pfin ch 14 and 15 – Flashcards
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An annuity contract purchased through periodic payments made over time.
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Installment Premium Annuity Contract
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An annuity in which the insurance company agrees to pay a guaranteed rate of interest on your money.
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Fixed-Rate Annuity
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An option under which an annuitant receives a specified amount of income for life, regardless of the length of the distribution period.
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Pure Life
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An annuity that provides a guaranteed minimum distribution of benefits.
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Guaranteed- Minimum Annuity
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A type of guaranteed-minimum annuity that guarantees the annuitant a stated amount of monthly income for life; the insurer agrees to pay for a minimum number of years.
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Period Certain
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A retirement plan, open to any working American, to which a person may contribute a specified amount each year.
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Individual Retirement account
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The period during which premiums are paid for the purchase of an annuity.
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Accumulation Period
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An arrangement in which the employees of a firm participate in the company's earnings.
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Profit-Sharing Plan
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An agreement by which part of a covered employee's pay is withheld and invested in some form of investment; taxes on the contributions and the account earnings are deferred until the funds are withdrawn.
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Salary Reduction
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A pension plan specifying the contributions that both employer and employee must make; it makes no promises concerning the size of the benefits at retirement.
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Defined Contribution Plan
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A law passed in 1974 to ensure that workers eligible for pensions actually receive such benefits; also permits uncovered workers to establish individual tax-sheltered retirement plans.
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Employee Retirement Income Security Act (ERISA)
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Employees' nonforfeitable rights to receive benefits in a pension plan based on their own and their employer's contributions.
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Vested Rights
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A pension plan in which the employee bears part of the cost of the benefits.
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Contributory Pension Plan
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A pension plan in which the employer pays the total cost of the benefits.
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Noncontributory Pension Plan
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A pension plan in which the formula for computing benefits is stipulated in its provisions.
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Defined Benefit Plan
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A pension plan that meets specified criteria established by the Internal Revenue Code
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Qualified Pension Plan
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A plan to supplement pension and other fringe benefits; the firm contributes an amount equal to s set proportion of the employee's contribution
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Thrift and Savings Plan
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An account to which self-employed persons may make specified payments that may be deducted from taxable income; earnings also accrue on a tax-deferred basis.
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Keogh Plan
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An investment product created by life insurance companies that provides a series of payments over time.
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Annuity
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The period during which premiums are paid for the purchase of an annuity.
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Accumulation Period
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The period during which annuity payments are made to an annuitant.
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Distribution Period
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ON an annuity, the portion of premiums and interest that has not been returned to the annuitant before his or her death.
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Survivorship Benefit
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An annuity contract purchased with a lump-sum payment.
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Single Premium Annuity Contract
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An annuity in which the annuitant begins receiving monthly benefits immediately
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Immediate Annuity
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An annuity in which benefit payments are deferred for a certain number of years.
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Deferred Annuity
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An annuity that provides a specified monthly income for a stated number of years without consideration of any life contingency.
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Annuity Certain
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An annuity in which the monthly income provided by the policy varies as a function of the insurer's actual investment experience
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Variable Annuity
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The amount of money in your defined contribution retirement portfolio will depend on
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the age at which you begin contributing, the amount of money you deposit each month, the rate of return on your savings.
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T/F: by itself, social security is sufficient to allow a worker and spouse to maintain their pre-retirement standard of living.
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false
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An investment vehicle that systematically pays out benefits over an extended period of time is an
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annuity.
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first step in retirement planning is to
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set retirement goals
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The amount of your social security contribution depends on
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income and current tax rate.
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age 65 is typically the normal retirement age on retirement plans t/f
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true
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the money you put into a roth ira is deductible from your taxable income in the year contributed t/f
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false
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a 401 k plan allows you to defer taxes on part of your income t/f
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true
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with a non contributory pension plan the employer makes no financial contribution to the account t/f
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false
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miles has no retirement plan at work. therefore 2000 dollars contributed to his regular ira will be tax deductible t/f
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true
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Funds to finance social security come from compulsory contributions from
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employee, employer, and self-employed.
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a roth ira
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all of the above
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funds to finance social security come from
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compulsory contributions from employee, employer, and self employed
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earned income has accounted for a growing amount of total retirement income t/f
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true
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the amount accumulated in a defined contribution plan will be determined at least in part by the investment performance of the retirement funds t/f
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true
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employees who have 401 k plans also have to decide how to invest the funds in their plan t/f
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true
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eligibility requirements for pension and retirement plans are typically determined by the employees age and years of service t/f
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true
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period during which premiums are paid for the purchase of an annuity is called the
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accumulation period
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The real and personal property owned by a person that can be transferred at death.
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Probate Estate
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All property that might be subject to federal estate taxed on a person's death.
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Gross estate
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The process of developing a plan to administer and distribute our assets after death in a manner consistent with your wishes and the needs of your survivors, while minimizing taxes.
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Estate planning
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A written and legally enforceable document expressing how a person's property should be distributed on his or her death.
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Will
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The situation that exists when a person dies without a valid will.
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Intestacy
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The person who makes a will that provides for the disposition of property at his or her death.
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testator
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A document that legally modifies a will without revoking it.
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codicil
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An informal memorandum that is separate from a will and contains suggestions or recommendations for carrying out a decedent's wishes.
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letter of last insturctions
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The court-supervised disposition of a decedent's estate.
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Probate process
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The personal representative of an estate designated in the decedent's will.
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executor
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The personal Representative of the estate appointed by the court if the decedent died intestate.
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administrator
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Legal document that authorized another person to take over someone's financial affairs and act on his or her behalf.
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durable power of attorney for financial matters
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A document that precisely states the treatments a person wants if he or she becomes terminally ill.
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living will
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A written power of attorney authorizing an individual to make health care decisions on behalf of the principal when the principal is unable to make such decisions.
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durable power of attorney for health care
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A personal statement left for family, friends, and community that shares your values, blessings, life's lessons, and hopes and dreams for the future. (legacy statements)
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ethical will
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The right of surviving joint owners of property to revive title to the deceased joint owner's interest in the property.
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right of survivorship
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A type of ownership by two or more parties, with the survivor(s) continuing to hold all such property on the death of one or more of the owners.
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joint tenancy
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A form of ownership by husband and wife, recognized in certain states, in which property automatically passes to the surviving spouse.
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tenancy by the entirety
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A form of co-ownership under which there is no right of survivorship and each co-owner can leave his or her share to whomever he or she desires.
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tenancy in common
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All marital property co-owned equally by both spouses while living in a community property state.
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community property
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A legal relationship created when one party transfers property to a second party for the benefit of third parties.
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trust
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A person who creates a trust and whose property is transferred into it. Also called settlor, trustor, or creator.
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grantor
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An organization or individual selected by a grantor to manage and conserve property placed in trust for the benefit of the beneficiaries.
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trustee
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Those who receive benefits--property or income--from a trust of from the estate of a decedent. A grantor can be a beneficiary of his own trust.
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beneficiaries
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A trust created and funded during the grantor's lifetime.
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living (inter vivos) trust
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A trust in which the grantor reserves the right to revoke the trust and regain trust property. The grantor can serve as the initial trustee.
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revocable living trust
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A trust in which the grantor gives up the right to revoke or terminate the trust.
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irrevocable living trust
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A provision in a will that provides for the passing of the estate--after debts, expenses, taxed, and specific bequests--to an existing living trust.
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pour-over will
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A trust reated by a decedent's will and funded through the probate process.
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testamentary trust
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An irrevocable trust in which the major asset is life insurance on the grantor's life.
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irrevocable life insurance trust
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A tax levied on the value of certain gifts made during the giver's lifetime.
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gift tax
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A tax levied on the value of property transferred at the owner's death.
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estate tax
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Credit given to each person that can be applied to the amount of federal estate tax owed by that person at death.
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applicable exclusion amount (AEA)
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A graduated table of rates applied to all taxable transfers; used for both federal gift and estate tax purposes.
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unified rate schedule
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Under the federal gift tax law, the amount that can be given each year without being subject to gift tax.
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annual exclusion
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A method of reducing gift taxes; a gift given by one spouse, with the consent of the other spouse, can be treated as if each had given one-half of it.
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gift splitting
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The credit that can be applied against the tentative tax on estate tax base.
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unified tax credit
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The most favorable tax treatment results when you transfer your estate (after death) to your
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spouse
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Your will would appoint ____ to carry out the terms of the will
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an executor
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In the absence of a valid will, the heir(s) most generally favored would be the
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spouse
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T/F: one should make a copies of his will and store them in different places.
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true
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T/F: property held in different states does not complicate the estate planning process.
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false
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a valid will cannot be contested t/f
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false
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T/F: liquidity is important in an estate to pay or death costs and possible taxes.
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true
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Using a trust can help shield an estate from using improper vehicles of transfer t/f
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true
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Updating an estate plan is a critical part of the estate planning process t/f
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true
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A letter of last instructions could include this information
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funeral and burial wishes
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A form of joint ownership that may exist only between husband and wife is
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tenancy by the entirety
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___ would represent a second level death related cost
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federal estate taxes
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T/F: more damage is done to estates by doing nothing than by doing the wrong thing.
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true
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why does an estate "break up"
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death related costs, inflation, lack of liquidity, improper use of vehicles of transfer, and disabilities
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Which of the following are reasons for making lifetime gifts?
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appreciation value, credit limit, impact of marital deduction
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Typically, a will must be signed by two witnesses to be valid. t/f
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true
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______ would be a first-level death-related cost.
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funeral expenses
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a will is a legal document outline the plan for . . .
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disposition of your assets
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When you die intestate, you have given the court or state the privilege of determining
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guardians of your dependents
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the decedent's personal representative is called a(n)
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executor
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T/F: a potential estate planning problem is improper distribution of assets.
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true
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a testamentary trust is established in a will t/f
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true
