Insurance, Risk Management & Taxation Flashcards

A client owns a life insurance policy with a $500,000 death benefit and has named their estate as beneficiary. Which of the following is true regarding federal estate taxes?

Answer: The death benefit is included in the gross estate if the insured held incidents of ownership

If the insured held incidents of ownership (such as the right to change beneficiaries or borrow against the policy), the death benefit is included in the gross estate.

Which type of annuity rider guarantees that a surviving spouse will continue to receive income payments for their lifetime after the annuitant dies?

Answer: Joint and survivor rider

A joint and survivor rider ensures that annuity payments continue to the surviving spouse for their lifetime after the primary annuitant's death.

Under the wash sale rule, which of the following transactions would disallow a capital loss deduction?

Answer: Selling stock at a loss and buying a call option on the same stock 20 days later

The wash sale rule disallows a loss if substantially identical securities (including options) are acquired within 30 days before or after the sale at a loss.

A business owner wants to protect against the financial loss resulting from the death of a key employee. Which risk management strategy is most appropriate?

Answer: Key person life insurance

Key person life insurance is purchased by the business on the life of a critical employee, with the business as owner and beneficiary, to offset financial losses from that employee's death.

Which of the following best describes the alternative minimum tax (AMT) for individuals?

Answer: A parallel tax system that adds back certain preference items to ensure minimum tax liability

The AMT is a parallel tax computation that adds back certain tax preference items and adjustments, ensuring taxpayers pay at least a minimum level of tax.

Which of the following statements about the gift tax annual exclusion is correct?

Answer: It allows each donor to give up to the indexed amount per recipient per year free of gift tax

The annual exclusion allows a donor to give up to the inflation-indexed amount (currently $18,000 in 2024) per recipient per year without gift tax consequences, provided the gift is of a present interest.

A client has a traditional IRA and wants to convert it to a Roth IRA. Which of the following is true about the tax treatment of the conversion?

Answer: The converted amount is included in gross income in the year of conversion

When converting a traditional IRA to a Roth IRA, the pre-tax amount converted is included in the taxpayer's gross income in the year of conversion.