Accredited Wealth Management Advisor (AWMA) Exam 3 Practice Test

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• Which two factors were identified as significantly contributing to high net worth individuals' financial success?
• Which statement about a GRAT is correct?
• Which statements correctly describe life insurance used to informally fund a nonqualified deferred compensation plan?
• If a stock has an average return of 9.0% and a standard deviation of 7.0%, what is the range of expected returns that covers about 68% of outcomes?
• In order for a distribution to be treated as a qualified charitable distribution
• The stage of venture capital that involves beta testing and giving away free samples is known as which stage?
• Which statement is correct regarding the investment interest expense deduction?
• How do trusts help avoid probate, and what is the role of a pour-over will?
• If a stock has a beta of 0.8, what does this imply about its volatility relative to the overall market?
• Which statement best describes fixed versus variable annuities in retirement planning?
• Explain a Charitable Remainder Trust (CRT) and the benefits it provides to donors.
• What is a potential pitfall of using a Family Limited Partnership (FLP) in estate planning?
• Investors seeking the least risk should acquire stocks with beta coefficients
• What is the purpose of family governance in multigenerational planning?
• If an RMD is not taken, penalties apply and taxes may increase.
• Which statement best describes the key difference between a durable power of attorney and a health care directive?
• For a security with an average return of 14.2% and a standard deviation of 8.4%, which statement describes where 68% of returns are expected to fall?
• The following are requirements of S corporations, except
• What is a fiduciary's duty in managing trusts or retirement accounts?
• Which policy type provides coverage worldwide for assets, including overseas use, and is often used to protect personal property while abroad?
• How can trusts support multigenerational wealth transfer?
• Academic studies have found that managed futures often diversify portfolios due to low correlations with traditional assets, but what has limited their effectiveness?
• The loss on the sale of an individually owned rental property is
• In the wealth allocation framework, human capital is in which bucket?
• In the wealth allocation framework, which statement about the main diversified assets category is most accurate?
• Which statement best describes the difference between a revocable trust and an irrevocable trust?
• A qualified domestic trust (QDOT)
• The defined benefit plan benefit formula that provides $250 per month of service, 30 years maximum is known as a
• Which statement is NOT correct regarding a preferred stock recapitalization freeze transaction?
• Differentiate between a durable power of attorney and a health care directive.
• Which of the following is a best practice for complying with Regulation Best Interest and the SEC guidance provided to investment advisers?
• The retirement plan that would allow an older, high income, self-employed individual to maximize their retirement savings would be a
• Basis is the tax cost of an asset, and heirs receive a stepped-up basis to fair market value at death, which can reduce capital gains.
• Explain the concept of gifting with the annual exclusion and how it helps with estate planning.
• Which statement best describes the underwriting focus of second-to-die policies used in estate planning?
• Which statement describes the unauthorized practice of law?
• In the wealth allocation framework, the liquid asset allocation would most likely include which of the following assets?
• Which factor helps preserve liquidity when making charitable gifts?
• Which portfolio structure is recommended for a risk-averse high net worth investor under the wealth allocation framework?
• A taxpayer's 2019 AGI was $320,000 with a tax liability of $66,000. For 2020, estimated tax liability is expected to be $75,000 and wage withholding is $50,000. What is the minimum amount of estimated tax payments the taxpayer must make in 2020 if payments are in equal quarterly installments?
• Which one of the following is a viable strategy for reducing or avoiding the alternative minimum tax (AMT)?
• Which statement about systematic risk is true?
• How do we assess liquidity needs at the death of a spouse in a blended family?
• Which defined benefit formula yields a fixed monthly benefit equal to a specific amount per year of service?
• Compared with mutual funds, hedge funds are typically more heavily concentrated and may use leverage. Which statement best describes this?
• What is a spousal lifetime access trust (SLAT) and its purpose?
• What are the basic tax advantages of 529 college savings plans and key withdrawal rules?
• Which statement does NOT correctly describe a concept related to nonqualified deferred compensation?
• Which condition triggers the use of the 110% of prior year's tax rule for estimated tax payments?
• The Securities Investor Protection Act of 1970 insures customers’ accounts to a maximum value of what amount, with cash coverage up to what portion?
• Which behavioral bias is illustrated when an investor treats an inheritance as separate from the rest of the portfolio?
• What are the essential components of a comprehensive retirement income plan?
• What describes the implications of a beneficiary designation change after marriage or divorce?
• Which statement is true about a liquid asset within the framework?
• Under the prudent investor rule, which statement is true about delegation?
• Which statement best describes the wealth allocation framework's majority asset category?
• Which is NOT a typical key element that separates hedge funds from mutual funds?
• Medicaid's look-back period reviews asset transfers made before applying for Medicaid and can affect eligibility.
• What is the role of a financial planner in coordinating tax, estate, and retirement planning for a family?
• Coordinating Social Security benefits for a married couple involves considering spousal benefits, survivor benefits, and timing of claims.
• What is a step-up in basis and how does it affect capital gains taxes for heirs?
• Which statement correctly describes the applicability of qualified charitable distributions to satisfy required minimum distributions?
• What does portability of the estate tax exemption enable, and what is a key limitation?
• Which statement about inter vivos QTIP elections is correct?
• Which statements accurately describe limits that apply to qualified defined contribution plans?
• Which of the following are unique tax benefits for C corporations? I. An income tax exclusion for the cost of providing the first $75,000 of group life insurance II. An income tax deduction for meals and lodging furnished for the convenience of the employer III. An income tax exclusion for dividends paid to shareholders IV. An employee income tax exclusion for benefits received from an accident or health plan sponsored by the employer
• Which statement correctly describes the purpose of a QDOT?
• Which of the following is NOT a form of a leveraged buyout (LBO)?
• How can a family use trust structures to manage multigenerational wealth transfer?
• Five years ago, Jason received a gift of 1,000 shares of stock. FMV on the gift date was $75 per share; donors had purchased four years earlier at $47 per share. He sold the stock this week for $110 per share. What was Jason's per-share basis in the stock when it was sold?
• Two assets with a correlation of -1.0 would result in what effect on portfolio risk?
• The grantor of an inter vivos QTIP trust
• What does a qualified personal residence trust (QPRT) retain for the grantor during the term?
• The netting of swap contracts through CCPs primarily reduces which type of risk?
• Human capital can best be defined as the high net worth individual's ability to leverage which of the following?
• Which statement best describes net Section 1231 gains and losses for the year?
• In the wealth allocation framework, the risky asset allocation would most likely include which of the following?
• Compared with the mass affluent, high net worth individuals have which of the following tendencies regarding loss aversion?
• Which gift is exempt from gift tax?
• Life insurance can provide liquidity to purchase a departing owner's share and support continuity.
• Which factor has a direct bearing on the investments appropriate for achieving a financial goal?
• For a high-net-worth client driving a luxury car, what poses the greatest potential for loss?
• When should long-term care insurance be considered in a wealth plan?
• Which statement describes when a business valuation is commonly performed?
• Which are common reasons to value a closely held business?
• What is the primary function of central clearing counterparties (CCPs) established under the Dodd-Frank Act?
• A taxpayer incurs withholding on a retirement plan distribution in September of the current year. For estimated tax purposes, the withholding is treated as
• A RAND study found great investor confusion regarding the differences between which two roles?
• Tin parachute is typically designed for which employee group?
• What is the deduction limit for ESOP contributions and amounts paid to repay ESOP debt, expressed as a percentage of participants' payroll?
• What is a primary risk of not incorporating liquidity planning into a wealth plan?
• Which statement is correct regarding the qualified charitable distribution (QCD) rules?
• Which Big Five trait is least highlighted as a strength for successful financial advisers according to the College for Financial Planning study?
• Which of the following private equity investments would generally be considered the most risky?
• Which statement regarding portability of the deceased spousal unused exclusion amount (DSUE) is correct?
• Which statement correctly contrasts CRT and CLT in terms of cash-flow timing?
• In a nonqualified deferred compensation plan that segregates property for the benefit of the employee, how is this typically described?
• Second stage/Expansion capital in venture capital refers to which phase?
• How can life insurance be used to provide estate liquidity, and what are ownership considerations?
• Which policy provides coverage overseas for assets, in addition to US coverage?
• Which statement describes the tax/distribution effect of a QDRO in divorce?
• In charitable planning, which statement correctly describes a CRT?
• The bucket strategy segments assets into short-term, intermediate, and long-term needs and allocates risk accordingly.
• Which of the following would NOT be considered a risky asset in the wealth allocation framework?
• Which of the following options best describes the Chapter 14 rule reference in a recapitalization freeze?
• In hedge funds, carried interest is commonly taxed as which type of income?
• Which of the following is a main category of hedge funds?
• What is the estimated annual cost of conflicted advice according to the 2015 White House report?
• Which statement about the prudent investor rule is most accurate?
• Describe GRAT and QPRT strategies and how they might reduce gift and estate taxes.
• Which incentive would best serve a chief executive who fears a takeover and wants a strong retention package?
• What is a key limitation of portability of the estate tax exemption?
• The tax benefits related to an ESOP include the following, except
• Which is a characteristic of an unfunded excess benefit plan?
• Required Minimum Distributions start at age 72 for many retirement accounts.
• Do beneficiary designations override wills for asset transfers?
• Futures contracts are available on which of the following assets?
• Estate tax portability allows a surviving spouse to use the deceased spouse's unused estate tax exemption.
• When evaluating euro-denominated corporate bonds, which risks are systematic (non-diversifiable) and should be discussed?
• Which statement about contrasting characteristics of qualified and nonqualified plans is not accurate?
• Which return measure is generally preferred for evaluating a portfolio manager's performance, and why?
• What is an ILIT and how does it help remove life insurance from the taxable estate?
• Which statement best captures key considerations when funding higher education via a 529 plan?
• In the investment pyramid, which category offers the greatest potential for capital appreciation?
• When should a wealth plan be reviewed and updated?
• Assume that a taxpayer has a self-employment tax liability of $21,000 and an additional Medicare tax of $150. What is the amount of the adjustment to income as a result of these additional taxes?
• Which of the following statements regarding the SECURE Act ten-year rule is correct?
• A buy-sell agreement is designed to ensure business continuity and value transfer in events like retirement, disability, or death.
• Heirs receive a stepped-up basis to fair market value at death, reducing the capital gains when the asset is sold.
• Jensen's alpha is best described as which of the following?
• What does annual exclusion gifting enable in estate planning?
• Under Regulation BI, Form CRS is limited to how many pages?
• In which circumstance is a buy-sell agreement not used to transfer a closely held business interest?
• On May Day, May 1, 1975, which event occurred?
• Which statements explain why second-to-die policies are attractive for estate planning?
• Which would best be considered a long-term goal for a high net worth client?
• What does standard deviation measure in the context of investment returns?
• A client makes judgments based on stereotypes about an industry. This is an example of which behavioral bias?
• All of the following are disadvantages of making a lifetime gift except
• Which statement about a QTIP election can be considered true?
• Estate tax portability requires timely filing.
• Under the SECURE Act ten-year rule, which designation is exempt from the rule?
• Which item is a tax preference item for purposes of the alternative minimum tax?
• Which withdrawal sequence is described for tax-efficient retirement income?
• Which charitable giving tools are explicitly considered for tax planning?
• Under the impartial conduct standards, which statement is true regarding conflicts of interest?
• What is a Qualified Domestic Relations Order (QDRO) used for?
• From which accounts do Required Minimum Distributions typically come?
• Tax deferral in an unfunded nonqualified deferred compensation plan may be achieved if the election to defer is made by which deadline?
• In a hedge fund, carried interest most closely refers to which of the following?
• What is the fiduciary obligation when conflicts of interest arise?
• Which statement about pour-over wills is correct?
• Which of the following is NOT among the top three specialty areas in which high net worth individuals seek advice?
• Which coverage best protects individuals serving on a board from lawsuits due to board duties?
• Diversification rules for ESOPs require certain diversification rights for stand-alone ESOPs and diversification rules for ESOPs maintained by publicly traded companies. Which statements are correct?
• Qualified charitable distributions may begin at what age?
• The amount of debt used in a company's capital structure primarily relates to which risk?
• Tax-efficient withdrawal sequencing prioritizes withdrawals from which type of accounts first?
• What does alpha quantify in performance assessment?
• Which statement describes tax treatment of S corporation earnings held in an ESOP?
• Under the wash sale rule, if an investor sells 1,000 shares at a total loss and buys 750 shares within 30 days, how much of the loss is deductible in the current year?
• Which of the following is not one of the fiduciary duties required under the Standards of Conduct now in place for CFP professionals?
• Which factor has most limited the diversification benefits of managed futures in portfolios?
• The impartial conduct standards enacted by the Department of Labor as part of the Best Interest Contract Exemption required all of the following except which?
• According to a College for Financial Planning study, which Big Five personality trait did successful financial advisers rank highest?
• In a deferred compensation plan, which condition creates a substantial risk of forfeiture?
• Which correlation scenario would provide the greatest reduction in portfolio risk when adding a new investment?
• Which is an income tax implication of a nonqualified deferred compensation plan for the employee when the plan lacks substantial risk of forfeiture?
• Which statement about the goals-based form of financial planning is correct?
• Which owner will NOT have their personal assets protected from business debts?
• Which statement describes the tax impact of converting a traditional IRA to a Roth IRA?
• Which of the following strategies is NOT one of the four main hedge fund approaches according to CAIA?
• What are the tax implications of non-qualified withdrawals from a 529 plan?
• Rollovers in funded or unfunded plans: which statement is true?
• Why is liquidity planning important at death in wealth management?
• Which events commonly trigger a wealth plan review?
• Differentiate between Donor-Advised Funds and Private Foundations in terms of control, liquidity, and tax benefits.
• In the wealth allocation framework, the main diversified asset allocation would most likely include which of the following?
• Which of the following is NOT a typical consideration when funding a 529 plan?