CFP Exam Free Practice Questions 25

In order to meet the requirements of this rule, an interest must vest within 21 years after the death of someone at the moment of the transferor into an irrevocable trust.

If trust documents contain a spendthrift clause, it is to protect the assets of the trust from the “spendthrift” ways of the trust’s beneficiaries. A provision of this kind might prevent a trust beneficiary from assigning his or her interest in the trust corpus. Also, these kinds of provisions can prevent creditors from getting at trust assets by any legal or equitable process.

The noncharitable beneficiary will receive a fixed percentage of the net fair market value of the principal; this percentage cannot be less than 5% or more than 50% of the annual value.

Individuals are entitled to disability benefits if they: are insured for disability benefits; are under the age of 65; have been disabled for a year, or expect to be; have filed an application for disability benefits; and have either completed a five-month waiting period or been exempted from this period.

Though a spouse is entitled to as much as 50% of an employee’s full retirement benefit, this benefit will end in the event of: the spouse’s death; the worker’s death; the termination of the worker’ entitlement to disability; the spouse being under age 62 and with no child under age 16; or the spouse becoming eligible to receive retirement or disability benefits with a PIA at least half as large as that of the employee.

Up to 85% of Social Security benefits can be included in AGI based on the IRS’s complex formula. This percentage is ultimately a comparison of one’s provisional income (PI) to two IRS-established thresholds. The calculation of PI = AGI + tax-exempt interest + 50% of SS income; and these thresholds are $32,000 and $44,000 for MFJ filers.

If an individual is eligible for Medicare Part A, he or she is automatically eligible for Part B. Enrollment in Medicare Part B is voluntary, however. In order to receive benefits from Part B, an individual must make a monthly premium payment.

While Medicare is publicly funded health insurance for the elderly (age 65 and older), Medicaid is publicly funded health insurance for the poor and disabled (including blind).

Qualified plans may be defined benefit plans in which the maximum allowable benefit payable is the smaller of 100% of salary or $180,000 a year, in which the retirement benefit is certain, and in which deductible contributions may vary from year to year.

In the qualified retirement plan known as the cash balance plan, a separate account with a hypothetical account balance will be established for each participant. Employee balance will grow based on hypothetical earnings (interest credits). The interest rate will vary annually and will be determined independently. The minimum interest rate cannot be more than the lowest standard interest rate, and the maximum rate cannot be less than the highest standard interest rate.