An Accountant s Guide to Trusts. Course #5565D/QAS5565D Exam Packet

Transcription

1 An Accountant s Guide to Trusts Course #5565D/QAS5565D Exam Packet

2 AN ACCOUNTANT S GUIDE TO TRUSTS (COURSE #5565D/QAS5565D) COURSE DESCRIPTION AND INTRODUCTION Trusts are widely used in both financial and estate planning. This course provides CPAs with an overview of the rules governing the formation of trusts, the tax consequences of different trust vehicles, and the rules governing the administration of trusts. Specific topics include living trusts, spendthrift trusts, charitable trusts, and alternatives to trusts that can be used to achieve certain financial objectives. Uses the materials entitled An Accountant s Guide to Trusts. No prerequisites. Course level: Basic. Course #5565D/QAS5565D - 16 CPE hours. LEARNING S and OBJECTIVES As a result of studying each assignment, you should be able to meet the objectives listed below each individual assignment 1 Trusts: The Who, What and Why Study the course materials for chapter 1 Complete the review questions at the end of chapter 1 Answer the final exam questions 1 to 5 To describe the basic elements of a trust and the common types of trusts 2 An Introduction to Estate Planning and Probate Study the course materials for chapter 2 Complete the review questions at the end of chapter 2 Answer the final exam questions 6 to 18 To discuss the basics of probate and the common probate avoidance tools Exam Page -1

3 3 Estate and Gift Taxes Study the course materials for chapter 3 Complete the review questions at the end of chapter 3 Answer the final exam questions 19 to 26 To explain the impact of specific trusts on estate and gift taxes 4 Creation, Modification and Construction of Trusts Study the course materials for chapter 4 Complete the review questions at the end of chapter 4 Answer the final exam questions 27 to 33 To identify the items necessary to create or modify a trust 5 Termination of Trusts and the Rights of Beneficiaries Study the course materials for chapter 5 Complete the review questions at the end of chapter 5 Answer the final exam questions 34 to 39 To explain how a trust can be terminated and the associated rights of the trust s beneficiaries Exam Page -2

4 6 The Role and Responsibility of Trustees Study the course materials for chapter 6 Complete the review questions at the end of chapter 6 Answer the final exam questions 40 to 44 To describe the various roles and responsibilities of trustees 7 The Living Trust Myth and Reality Study the course materials for chapter 7 Complete the review questions at the end of chapter 7 Answer the final exam questions 45 to 49 To discuss the nuts and bolts of living trusts and how they can be used 8 Spendthrift Trusts Study the course materials for chapter 8 Complete the review questions at the end of chapter 8 Answer the final exam questions 50 to 52 To explain the proper creation and use of spendthrift trusts Exam Page -3

5 9 Generation-Skipping Trusts Study the course materials for chapter 9 Complete the review questions at the end of chapter 9 Answer the final exam questions 53 to 58 To discuss how generation-skipping trusts are used and their impact on GST taxes 10 Estate-Planning Trusts Study the course materials for chapter 10 Complete the review questions at the end of chapter 10 Answer the final exam questions 59 to 66 To describe how to use irrevocable life insurance trusts, Crummey trusts, and spousal trusts 11 Charitable Trusts Study the course materials for chapter 11 Complete the review questions at the end of chapter 11 Answer the final exam questions 67 to 71 To identify the estate planning benefits of charitable giving and the various types of charitable trusts available Exam Page -4

6 12 Abusive Trusts Study the course materials for chapter 12 Complete the review questions at the end of chapter 12 Answer the final exam questions 72 to 74 To list some of the various types of fraudulent trust schemes 13 Trust Alternatives: Conservatorship, Powers of Attorney and Life Insurance Study the course materials for chapter 13 Complete the review questions at the end of chapter 13 Answer the final exam questions 75 to 80 To describe some of the trust alternatives available for managing an estate 14 Complete the Answer Sheet and Course Evaluation and mail to PES for credit NOTICE This course and test have been adapted from materials and information contained in materials entitled An Accountant s Guide to Trusts and any supplemental material provided. This course is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice and assumes no liability whatsoever in connection with its use. Since laws are constantly changing, and are subject to differing interpretations, we urge you to do additional research and consult appropriate experts before relying on the information contained in this course to render professional advice. Professional Education Services, LP 2010 Program publication date 7/22/10 Exam Page -5

7 AN ACCOUNTANT S GUIDE TO TRUSTS (COURSE #5565D/QAS5565D) EXAM OUTLINE COURSE EXPIRATION DATE: Per AICPA and NASBA standards, this course must be completed within one year from the date of purchase. TEST FORMAT: The following final exam, consisting of 80 true/false and/or multiple choice questions, is based specifically on the material included in this course. The answer sheet must be completed and returned to PES for CPE certification. You will find the answer sheet at the back of this exam packet so that you may easily remove it and use it while taking your test. LICENSE RENEWAL INFORMATION: The An Accountant s Guide to Trusts course (#5565D/QAS5565D) qualifies for 16 CPE hours. PROCESSING: Your exam will be graded promptly. You must score 70% or better to pass. When you pass, your certificate of completion will be mailed. If you do not pass, we will give you a courtesy call to inform you of this and then another answer sheet will be sent to you free of charge. GRADING OPTIONS: Please choose only one of the following. There is no additional charge for any of these grading options. Make sure to fill out your answer sheet completely prior to submitting it. ONLINE GRADING Visit our website at Login to your account (if you are a first-time user you must set up a new user account). Go to the MY CPE tab and click the My CPE Exams in Progress folder. If your exam is not already located in this folder, click Add Exam Previously Purchased and follow the instructions. MAIL Your exam will be graded and your certificate of completion mailed to you the same day we receive it. Your certificate will be dated according to the postmark date; therefore, you do not need to overnight your exam. Please mail your answer sheet to: Professional Education Services, LP 4208 Douglas Blvd., Ste 50 Granite Bay, CA FAX Your exam will be graded and you will be contacted either via phone or fax with your results within 4 business hours of receipt. A copy of your graded exam and certificate of completion will be mailed to you the same day we receive it. Your certificate will be dated according to the fax date. If you choose to fax your exam, please do not mail it. Your fax will serve as the original. Please refer to the attached answer sheet for further instructions on fax grading. Fax number (916) Thank you for using Professional Education Services. We appreciate your business!! Exam Page -6

8 AN ACCOUNTANT S GUIDE TO TRUSTS (COURSE #5565D/QAS5565D) FINAL EXAM The following questions are either true or false and/or multiple choice. Please indicate your choice on the enclosed Answer Sheet. 1. A trustee is responsible for all of the following except: a) managing the trust b) holding legal title to trust assets c) acting as the guardian of any surviving children d) exercising independent control 2. A trust must have: a) a trustee b) a beneficiary c) trust property 3. A trust that can be created to last forever is: a) a testamentary trust b) a revocable living trust c) a charitable trust d) a residence trust 4. A life insurance trust is generally: a) revocable b) irrevocable c) for more wealthy clients d) excluded from filing Form The form generally filed for a trust classified as a Domestic Grantor Trust is: a) Form 1040 b) Form 1041 c) Form 1040NR d) Form 3520-A 6. Which of the following transfers at death involve probate: a) property passed under the terms of a will b) individual retirement accounts c) joint bank accounts 7. An advantage of probate is a shortened statute of limitations for creditors who have claims against the decedent s estate. a) true b) false 8. In order to make a valid gift before death, which of the following must be present: a) the intent on the part of the donor to make a present transfer b) delivery of the gift, either actual or constructive c) acceptance of the gift by the recipient 9. Which of the following is true regarding joint tenancies: a) probate cannot be avoided b) when one joint owner dies, the surviving owners automatically inherit the property c) property held in joint tenancy receives a stepped-up basis when one joint tenant dies 10. For a gift of life insurance to be effective, the insurance policy must be given away any time prior to the donor s death. a) true b) false 11. Which of the following is not one of the primary reasons people execute a will: a) choosing beneficiaries b) appointing a guardian c) avoiding probate d) establishing a domicile Exam Page -7

9 12. An approved method for ensuring the well being of a pet after the owner s death is to: a) name a pet as the beneficiary in a will b) leave an individual willing to take care of the pet an unconditional gift to help provide for the pet s needs c) leave an individual a conditional gift regarding the care of the pet d) any of the above 13. Under a general power of appointment, the person appointed has total discretion as to who should receive a gift. a) true b) false 14. Which of the following is not true regarding the formalities of a will: a) to be valid, a will must begin with specific language b) the testator must be of legal age to execute a will c) the testator must be of sound mind d) the will must be voluntarily signed by the testator 15. For purposes of executing a valid will, competency normally requires: a) the testator know that he or she is executing a will b) the testator know the nature and extent of his or her property c) the testator know who his family members are 16. State law generally permits an individual to completely disinherit their: a) spouse b) adult children c) both a and b above d) none of the above 17. If a testator s will cannot be found at his or her death, courts will generally presume that the testator destroyed it with the intent of revoking it. a) true b) false 18. An amendment to a will is called: a) power of appointment b) a residuary c) a codicil d) an adjustment 19. Which of the following is true regarding federal gift and/or estate taxes: a) the estate tax and gift tax are unified b) most gifts are subject to the gift tax c) the recipient is generally responsible for the payment of the gift tax 20. Administrative expenses deductible in figuring the estate tax include: a) fees paid to the fiduciary for administering the estate b) attorney, accountant, and return preparer fees c) expenses incurred for the management, conservation, or maintenance of property 21. If an individual contributes property with a fair market value that is less than their basis in it, the individual can deduct the fair market value of the property. a) true b) false 22. The amount of an individual s deduction for charitable contributions is limited to of his or her adjusted gross income, as long as the type of property donated and the type of organization to which it is given meets the requirements. a) 40% b) 50% c) 90% d) none of the above; there is no limit Exam Page -8

10 23. Which of the following is true regarding the carryover of contributions that are not deductible in the current year: a) no carryover is permitted b) the carryover can be deducted in full the following year, irrespective of the 50% adjusted gross income limit c) the individual can deduct the excess in each of the next five years until it is used up, but not to exceed 50% of the adjusted gross income for that year d) an individual can deduct carryover contributions prior to deducting allowable contributions in that category for the current year 24. An individual is free to give away as many gifts as he or she wants. a) true b) false 25. In which of the following situations is a gift tax return not required: a) when gifts given are more than the annual exclusion b) when an individual and his or her spouse split a gift under the annual exclusion c) to report a gift to political organizations d) when an individual gave his or her spouse an interest in property that will be ended by some future event 26. Which of the following is true regarding state death taxes: a) all states impose some sort of death tax on estates b) inheritance taxes are imposed on the deceased person before the assets are distributed to heirs c) estate taxes are imposed at graduated rates 27. Which of the following would be a proper subject of a trust: a) a rare coin collection b) a vacation home c) a stock portfolio d) any of the above 28. When a trust is created, legal title to the trust property belongs to: a) the beneficiaries b) the trustee c) the trustor d) the court of law administering the trust 29. With the exception of trusts, most states do not allow trusts that last in perpetuity. a) testamentary b) spendthrift c) charitable d) none of the above 30. A power of appointment allows: a) either a beneficiary or another designated person to designate how certain assets in a trust are to be disposed b) a trustor to change his or her mind about the beneficiaries of a trust c) a trustee to designate which beneficiaries should receive which assets when a trust is terminated d) none of the above 31. Which type of power of appointment brings the property of a trust into the beneficiary s estate for purposes of taxation: a) special power of appointment b) general power of appointment c) judicial power of appointment d) legislative power of appointment 32. Which of the following statements about a trustor s ability to revoke or modify a trust is correct: a) once established, a trust can only be modified or terminated with court approval b) any type of trust can be modified or terminated at any time c) to the extent that a trust is revocable, a trustor can modify or terminate the trust at any time d) both a and c above Exam Page -9

11 33. Reasons a trustor may wish to modify an irrevocable trust include which of the following: a) the desire to achieve certain tax goals b) the existence of unanticipated beneficiaries c) the death or incapacitation of a beneficiary 34. Which of the following are common methods of terminating a trust: a) termination by operation of the express terms of the trust b) termination by revocation in the case of a revocable trust c) termination by order of a court 35. In some cases, a trust can be terminated at the election of all of the beneficiaries, unless: a) continuance of the trust is necessary to carry out a material purpose of the trust b) a court believes that the beneficiaries are being greedy c) the trustor is dead d) the trust is a testamentary trust 36. If there are insufficient funds or assets in a trust: a) the trustor is generally required to replenish the trust b) the trustee will generally have authority to terminate the trust c) only a court of law can order the trust to be terminated d) none of the above 37. When a trust is terminated, authority for winding up the trust, including the distribution of assets, rests with: a) the trustor, in the case of an inter vivos trust b) the beneficiaries c) the trustee d) a court appointed guardian 38. A beneficiary who receives a right to use certain property but not to dispose of it is said to have a: a) limited right of use b) life estate c) preconditional estate d) fee simple 39. The beneficiary of a trust has which of the following rights: a) only those set forth by the trustor in the trust instrument b) those authorized by the trustee c) those designated by a court d) both b and c above 40. Which of the following questions should be asked before appointing someone as trustee: a) is the person likely to carry out my wishes? b) is the trustee financially responsible? c) is the trustee knowledgeable in the area of investing and taxes? 41. Disadvantages of using a bank or other financial institution as trustee include which of the following: a) less financial sophistication b) higher fees c) excessive personal service 42. A trustee should consider which of the following factors in diversifying the assets of a trust: a) the amount of the trust estate b) tax consequences of certain investment strategies c) the prospects of inflation 43. Which of the following is not a common example of a violation of the Prudent Investor Rule: a) having an investment decline in value b) making speculative investments c) investing in companies in a single locality d) failing to investigate an investment adequately Exam Page -10

12 44. Which of the following statements about a trustee who has advanced skill or sophistication is most correct: a) a court will never hold them to a higher standard b) the trustee will generally be judged by a higher standard than an average trustee c) the trustee is paid more for his or her services d) the trustee will be liable for any decline in value of the trust property 45. Revocable living trusts are popular because: a) the trustor is allowed to act as trustee during his or her lifetime b) they allow a trustor to avoid all federal taxes c) the trustor is allowed to make changes to the trust during his or her lifetime d) both a and c above 46. Property contained in a living trust can usually be distributed to the beneficiaries: a) only after a six-month waiting period b) upon approval of the probate court c) shortly after the trustor s death 47. Which of the following statements about the creation of a living trust is most accurate: a) they are expensive and time-consuming to create b) only an attorney can create a living trust c) it is a relatively simple process d) it is expensive but quick 48. Which of the following statements about the effect of a living trust on taxes is correct: a) it will always reduce the trustor s federal tax liability b) tax savings is generally not a benefit of a revocable living trust c) it will remove the assets in the trust from the trustor s estate at death d) it will protect the trustor s assets from creditors 49. A will that names a trust as the primary beneficiary of the decedent s estate is called a(n): a) pour over will b) inter vivos will c) generation-skipping will d) Lipton will 50. Which of the following is a common purpose behind the creation of a spendthrift trust: a) to limit access to money by people who do not make good financial decisions b) to keep creditors of the beneficiary from reaching the assets of the trust c) to give beneficiaries more control over administration of the trust d) both a and b above 51. A spendthrift trust will protect a beneficiary from what type of debt: a) only consumer debt such as credit cards or installment sales b) almost all debt, but never in the event of bankruptcy c) almost all debt, even in the event of bankruptcy d) home mortgage debt only 52. To create a spendthrift trust, the trustor: a) must include specific language authorized by a court in the trustor s domicile b) must have the trust drafted by an attorney c) must simply include a spendthrift clause d) both a and b above 53. In 2009, every citizen or resident of the United States had a generation-skipping exemption that can be allocated during one s lifetime or upon death. a) $1,000,000 b) $3,500,000 c) $5,000,000 d) $7,000,000 Exam Page -11

13 54. As a result of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the GST tax is scheduled to be repealed for what year: a) 2008 b) 2009 c) 2010 d) For GST tax purposes, skip person means: a) a natural person assigned to a generation that is two or more generations below the trustor s generation b) a non-relative at least 37½ years younger than the transferor c) a trust, if all interests in the trust are held by skip persons 56. Which distributions are subject to the GST tax: a) all taxable distributions b) all distributions, whether taxable or not c) only those distributions made after the death of the generation below that of the trustor d) none of the above 57. The GST tax is paid: a) when the distributions are made to skip persons b) when the trust terminates c) when the trust is created d) either a or b above 58. Which IRS form must be filed to report lifetime transfers to skip individuals or trusts: a) Form 706 b) Form 709 c) Form 1040 d) Form Which of the following statements about the taxability of life insurance proceeds is true: a) they are never taxable under any circumstances b) they are not subject to income tax when paid to a surviving beneficiary c) they are not included in the insured decedent s taxable estate d) both b and c above 60. To be effective in reducing taxes, a life insurance trust must be: a) irrevocable b) established before the life insurance policy is purchased c) established after the life insurance policy is purchased d) none of the above 61. Proceeds from a life insurance policy included in an irrevocable trust are taxable if the policy was purchased prior to the creation of the trust and the insured dies within of transferring the policy to the trust. a) 60 days b) 180 days c) 3 years d) 5 years 62. Under what circumstances can the insured serve as a trustee of an irrevocable life insurance trust: a) under any circumstances b) the insured is required to serve as trustee for the trust to have its desired tax affects c) when all of the contingent beneficiaries consent d) never 63. A Crummey trust allows a donor to make a gift to a trust so long as: a) the gift does not exceed $5,000 annually b) the beneficiary retains the right to revoke the gift and withdraw the contribution c) the beneficiary consents d) any of the above Exam Page -12

14 64. Notice to the beneficiary of a Crummey trust should include which of the following: a) the amount of the gift b) the date the beneficiary s right to revoke the gift will lapse c) the extent of the beneficiary s power 65. A Qualified Terminable Interest Trust (QTIP) is established for: a) a skip person b) an incompetent person c) a surviving spouse d) any of the above 66. Which of the following is a disadvantage of a QTIP trust: a) the decedent spouse rather than the surviving spouse controls the ultimate disposition of the trust b) a separate tax return is required each year that the trust is in existence c) it could be the source of contention between the surviving spouse and children 67. To deduct contributions to certain Canadian charities, a taxpayer must: a) be a Canadian citizen b) have income from Canadian sources c) have income in excess of $100,000 d) have income less than $50, If an individual receives a benefit as a result of making a contribution to a qualified charitable organization, how much of the contribution is deductible: a) only the amount of their contribution that is more than the value of the benefit received b) 50 percent of the amount of their contribution that is more than the value of the benefit received c) 100% of the contribution d) none of the contribution 69. How long can a charitable trust last: a) 10 years b) during the lifetime of the donor c) indefinitely d) as long as the charity exists 70. A donor who creates a charitable remainder trust receives a tax deduction: a) every year the trust is in existence b) upon death c) when the trust is created, based on the estimated amount that will be donated to charity in the future d) both a and c above 71. A charitable lead trust: a) distributes a percentage of the fair market value to one or more noncharitable beneficiaries for a defined period of time, after which the remaining value of the trust is transferred to a charitable beneficiary b) distributes a sequence of payments to a charitable beneficiary for a period of time, after which the remaining trust assets are transferred to a noncharitable beneficiary c) distributes income in a series of fixed payments to one or more noncharitable beneficiaries for a defined period of time, after which the remaining value of the trust is transferred to a charitable beneficiary d) distributes assets directly to charity 72. Criminal penalties for violation of laws relating to fraudulent trusts include fines of up to: a) $50,000 b) $100,000 c) $250,000 d) $1,000, Abusive foreign trust schemes include which of the following steps: a) the creation of an asset management company b) the formation of a business trust c) the formation of a foreign trust one Exam Page -13

15 74. For tax purposes, which of the following controls whether a trust is legitimate: a) the intent of the trustor b) the form of the trust instrument c) the substance of the trust d) the consent of the beneficiaries 75. What type of power of attorney remains in effect if and when the principal becomes incapacitated: a) a springing power of attorney b) a durable power of attorney c) a limited power of attorney d) a testamentary power of attorney 80. Insurance that provides protection to the insured for a specified number of years is referred to as: a) whole life insurance b) terminable life insurance c) term life insurance d) none of the above Congratulations you ve completed the exam! 76. The creation of a power of attorney is governed by: a) federal law b) state law c) state and federal law d) none of the above; it is not governed 77. A judicial process in which a family member or friend seeks to assume responsibility for an incapacitated person is referred to as: a) power of attorney b) guardianship c) conservatorship d) trusteeship 78. A conservator normally has which of the following powers: a) to make living arrangements for the conservatee b) to ensure that the conservatee receives medical attention c) to provide for the basic needs of the conservatee 79. Guardianship is normally used when the individual in need is: a) a minor b) an adult c) wealthy d) a ward of the court Exam Page -14

16 AN ACCOUNTANT S GUIDE TO TRUSTS #5565D/QAS5565D (16 CPE hours) ANSWER SHEET (7/10) Important Note: For certification, this answer sheet must be completed and submitted to PES for grading within one year from the date of purchase. Please use black ink and print for quicker processing thank you. Name (as it appears on your license) Address City State Zip Home Work Daytime Phone ( ) address (for online grading) License Number State Expiration Date CPA, CFP, EA (circle one) If course was ordered by another party, please indicate name here: GRADING OPTIONS Please choose only ONE of the following: ONLINE GRADING Visit our website at o Login to your account (if you are a first-time user, you must set up a new user account). o Go to the MY CPE tab and click the My CPE Exams in Progress folder. o If your exam is not already located in this folder, click Add Exam Previously Purchased and follow the instructions. Mail Mail your exam to: PES, 4208 Douglas Blvd., Ste 50, Granite Bay, CA Fax Fax your exam to (916) and choose one of the following options: Please: mail my results only or fax phone my results to: ( ) PLEASE INDICATE YOUR ANSWER BY FILLING IN THE APPROPRIATE CIRCLE A B C D A B C D A B C D A B C D 1. O O O O 21. O O O O 41. O O O O 61. O O O O 2. O O O O 22. O O O O 42. O O O O 62. O O O O 3. O O O O 23. O O O O 43. O O O O 63. O O O O 4. O O O O 24. O O O O 44. O O O O 64. O O O O 5. O O O O 25. O O O O 45. O O O O 65. O O O O 6. O O O O 26. O O O O 46. O O O O 66. O O O O 7. O O O O 27. O O O O 47. O O O O 67. O O O O 8. O O O O 28. O O O O 48. O O O O 68. O O O O 9. O O O O 29. O O O O 49. O O O O 69. O O O O 10. O O O O 30. O O O O 50. O O O O 70. O O O O 11. O O O O 31. O O O O 51. O O O O 71. O O O O 12. O O O O 32. O O O O 52. O O O O 72. O O O O 13. O O O O 33. O O O O 53. O O O O 73. O O O O 14. O O O O 34. O O O O 54. O O O O 74. O O O O 15. O O O O 35. O O O O 55. O O O O 75. O O O O 16. O O O O 36. O O O O 56. O O O O 76. O O O O 17. O O O O 37. O O O O 57. O O O O 77. O O O O 18. O O O O 38. O O O O 58. O O O O 78. O O O O 19. O O O O 39. O O O O 59. O O O O 79. O O O O 20. O O O O 40. O O O O 60. O O O O 80. O O O O Please complete the attached course evaluation your opinion is extremely valuable. Exam Page -15

17 An Accountant s Guide to Trusts #5565D/QAS5565D - Course Evaluation Rate on a scale of 1-10 with 1 being poor and 10 being excellent. 1. The course met the course objectives described in the promotional material. 2. The course was up to date, held my interest, was timely, and effective. 3. The course materials were understandable, valuable, and suitable for a correspondence course. 4. The amount of advance knowledge and stated prerequisites were appropriate. 5. The completion time was appropriate for the number of credits allowed. 6. The course met my professional education needs. Please answer the following questions mark/rate any and all that may apply 1. How would you rate PES s order desk customer service 2. What can PES do to keep you as a valued customer? 3. Any other comments regarding this course or our company would be appreciated. 4. What other courses/subjects would you like to see PES offer in the future? Mail to: Professional Education Services, LP 4208 Douglas Blvd., Ste 50, Granite Bay, CA Exam Page -16