2019 CFA level 3 qbank reading 12 estate planning in a global context questions

Question #3 of 46 A wealth owner is most likely to make a trust the bene ciary on a life insurance policy in which of the following circumstances?. B The trust cannot be revoked, the set

Trang 1

Question #1 of 46

Which of the following equations represents the relative value of a gift when the donor pays the

gift taxes?

A)

B)

C)

Arthur and Doris are married with 4 adult children and $2,400,000 in marital assets Doris is

just about to receive an inheritance of $600,000 in separate property from her late Uncle's

estate and is wondering how to structure her will They live under a community property

regime, where the surviving spouse has a right to half the marital estate The forced heirship

rule also entitles a surviving spouse to one-third of the total estate and entitles the children to

split another one-third of the total estate Can Doris legally bequest $1,000,000 to the local

animal shelter?

A) No, only $500,000.

B) Yes.

C) No, only $800,000.

A wealth owner is most likely to make a trust the bene ciary on a life insurance policy in which

of the following circumstances?

A) The wealth owner wishes to leave money to a charity.

www.ombookcentre.in

Trang 2

B) The tax on gifts is high.

C) The ultimate bene ciary is a minor.

Which of the following statements best describes an irrevocable trust?

A) The settlor can rescind the trust, is considered the legal owner of the assets for tax

purposes, and claims can be made against the trust assets

B) The trust cannot be revoked, the settlor is considered the owner of the assets for tax

purposes, and the assets are protected from claims against the trust

C) The settlor relinquishes ownership and control, the trustee is considered the owner of

the assets for tax purposes, and assets are protected from claims against the settlor

Kate is a resident of Banovia and Banovia taxes the income she earns from her job as a local

bus driver in Banovia but does not tax the rent she receives from a property she owns in the

neighboring country of Taxmania Taxmania only taxes her on her rental income Which of the

following statements is most likely correct?

A) There is a credit method tax treaty between the countries.

B) There is an exemption method tax treaty between the countries.

C) There is no tax treaty between the countries.

Which of the following methods results in a partial resolution to the residence-source con ict

on foreign sourced income taxes?

A) Credit method.

B) Exemption method.

www.ombookcentre.in

Trang 3

C) Deduction method.

Christine Davis is single, 31 years old, and is the chief nancial o cer of a small aerospace

parts rm located in the Midwest U.S., Oshkosh Aerospace Davis has approached William

Weinke, her nancial planner, for help in preparing an investment policy statement and

accompanying asset allocation Tom Johnson is Weinke's assistant

Davis would like to retire when she is 63 years old She has stated that, relative to her mortgage

and college loans, she does not have assets of signi cant size and does not expect to receive an

inheritance She has had di culty accumulating signi cant savings because she only recently

was promoted to CFO and before that did not receive a signi cant salary Despite her new job

and title, Davis does not expect to have much exibility in her retirement contributions as she

has just adopted her sister's four children due to some unfortunate circumstances She expects

to keep working at Oshkosh Aerospace until retirement because she enjoys the quality of life in

her job Weinke states that given Davis's age, he believes that Davis's investment policy should

emphasize mostly equities

Given her level of comfort with the service and advice Weinke has provided, Davis has

recommended Weinke's services to the former president of her company, Frank Brooks Franks

is 69 years old and retired two years ago from his position as the CEO and chairman of the

board of Oshkosh Aerospace He is very wealthy with a portfolio of $14 million and very little

debt The income from his portfolio and pension income is $600,000 annually after tax His

living expenses consist of necessities, vacations, discretionary spending on luxuries, and gifts to

family and charities His expenses total $400,000 annually Weinke states that given his age and

retired status, he believes that the investment policy for Brooks should emphasize mostly

investment grade bonds

Given that Johnson has only been working in portfolio management for less than a year,

Weinke likes to test his knowledge of investment principles before letting Johnson consult with

clients on his own He asks Johnson, between Davis and Brooks, who is at the most risk for

outliving their assets, and what is the most e ective method of controlling for it Johnson states

that Davis is at the most risk and that the most e ective method of controlling for it would be

to recommend a life annuity for her when she retires

In a later discussion the next week, Weinke and Johnson discuss the assets available to

investors in general Weinke states that tax e ciency is an important consideration and that

the tax e ciency of assets varies considerably Weinke states that high net worth individuals

minimize taxes by transferring assets to their heirs which contain a valuation discount like

www.ombookcentre.in

Trang 4

partnerships and family businesses Johnson states that valuation discounts are additive, for

example, a 10% liquidity discount can be added to a 10% minority discount to equal a total

valuation discount of 20%

Weinke and Johnson often receive sales calls from investment bankers who are attempting to

sell an issue of securities A recent call focused on an issue of investment grade bonds

Discussing their attractiveness for their clients in general, Johnson states that wealthy investors

should be concerned about the tax implications from holding bonds as part of their taxable

investment portfolio Speci cally, he states that because the coupon income from bonds

cannot be deferred, bonds are often unattractive investments from a tax standpoint for

wealthy individuals Weinke states that if investors want to minimize the tax implications of

their investments in the taxable portion of the their portfolio they should buy equities because

they allow the investor to defer the capital gains over extended periods of time

Brooks is considering selling some of his equity holdings because he would like to make a

major donation to his alma mater and have a building named after him One of the stocks he

would like to liquidate is Dumas Environmental, his former father-in-law's company He

accumulated the shares over time and has asked Weinke to help him decide which shares to

sell

Weinke states that instead of liquidating the stock himself, Brooks may want to gift the shares

to his alma mater If the stock is gifted, capital gains taxes would be avoided entirely In this

way, Weinke states that Brooks would not have to liquidate as much stock to provide the

university with the same e ective gift Johnson adds that the gift can also provide a deduction

against ordinary income for Brooks The advantage here, Johnson states, is that instead of

incurring taxes by liquidating the stock, Brooks could actually save on taxes

Are Weinke's statements concerning the investment policy for Davis and Brooks CORRECT?

Davis Brooks

A) Correct Incorrect

B) Correct Correct

C) Incorrect Incorrect

www.ombookcentre.in

Trang 5

Are Johnson's statements concerning outliving their assets CORRECT?

Identifying the party most at risk Indentifying the solution to it

A) Correct Correct

B) Incorrect Correct

C) Correct Incorrect

Are Weinke's and Johnson's statements regarding transferring assets with valuation discounts

CORRECT?

Weinke Johnson

A) Incorrect Correct

B) Correct Incorrect

C) Correct Correct

Are Weinke's and Johnson's statements concerning the relative merits of stocks and bonds

from a tax basis perspective CORRECT?

Weinke Johnson

A) Correct Correct

B) Incorrect Correct

www.ombookcentre.in

Trang 6

In comparing tax deferred accounts versus tax free accounts which of the following statements

is most accurate?

A) If the current tax rate is less than future tax rate then you are better o investing in a

tax deferred account

B) If the investment returns and tax rates are equal for both the tax deferred and tax free

accounts the future accumulated value will be the same

C) Assuming equivalent rates of return between the tax free and tax deferred investments,

the tax free investment will always result in a greater accumulated future value

Are Weinke's and Johnson's statements concerning the gifting of Brooks' stock to his alma

mater CORRECT?

Weinke Johnson

A) Incorrect Correct

B) Correct Correct

A 40-year-old investor is considering setting up an account separate from her personal account

for tax purposes In the following list of estate planning tools, which of the following categories

of accounts would generally have the shortest term?

A) Generation-skipping trust.

B) Revocable trust.

C) Foundation.

www.ombookcentre.in

Trang 7

Hans, 70, is considering gifting up to the tax-free limit of €200,000 to his son to help reduce the

estate tax (25%) that would be payable when he passes away Hans' e ective tax rate is 20%

and his son's e ective tax rate is 30% If Hans is expected to pass away in 10 years, what is the

relative value of making the gift? Assume both Hans and his son earn a 5% annual pretax rate

of return on the funds

A) 1.33

B) 1.57

C) 1.27

The primary motivation for estate planning is to:

A) minimize taxes.

B) maximize returns.

C) match investment horizon objectives.

If the donor of a gift pays the gift taxes instead of the recipient, then the relative value of the

gift:

A) experiences no change.

B) increases.

C) decreases.

www.ombookcentre.in

Trang 8

Investors use estate planning tools for all of the following reasons EXCEPT to:

A) increase the e ciency of the transfer of assets to others.

B) maximize wealth for heirs or others.

C) maximize investment returns.

When one spouse dies, the tax-free transfer of assets between spouses means that the

surviving spouse will continue to receive dividends and interest from the entire estate:

A) but half of the principal is placed in a trust.

B) with the exception of that which would have been lost to estate taxes.

C) including that which would have been lost to estate taxes.

Which of the following statements most accurately describes a discretionary trust?

A) The settlor has discretion as to how to disseminate the assets of the trust.

B) The assets are protected against claims made against the bene ciary.

C) The settlor has discretion to retain ownership control of the assets within the trust.

Of the principal targets of taxation, which is ordinarily least relevant to the investment

professional?

A) Expenditures.

B) Assets owned.

C) Assets transferred.

www.ombookcentre.in

Trang 9

Using the credit method and assuming an individual is taxed on foreign income at a rate of 50%

and their domestic tax rate is 40% what percentage of taxes would they pay to their resident

country on the foreign income?

A) 10%.

B) 40%.

C) 0%.

The legal process that takes place at death in which a court is involved is known as:

A) probate in which among other things the validity of the decedent's will is determined,

and their remaining property is distributed

B) the intestate process in which the decedent’s property is inventoried and claims against

the decedent are resolved

C) the testamentary process in which the decedent’s assets are transferred according to

their will

Deemed disposition is a taxation method in which a country can mitigate against lost revenue

by applying a tax to the:

A) estimate future income of citizens who move to another country.

B) unrealized gains on assets of citizens who move to another country.

C) total value of assets owned by citizens and the estimated future income of citizens who

move to another country

www.ombookcentre.in

Trang 10

Estate taxes are an example of a tax on:

A) a percentage of assets gifted.

B) the value of assets owned.

C) capital gains on assets transferred.

When foreign sourced income is taxed by the foreign country and not the resident country this

is called the:

A) Credit method.

B) Exemption method.

C) Deduction method.

Which of the following equations represents the relative value of a tax free gift?

A)

B)

C)

(1− ) T g [1+ (1− )] r g t ig n

(1− )

[1+ (1− )] r e t ie n T e [ 1 + r g ( 1 - t ig )] n

[ 1 + r e ( 1 - t ie )] n 1 - T e [ 1 - T g + (T g T e x g/e)] [ 1 + r g ( 1 - t ig )] n

[ 1 + r e ( 1 - t ie )] n 1 - T e www.ombookcentre.in

Trang 11

The type of jurisdiction where a country taxes assets transferred from one person to another

within a country regardless of whether or not they are citizens or foreigners is called:

A) residence jurisdiction transfer taxes.

B) source jurisdiction transfer taxes.

C) territorial tax jurisdiction transfer taxes.

Which of the following best describes estate planning?

A) Delineating how your assets will be transferred so a court does not decide for you.

B) Transferring your assets during your lifetime or at death in the most e cient manner to

the individuals you intend to receive them

C) Transferring your assets at death to the individuals you intend to receive them in the

most e cient manner

Which of the following statements regarding life expectancy and life span is CORRECT?

A) Life expectancy is unknown, and life span is unknown.

B) Life expectancy is unknown, but life span is known.

C) Life expectancy is known, but life span is unknown.

Which of the following equations represents the relative value of a gift when it is subject to

taxes?

A) ( 1 - T g + T g T e ) [ 1 + r g ( 1 - t ig )] n

[ 1 + r e ( 1 - t ie )] n 1 - T e www.ombookcentre.in

Trang 12

C)

Which of the following statements regarding life expectancy and life span is CORRECT?

A) One-half of all people in a given pool reach their life expectancy.

B) One-third of all people in a given pool fail to reach their life expectancy.

C) One-half of all people in a given pool reach their life span.

In relation to trusts, which of the following is least correct?

A) In a revocable trust the settlor who funds the trust is likely to be responsible for the

trust’s tax liabilities

B) An individual concerned with future legal liabilities should most likely consider an

irrevocable trust

C) In a discretionary trust the trustee has complete discretion to distribute the assets and

income earned in the trust

Which of the following is most likely to be a factor in determining a tax payer's tax residency

country?

A) Percentage of income earned within the country.

B) Foreign language pro ciency.

[ 1 + r g ( 1 - t ig )] n

[ 1 + r e ( 1 - t ie )] n 1 - T e

[( 1 - T g )] [ 1 + r g ( 1 - t ig )] n

[ 1 + r e ( 1 - t ie )] n 1 - T e

www.ombookcentre.in

Định dạng
Số trang	17
Dung lượng	631,13 KB