Financial Planning Questions
I'm sure this section will build in to something I will be proud of, but here is where I will post questions I could imagine future clients might as a financial planner.
Insurance Planning
When will a life insurance contract become effective?
- When the insurance agent delivers the life insurance policy and collects the first premium, the life insurance contract will begin coverage. When this occurs, conditional receipt has occurred for the insured.
What are the four ways to deal with risk?
- Avoid
- Reduce (Ameliorate)
- Absorb / Retain
- Transfer / Share
Investments
What is the difference between A shares, B shares, and C shares?
- Class A shares typically charge a front-end sales charge. Class A shares may impose an asset-based sales charge (often 0.25 percent per year), but it generally is lower than the charge imposed by the other classes (often 1 percent per year for B and C shares).
- Class B shares typically do not charge a front-end sales charge, but they do impose asset-based sales charges that may be higher than those that you would pay if you purchased Class A shares. Class B shares also normally impose a contingent deferred sales charge (CDSC), which you would pay if you sell your shares within a certain period, often six years. For this reason, these shares should not be referred to as "no-load" shares. The CDSC normally declines the longer your hold your shares and, eventually, is eliminated. Within two years after the CDSC is eliminated, Class B shares often "convert" into lower-cost Class A shares. When they convert, they begin to charge the same fees as Class A shares. You also may pay a sales charge when you sell your Class B shares as Class B shares.
- Class C shares do not impose a front-end sales charge on the purchase, so the full dollar amount that you pay is invested. Often Class C shares impose a small charge (often 1 percent) if you sell your shares within a short time, usually one year. They typically impose higher asset-based sales charges than Class A shares and, since they generally do not convert into Class A shares, those fees will not be reduced over time.
Retirement Planning
Estate Planning
What is a living will?
- A document that details an individual's last wishes regarding sustainment of life.
What is a power of attorney?
- Its a legal document that gives someone else the right to act on behalf of a principal. (The person who is granted this power is called a power holder or power agent)
What is a durable power of attorney?
- A power of attorney that survives after the incapacity or disability of the principal.
What is a side instruction letter?
- A letter that details the testator's wishes regarding the disposition of tangible possessions, the disposition of the decedent's body, and funeral arrangements.
How can a married couple convert community property into separate property when property is held in a community property?
- One spouse must gift their half interest in the property to the other spouse.
What happens when a married couple moves from a community property state (like California) to a common law, or separate property, state?
- In general, property held before the move which is community property retains its community property status.
What assets go around the probate process and transfer to a named beneficiary via State Contract Law?
- Life Insurance Policies, Annuities, PODs, TODs, Qualified Retirement Plans, IRAs / SEPs
What assets go around the probate process via State Titling Law?
- JTWROS, Tenancy by the Entirety
What property must go through probate for retitling?
- Fee Simple, Tenants in Common, 1/2 Community Property, Automobiles, Household Goods
What are the advantages to the probate process?
- Protects creditors (Lame advantage), Provides clear title to heirs, Improves the likelihood that parties of interest will receive notice, and Provides an orderly administration of the decedent's assets
What are the disadvantages to the probate process?
- May be costly, can result in delays, and open to public scrutiny
If a decedent owns a life insurance policy on his own life, at what value is it included in his gross estate?
- The decedent's life insurance policy is included in the decedent's gross estate at the death benefit, or face value of the life insurance policy.
What value of a straight single life annuity is included in a decedent annuitant's gross estate?
- The annuitant's gross estate does not include any value related to the annuity because the annuitant's interest in the contract terminates at his death.
How is real estate valued for purposes of inclusion in a decedent's gross estate?
- Real estate is included at the fair market value of the property at the decedent's date of death, or the alternate valuation date, or the sales price of the real estate if it sold between the date of death and the alternate valuation date in a decedent's gross estate. To obtain the fair market value (other than a sale), an appraisal is required.
How are publicly traded common stocks valued for purposes of inclusion in a decedent's gross estate?
- Publicly traded stocks are valued at the average of the high and the low for the day of the decedent's date of death. If the stock is a dividend-paying stock, the value should include any dividends if the decedent died after the X dividend date and before the date of payment.
When is a decedent's federal estate tax return due?
- Nine months after the decedent's date of death. A six-month extension of time to file is available.
Tax Planning