a loophole in estate tax laws
C) only the cash value at death is included in the estate
D) only is taxed due to the spouse's assumed half ownership

Answer 2

A

Question 3

Which of the following would not be considered a need in the needs-based approach?

A) Burial fund
B) Fund to cover the equity in the home
C) College education fund
D) Debt retirement fund

Answer 3

B

Question 4

A "Certified Financial Planner":

A) is a widely recognized financial planning credential
B) can assist people in the financial planning process
C) is not an existing credential
D) A and B above

Question 5

To properly handle the orderly transfer of business ownership at death, it is necessary to have:

A) an unfunded buy-and-sell agreement
B) a life insurance contract to fund the purchase and a buy-and-sell agreement
C) a verbal understanding of the valuation method
D) a verbal commitment of the heirs to sell the business

Question 6

Purchasing life insurance on the homemaker:

A) makes no sense because the homemaker generates no income
B) should not be done because of the moral hazard it creates in the working spouse
C) makes sense in many cases due to the cost of service replacement and it would help the family maintain a "normal" lifestyle
D) is very necessary when the homemaker has no minor children

Question 7

Which of the following statements is false?

A) People with a small amount of assets do not typically need a will.
B) A parent can use a will to appoint a guardian for his/her children.
C) A valid will can minimize probate problems.
D) A legally enforceable will must be made when a person is of sound mind.

Question 8

Which of the following is not a business use of life insurance?

A) To protect a business against loss caused by the death of a key person
B) To provide a means of rewarding and retaining valuable personnel
C) To lower business losses when an employee is fired
D) To provide some amount of life insurance to employees

Question 9

A business firm may utilize life insurance to protect against loss caused by the death of:

A) a key employee
B) a limited partner, not employed by the firm
C) a main supplier
D) a stockholder in a public corporation

Question 10

Which formula shows the needs based method of estimating the amount of life insurance needed?

A) Life insurance needed = present value of future income
B) Life insurance needed = burial + education - food - shelter
C) Life insurance needed = income + social security - savings
D) Life insurance needed = total needs - existing assets to meet the needs

Question 11

When a person dies, the gross estate is:

A) taxed at the rate of 50%
B) adjusted for certain gifts made during the decedent's lifetime
C) subject to the federal estate and gift tax
D) not taxed if death bed gifts are made to eligible children

Question 12

Sound financial planning requires a trade off between:

A) risk and return alternatives
B) gratification and savings
C) investment and saving alternatives
D) fees and returns

Question 13

Federal Estate Taxes:

A) are also called uniform transfer taxes
B) are different from state to state
C) are levied on the fair market value of the gross estate
D) are levied on the taxable estate

Question 14

Which one of the following is not usually involved in the provision of funding for college expenses?

A) Needs based life insurance
B) Life insurance trust
C) Section 529 plan
D) All of the above

Question 15

Mr. & Mrs. Clinton are in their 80s. They have saved millions of dollars and need to begin taking steps to minimize their estate tax liability. They have asked you for advice, and you tell them, "Give each of your children, grandchildren, and great-grandchildren a cash gift to start spending down your estate." Is this correct?

A) Yes
B) No, because they still will have to pay income taxes on the gifts
C) No, because they will still be subject to the uniform transfer tax
D) No, because there are limits to yearly gifts

Question 16

All of the following are typical business uses of life insurance except:

A) protect the business against loss caused by the death of a key person
B) provide a means of rewarding and retaining valuable employees
C) provide severance pay to employees when jobs are terminated
D) protect the value of the partnership at the death of an owner/insured

Question 17

Which of the following statements is false concerning the taxation of life insurance?

A) Beneficiaries receive death benefits free from any federal taxation.
B) The value of the life insurance death benefit is always included in the insured's estate.
C) If a non-insured/owner dies, the value included in the decedent's estate is approximately the cash value of the insurance contract.
D) Interest earned on settlement proceeds is taxable.

Question 18

For which year(s) is (are) the Federal Unified Estate Taxes known?

A) 2011
B) 2012
C) 2011 and 2012
D) All years after 2011

Question 19

The text mentioned several reasons for purchasing "business" life insurance. Which of the following reasons was not mentioned?

A) Business continuation
B) Fringe benefits
C) Key person insurance
D) Protection from creditors' claims

Question 20

Which of the following is true?

A) The government discourages retirement saving by providing no tax incentives.
B) To discourage the pre-retirement withdrawal of tax advantaged retirement savings plans, the government imposes a 20% early withdrawal penalty.
C) To discourage the pre-retirement withdrawal of tax advantaged retirement savings plans, the government imposes a 10% early withdrawal penalty on withdrawals made before age 62.
D) If a 40-year-old person becomes disabled, she may be allowed to withdraw tax advantaged savings without paying a tax penalty.

Question 21

Financing retirement is a challenge for many Americans. Which of the following is not a reason that retirement planning has become more challenging?

A) Many employers no longer fund retirement programs for their employees.
B) Many employees have complicated but generous health insurance plans provided by their employer.
C) Social Security has increased the normal retirement age and lowered benefit targets.
D) Increases in longevity put a greater burden on retirement savings.

Question 22

With respect to a trust fund, what is the role of the trustee?

A) Provide the initial funding for the trust
B) Receive the benefits of the trust
C) Provide management of the trust's property
D) Determine the beneficiary of the trust

Question 23

Which of the following is not an issue when planning for retirement?

A) Estimating the age of retirement
B) Estimating the income of the children, if any
C) Estimating the age at death
D) Estimating expenses during retirement

Question 24

The Federal Estate Tax is a flat percent on all assets owned at death.

Question 25

Why would a company favor an entity plan over a cross-purchase plan?

A) Tax benefits
B) An entity plan has fewer policies
C) When they have a lot of so-called "key employees"
D) When a buy-and-sell agreement is not feasible

Question 26

Typically which of the following results from a financial plan?

A) Start saving more
B) Write or update a will
C) Purchase more life insurance
D) All of the above

Question 27

The maximum estate tax rate is 58.

Question 28

Choose the answer that best describes the purpose of a Section 529 Plan:

A) funding retirement with tax-deferred dollars
B) funding retirement with completely tax-free dollars
C) funding a college education
D) funding retirement

Question 29

The best financial plan for financing a child's college education requires:

A) a savings plan
B) a 401(k) plan
C) premature death protection
D) both A and C

Question 30

The trustee of a trust fund is responsible for determining the beneficiary of the fund's assets.

Question 31

The fact that women live longer than men has the following impact on planning for retirement:

A) they require income for a longer period of time
B) life insurance on a husband should take this fact into account
C) they require more health insurance
D) All of the above are correct.

Question 32

What is a charitable deduction?

A) A deduction from the cash value to a qualified charitable organization
B) A deduction from the taxable estate to a church
C) A deduction from the taxable estate to a qualified charitable organization
D) A deduction from the gross estate to a qualified charitable organization

Question 33

Why would a company favor a cross-purchase plan over an entity plan?

A) Tax benefits
B) A cross-purchase plan has fewer policies
C) When they have a lot of so-called "key employees"
D) When a buy-and-sell agreement is not feasible

Question 34

Which of the following is not a task of a financial planner?

A) Help their clients develop financial goals for the future
B) Collect data about the various aspects of the financial situation of their clients
C) Decide on the implementation of a financial plan
D) Educate their clients with respect to the optimal financial plan

Question 35

Which of the following is not a feature of a 529 Plan?

A) Withdrawals for nonqualified expenses are prohibited.
B) The contributor owns the account.
C) The account owner can change the beneficiary.
D) The account owner determines the investment strategy.

Question 36

Which of the following is one of the three largest financial problems facing middle income Americans?

A) Financing a teenager's automobile
B) Financing college
C) Financing the income needs of a surviving spouse with children
D) Financing the early working years

Question 37

"Probate" is best-defined as:

A) choosing investments for a trust fund at death
B) selecting the beneficiary of a trust fund after death of the donor
C) administration of an estate following death of an individual
D) supervising the transfer of property at death

Question 38

Life insurance policy owners have several ways by which to access the cash savings in their life insurance policies while the insured is still alive. Which of the following is not one of those ways?

A) Invest cash value in the insurer's stock and then receive shareholder dividends
B) Participating policy dividends
C) Withdraw the cash value
D) Take a lump sum settlement if the insured is terminally ill

Question 39

Financial planners:

A) should be knowledgeable of many topics
B) will make decisions for their clients
C) can assist people in the financial planning process
D) A and C above

Question 40

Which of the following needs for life insurance would be considered permanent?

A) Education fund for surviving children
B) Income fund for surviving children
C) Debt-retirement fund
D) Burial fund

Question 41

The early adult years are mainly characterized by pre-retirement planning.

Question 42

A terminally ill insured may be able to withdraw life insurance death benefits on tax-free basis while still alive.

Question 43

The needs-based approach is one technique for calculating how much life insurance one needs. Explain briefly the method for calculating this amount.

Question 44

There is never any income tax when an individual surrenders his life insurance contract.

Question 45

The present value of an education fund increases as one gets closer to the college years.

Question 46

The federal estate tax will take a greater percentage of a large estate as well as a larger number of dollars.

Question 47

Explain what a will is. What happens when a person dies without a valid will?

Question 48

In a key-employee insurance purchase, the business should be the owner and the beneficiary of the policy.

Question 49

The use of life insurance for estate preservation is needed only by the very wealthy.

Question 50

What are the main financial planning problems encountered in the "early adult" years?

Question 51

With five owners of a business, an entity purchase plan usually makes more sense than a cross-purchase plan.

Question 52

People are more likely to purchase adequate amounts of life than property insurance.

Question 53

The needs-based approach should be used to determine whether life insurance is needed and how much.

Question 54

For most people, the greatest need for life insurance is to retire the debts of the primary wage earner.

Question 55

Why is it necessary to buy life insurance on a non-wage earning spouse?