Which of the following statements relating to trusts is CORRECT?

A) A simple trust is required to distribute all of its income in the year earned.

B) A complex trust is required to distribute all of its income in the year earned.

C) A simple trust may distribute principal during the year.

D) A complex trust may only distribute principal during the year in which the trust terminates.

Answer: A) A simple trust is required to distribute all of its income in the year earned.

Carol is opening an investment account with her agent and will be expected to disclose all of the following items of financial or personal information EXCEPT her:

A) educational background.

B) age.

C) annual income.

D) investment experience.

Answer: A) educational background.

Alvin's spouse is a trustee of a trust established by Henrietta Flood, which directs income from the trust be paid to Alvin, for as long as he lives. Alvin's son, Floyd, will receive the principal upon Alvin's death. Floyd would like to receive some of the principal before Alvin's death and Alvin does not object. How should his spouse, the trustee, act in this situation?

A) Distribute part of the income to Floyd.

B) Follow the trust terms, continuing to distribute the income to Alvin and the principal to Floyd upon Alvin's death.

C) Distribute part of the principal to Floyd.

D) Distribute all of the principal to Floyd.

Answer: B) Follow the trust terms, continuing to distribute the income to Alvin and the principal to Floyd upon Alvin's death.

If a trust has been established under which the father is to receive income for life, and his son is to receive the trust principal on the father's death, which of the following statements is TRUE?

A) The trustee must notify the son each time an income distribution is made to the father.

B) The trustee does not need to keep records of the income distribution to the father.

C) The trustee can withhold income distributions to the father to preserve principal to the son.

D) The trustee is not required to notify the son when an income distribution is made to the father.

Answer: D) The trustee is not required to notify the son when an income distribution is made to the father.

Which of the following statements regarding an S corporation owner and an owner of an LLC are TRUE?

Creditors have the very limited recourse rights to the owners.

They may not be nonresident aliens.

They both are considered stockholders.

Both are taxable as flow-through entities.

A) II and IV.

B) I and IV.

C) I and III.

D) II and III.

Answer: B) I and IV.

Tax considerations are frequently an important factor when determining appropriate recommendations for advisory clients. In which of the following accounts is the tax status of the individual a critical factor?

An account opened in the name of the XYZ Corporation, organized as a C corporation, by their chief investment officer.

An account opened by a sole proprietor in the name of the company.

An account opened in the name of ABC Corporation, an S corporation by one of its shareholders.

An account opened in the name of the GHI fund, a Regulated investment company, by the fund's portfolio manager.

A) I and IV.

B) III and IV.

C) II and III.

D) I and II.

Answer: C) II and III.