Private Wealth Management Flashcards

Which of the following investment accounts provides tax-DEFERRED growth in the United States?

Answer: Traditional IRA

A Traditional IRA provides tax-deferred growth, meaning contributions may be tax-deductible and all taxes are paid only upon withdrawal, unlike a Roth IRA which offers tax-free growth.

What is 'asset location' in the context of tax-efficient portfolio management?

Answer: Placing different asset types in accounts with the most favorable tax treatment for each

Asset location involves strategically placing assets in taxable versus tax-advantaged accounts to minimize the overall tax burden, such as placing tax-inefficient assets in tax-sheltered accounts.

Which of the following BEST describes the strategy of 'tax-loss harvesting'?

Answer: Selling losing positions to realize capital losses that offset gains and reduce tax liability

Tax-loss harvesting involves selling securities at a loss to offset realized capital gains, thereby reducing the current tax liability while maintaining the desired portfolio exposure through a similar replacement security.

In estate planning, what is the primary advantage of the 'step-up in cost basis' rule for inherited assets in the United States?

Answer: It resets the cost basis to fair market value at death, eliminating embedded capital gains tax

The step-up in basis rule resets an inherited asset's cost basis to its fair market value at the date of death, effectively eliminating the capital gains tax liability on appreciation that occurred during the decedent's lifetime.

Which trust structure allows the grantor to retain full control of assets and revoke or modify the trust during their lifetime?

Answer: Revocable living trust

A revocable living trust allows the grantor to maintain complete control of assets and modify or revoke the trust at any time during their lifetime, though it does not provide estate tax reduction benefits.

Which of the following is the PRIMARY estate planning benefit of placing assets in an irrevocable trust?

Answer: Assets are removed from the taxable estate, potentially reducing estate taxes at death

The primary estate planning benefit of an irrevocable trust is that assets permanently transferred into it are removed from the grantor's taxable estate, potentially reducing estate taxes owed at death.

In private wealth management, the 'generation-skipping transfer' (GST) tax is BEST described as:

Answer: A tax imposed on transfers passing directly or in trust to beneficiaries more than one generation younger than the donor

The generation-skipping transfer (GST) tax is imposed on asset transfers—either directly or through trusts—to beneficiaries who are more than one generation younger than the donor, preventing avoidance of estate taxes across generations.