20 Accounts, Estate Techniques & Trading Practice Questions & Answers

1. 1. A grandparent funds a Section 529 college savings plan for a grandchild and later worries that the grandchild may not go to college at all. Which statement about the grandparent's control of that plan account is correct?

   • A.Control of the plan passes to the beneficiary once he reaches the state age of majority.
   • B.The account owner keeps control and may name a different qualifying family member instead.✓ Answer
   • C.The beneficiary may direct the investments in the plan once enrolled at an eligible school.
   • D.The contribution is irrevocable, so the owner may never withdraw the money for other uses.

   A 529 plan is owned by the contributor, not the beneficiary, which is why the owner may substitute another qualifying family member as beneficiary or simply take the money back. A non-qualified withdrawal is not forbidden; it only means the earnings portion is taxed as ordinary income and carries a penalty, while the contributions come back tax-free. This retained control is the classic contrast with a UTMA account, where the gift is irrevocable and the property vests in the minor.

   Source: IRC Section 529 (qualified tuition programs); IRS Topic No. 313Report a problem with this question

2. 2. Assume the annual contribution limit for a Coverdell Education Savings Account is $2,000. Two grandparents and one parent each want to contribute for the same child in the same year. What is the maximum that may be put into Coverdell accounts for that child for the year?

   • A.$6,000 in total, because each of the three contributors has a separate annual limit.
   • B.$4,000 in total, because only the two grandparents may use the annual contribution limit.
   • C.$2,000 in total, because the annual limit applies to the beneficiary, not to each contributor.✓ Answer
   • D.$2,000 from each parent, because grandparents may not fund a Coverdell account at all.

   The Coverdell ceiling is measured per beneficiary and aggregated across every contributor, so adding more donors does not add capacity; amounts above the ceiling are treated as excess contributions and draw an excise tax until removed. Contributions must also generally stop when the beneficiary turns 18, and the balance must be used or rolled to a qualifying family member under 30.

   Source: IRC Section 530 (Coverdell education savings accounts; per-beneficiary limit)Report a problem with this question

3. 3. An adviser's client opened a UTMA account for her 12-year-old son three years ago. She now asks to take part of the money to pay down her own credit card balance, promising to put it back next year. How should the adviser respond?

   • A.She may not use the assets herself; the gift is irrevocable and they are the minor's.✓ Answer
   • B.She may withdraw her own contributions, because only the earnings belong to the boy.
   • C.She may spend the assets on any household expense, because a parent controls the account.
   • D.She may borrow from the account if the funds are restored before the boy turns 21.

   A transfer under the Uniform Transfers to Minors Act vests the property indefeasibly in the minor, and the custodian holds it as a fiduciary who may use it only for the minor's benefit. Borrowing from the account, reclaiming contributions, or using it to meet the parent's own obligations is self-dealing, and an adviser who helped arrange it would be facilitating a breach of that fiduciary duty.

   Source: Uniform Transfers to Minors Act (transfer is irrevocable; property vests in the minor; custodian's fiduciary duty)Report a problem with this question

4. 4. A general partnership wants to open a brokerage account, and the partners disagree about which of them may enter orders. Which document primarily governs that question when the account is opened?

   • A.A joint account agreement signed by the partners as tenants in common in equal shares.
   • B.A corporate resolution adopted by the partners and certified by the firm's principal.
   • C.A trust certification naming each partner as a co-trustee of the firm's assets.
   • D.The partnership agreement, which names the partners authorized to trade the account.✓ Answer

   An entity has no natural voice of its own, so the firm looks to the entity's governing instrument to learn who may act for it; for a partnership that instrument is the partnership agreement, and the firm keeps a copy identifying the authorized partners. A corporate resolution performs the same function for a corporation and a trust certification for a trust, which is why each is the wrong document for a partnership.

   Source: FINRA Rule 4512 (customer account information); Uniform Partnership Act (authority of partners)Report a problem with this question

5. 5. An investment adviser representative wants to choose both the security and the number of shares in a client's account without contacting the client before each trade. Which statement about that authority is correct?

   • A.Choosing only the time and price of an order the client specified is itself discretionary trading.
   • B.Prior written authority is required, though state rules allow brief reliance on oral authority.✓ Answer
   • C.Discretionary power is implied once the client signs the advisory contract and pays a fee.
   • D.Oral authority is sufficient indefinitely if the adviser documents each conversation in the file.

   Choosing the security, the number of shares, or whether to buy or sell is discretion, and NASAA's model rule treats exercising it without the client's written authorization as an unethical practice; the usual state accommodation lets the adviser act on oral authority only for a short initial period while the signed document is obtained. Deciding nothing but the time and price of an order the client has already specified is expressly not discretion, which is why that distractor misstates the rule.

   Source: NASAA Model Rule on Unethical Business Practices of Investment Advisers and Federal Covered Advisers (discretionary authority)Report a problem with this question

6. 6. Two unmarried partners hold a brokerage account as joint tenants with right of survivorship. One of them dies leaving a valid will that gives his entire estate to his sister. What happens to the joint account?

   • A.The account is frozen and then split equally between the survivor and the decedent's estate.
   • B.The decedent's half goes to the sister under the will once the estate is probated.
   • C.The survivor takes the entire account by operation of law, and the will does not reach it.✓ Answer
   • D.The sister takes the account only if the decedent contributed most of the money in it.

   Survivorship is a feature of the registration itself, so the decedent's interest is extinguished at death and the survivor owns the whole account without any probate step; a will can only dispose of probate property, and this account never becomes probate property. Avoiding probate is not the same as avoiding estate tax, however, because the decedent's includible share is still counted in his gross estate.

   Source: IRC Section 2040 (joint interests in the gross estate); common-law joint tenancy with right of survivorshipReport a problem with this question

7. 7. A married couple in a community property state holds a stock portfolio as community property. The husband dies when the portfolio is worth far more than the couple paid for it. What is the income-tax basis result for the surviving wife?

   • A.Only the husband's half is revalued, and the wife keeps her original cost in her own half.
   • B.Neither half is revalued, because the wife already owned the property during the marriage.
   • C.Both halves are revalued to the date-of-death market value, giving the whole portfolio a new basis.✓ Answer
   • D.The portfolio keeps the couple's original purchase cost until the surviving wife sells it.

   Community property receives a new basis on both the decedent's half and the survivor's half at the first spouse's death, so a later sale by the widow produces gain measured only from the date-of-death value. That double adjustment is the planning advantage community property holds over a joint tenancy, where only the share includible in the decedent's estate is revalued and the survivor's own half keeps its old cost.

   Source: IRC Section 1014(b)(6) (basis of community property at the death of a spouse)Report a problem with this question

8. 8. Two business partners own an account as tenants in common and ask their adviser to add a transfer on death beneficiary so that the account will skip probate. How should the adviser answer?

   • A.Such a registration may be added but takes effect only after both tenants have died.
   • B.Adding the beneficiary also removes the account from each partner's taxable estate.
   • C.A tenants in common account cannot carry a transfer on death beneficiary, so each share is probated.✓ Answer
   • D.The beneficiary form may be added and overrides each partner's will as to the whole account.

   Registration in beneficiary form is offered for individual accounts and for accounts held with right of survivorship, because in both cases there is a moment when no living owner remains; a tenancy in common has no survivorship, so each owner's fractional share must pass under his own will or by intestacy. Even where a TOD designation is available it avoids probate only, and the assets still sit in the deceased owner's gross estate.

   Source: Uniform TOD Security Registration Act (registration in beneficiary form)Report a problem with this question

9. 9. A client names her three children as equal beneficiaries of her account, per stirpes. One son dies before she does, leaving two children of his own. When the client dies, how is the account divided?

   • A.The whole account is paid to the client's estate and distributed under the terms of her will.
   • B.Each surviving child and each grandchild takes an equal one-quarter share of the account.
   • C.Each of the two surviving children takes one half of the account and the grandchildren receive nothing.
   • D.Each surviving child takes one third and the two grandchildren divide their father's third.✓ Answer

   Per stirpes means distribution by branch: each of the three children's lines takes a one-third share, and the line of the son who died passes down to his own descendants, so his two children take one sixth each. Had the designation read per capita, the deceased son's branch would drop out entirely and the two surviving children would split the account one half each.

   Source: Uniform Probate Code (distribution by representation, per stirpes)Report a problem with this question

10. 10. A client's IRA still names his former spouse as primary beneficiary, while his more recent will leaves everything to his current spouse. He dies without ever changing the IRA form. Who receives the IRA?

    • A.The current spouse, because the later will automatically revokes any earlier beneficiary form.
    • B.The current spouse, because federal law makes a spouse the beneficiary of any IRA.
    • C.The estate, because the conflict between the two documents cancels both of them.
    • D.The former spouse, because a valid beneficiary designation controls over the terms of a will.✓ Answer

    An account with a living named beneficiary passes by contract outside the probate estate, so the will never touches it and the stale designation is honored exactly as written. The spousal-consent protection that would have blocked this result applies to ERISA qualified plans rather than to IRAs, which is why reviewing beneficiary forms after a divorce is a standing item in an adviser's planning checklist.

    Source: Uniform Probate Code (nonprobate transfers on death); ERISA Section 205 (spousal consent applies to qualified plans, not IRAs)Report a problem with this question

11. 11. A client wants to avoid probate, keep the terms of his estate plan private, and still retain the power to change his mind about the entire arrangement. Which vehicle fits, and what is its main limitation?

    • A.A revocable living trust gives probate avoidance and privacy, but its assets stay in his taxable estate.✓ Answer
    • B.An irrevocable trust reaches the same goals and still lets the grantor amend the terms later.
    • C.A durable power of attorney does the same job and keeps working after the principal dies.
    • D.A testamentary trust in his will provides privacy because its terms are never made public.

    Because a funded revocable trust already holds legal title when the grantor dies, nothing has to be retitled through the probate court, and the trust instrument is not filed as a public record the way a probated will is. The price of keeping the power to revoke is that the property is still treated as the grantor's for tax and creditor purposes, so the trust provides no estate-tax reduction and no asset protection.

    Source: Uniform Trust Code (revocable trusts and creditor claims); IRC Section 2038 (revocable transfers included in the gross estate)Report a problem with this question

12. 12. A client holding a large position in appreciated stock wants a charitable deduction this year but has not decided which charities to support. What must the adviser explain about a donor advised fund?

    • A.The client keeps legal control of the assets and may order the sponsor to make any grant.
    • B.The client may reclaim the contributed shares at any time before they are granted out.
    • C.The client must distribute a set percentage every year, as a private foundation does.
    • D.The client keeps only the right to recommend grants, because the gift is irrevocable.✓ Answer

    A contribution to a donor advised fund is a completed gift to the sponsoring public charity, which takes legal control; the donor's continuing role is advisory, and the sponsor may decline a recommendation that does not meet its standards. That structure is what lets the client deduct in the current year while choosing charities later, and contributing the long-term appreciated shares directly also avoids recognizing the capital gain.

    Source: IRC Section 4966 (donor advised funds); IRS Publication 526 (charitable contributions)Report a problem with this question

13. 13. A client is deciding whether to give her son highly appreciated stock during her lifetime or to leave it to him at her death. Which comparison of his income-tax basis is correct?

    • A.Both transfers give the son a new basis equal to the market value on the day the transfer occurs.
    • B.Both transfers leave the son with her original cost, so the timing of the transfer changes nothing.
    • C.A lifetime gift carries over her cost basis, while stock inherited at death is revalued to its date-of-death value.✓ Answer
    • D.A lifetime gift is revalued to the market price on the date of the gift, while an inheritance carries over her cost.

    Gifted property takes a carryover basis, so the donor's unrealized gain moves to the donee and is taxed when the donee sells, while property acquired from a decedent is revalued to its date-of-death fair market value and is automatically treated as long-term. That difference is why highly appreciated, low-basis assets are usually the worst candidates for lifetime gifting and the best candidates to hold until death.

    Source: IRC Section 1015 (basis of property acquired by gift); IRC Section 1014 (basis of property acquired from a decedent)Report a problem with this question

14. 14. A client dies owning four things: a brokerage account in her own name with no beneficiary named, a joint account with right of survivorship held with her brother, an IRA naming her daughter, and a house titled in her revocable living trust. Which of these passes through probate?

    • A.The house in the revocable trust, because she could have revoked that trust at any moment.
    • B.The joint account with her brother, because the probate court must first confirm his survivorship interest.
    • C.The IRA naming her daughter, because retirement accounts are always settled through the estate.
    • D.The individually owned brokerage account, because nothing directs it to a survivor or beneficiary.✓ Answer

    Probate governs only property that has no other legal mechanism for transferring at death, which is exactly the case for an individually registered account with no survivorship feature and no beneficiary on file. Survivorship registration, a beneficiary designation, and trust title each supply that mechanism, although all four items may still be counted in the gross estate for estate-tax purposes.

    Source: Uniform Probate Code (probate estate versus nonprobate transfers at death)Report a problem with this question

15. 15. A 72-year-old retired client who lives on withdrawals from her portfolio asks her investment adviser to buy more shares on margin so that she can collect more dividend income. What is the adviser's central concern?

    • A.Leverage magnifies losses and adds interest cost, which conflicts with her need for stable income.✓ Answer
    • B.Margin interest is never deductible by an individual, which makes the plan costly after tax.
    • C.Margin borrowing is prohibited for any client old enough to be taking portfolio withdrawals.
    • D.Signing the margin agreement would give the adviser custody of her securities and cash.

    Borrowing to buy securities increases both the gain and the loss on the same capital and charges interest on the debit balance, so a portfolio that must fund living expenses can be forced to sell into a decline to meet a maintenance call. An adviser owes a fiduciary duty to recommend only what fits the client's objectives and risk capacity, and no rule bars margin by age, which is what makes the prohibition answer wrong.

    Source: Investment Advisers Act of 1940 Section 206 (fiduciary duty); Federal Reserve Regulation T (margin)Report a problem with this question

16. 16. A client holds stock trading at $52 and enters a sell stop order at $50 to protect the position. Overnight news gaps the stock lower and the first print the next morning is $44. What is the likely result?

    • A.The order is cancelled automatically, because the stock never traded at the $50 stop price.
    • B.The order is triggered at $44 and becomes a market order, so it may fill far below $50.✓ Answer
    • C.The order guarantees a sale at $50, because the stop price is also the execution price.
    • D.The order is triggered at $44 but will not fill until the stock climbs back to $50.

    A stop order is dormant until the market touches or passes through the stop price, and the trigger converts it into a market order that takes the best price then available. In a gap-down opening that price can be dramatically below the stop, which is precisely the protection a stop order does not provide; a client who needs a price floor must accept the risk of no execution and use a stop-limit instead.

    Source: SEC Office of Investor Education investor bulletin on order types (stop orders become market orders when triggered)Report a problem with this question

17. 17. A client watching a stock at $30 wants to be filled only if he can pay less than the current market price. Which order does he use, and where is it placed?

    • A.A buy limit order placed above the market, which guarantees an immediate execution.
    • B.A buy limit order placed below the market, filling at his limit price or better.✓ Answer
    • C.A buy stop order placed above the market, protecting him against a sharp price rise.
    • D.A buy stop order placed below the market, which fills when the price drops to it.

    A limit order sets the worst price the client will accept, so a buy limit sits below the market and executes only at that price or lower, trading away certainty of execution for certainty of price. Stop orders run the opposite way: a buy stop is entered above the market and is used to cover a short position or to chase a breakout, not to buy at a discount.

    Source: SEC Office of Investor Education investor bulletin on order types (limit and stop orders)Report a problem with this question

18. 18. An adviser comparing two small-cap holdings notices that one of them trades with a much wider bid-ask spread. What does that tell the adviser about the cost of trading that stock?

    • A.The spread is an implicit cost paid on every round trip and signals thinner liquidity.✓ Answer
    • B.The spread is irrelevant to cost, because customers buy at the bid and sell at the offer.
    • C.The spread is a negotiated commission that the broker charges and details on the client's confirmation.
    • D.The spread affects only market makers, whose inventory risk the quote is meant to cover.

    The customer buys at the higher ask and sells at the lower bid, so the spread is surrendered on entry and exit even when no commission appears on the confirmation, which is why it is classed as an implicit transaction cost rather than an explicit fee. A wide spread also signals thin trading interest, so an adviser evaluating an active strategy must count the spread alongside commissions when estimating the after-cost return.

    Source: FINRA Rule 5310 (best execution); SEC market structure guidance treating the bid-ask spread as a transaction costReport a problem with this question

19. 19. An investment adviser selects the broker-dealers that will execute its clients' trades. Which statement describes what the duty of best execution requires of the adviser?

    • A.The adviser satisfies the duty by disclosing in its brochure that it does not monitor execution.
    • B.The adviser must seek the most favorable terms reasonably available and review execution quality periodically.✓ Answer
    • C.The adviser must route every order to whichever venue charges the lowest commission that day.
    • D.The adviser may accept payment for order flow instead of evaluating the quality of executions.

    Best execution is a qualitative standard measured by the total result for the client, so price is weighed together with speed, the likelihood of execution and settlement, order size, and the financial responsibility of the executing firm. For an adviser it is part of the fiduciary duty and requires a documented, recurring review of the firms used; payment for order flow and soft-dollar arrangements are permitted but must be disclosed and can never displace that review.

    Source: FINRA Rule 5310 (best execution); Investment Advisers Act of 1940 Section 206 (fiduciary duty)Report a problem with this question

20. 20. A client sells stock on Monday and asks when the money is actually hers. In a regular-way transaction, what does the settlement date represent?

    • A.The day the securities are actually delivered and the cash is paid, shortly after the trade date.✓ Answer
    • B.The day the firm mails the confirmation, which is when the customer becomes the owner.
    • C.The day the customer must pay under Regulation T, which is always the trade date itself.
    • D.The day the order is executed on the exchange and the trade price becomes binding on both parties.

    Trade date is when the parties agree on price and quantity; settlement date is when the exchange of securities for money is completed and the buyer becomes the owner of record. SEC Rule 15c6-1 sets the standard cycle for equities and corporate bonds at one business day after the trade, and the Regulation T payment period runs two business days beyond that standard settlement.

    Source: SEC Rule 15c6-1 (standard settlement cycle); Federal Reserve Regulation T (payment period)Report a problem with this question

Practice questions written from the NASAA Series 65 Test Specifications and the Uniform Securities Act. Not affiliated with or endorsed by NASAA, FINRA or Prometric. Dollar thresholds, fee figures and contribution limits change; where one matters the question supplies it. Confirm current requirements with NASAA before testing. NASAA exam content outline →