NACVA NACVA Certification CVA Questions & Answers

• Question 41:

  Any Buy-Sell agreement, restrictions, or other similar factor relating to the right to use or sell the property will be ignored for estate gift, and generation skipping tax purposes unless the agreement meets any of the following test EXCLUDING:

  A. It is a bona fide business arrangement

  B. It must be a device to transfer the property to the natural objects of the transferor's bounty (such as family members) for less than adequate and full consideration in money or money's worth

  C. Its terms must be comparable to similar arrangements entered into by persons in an arm's length transaction

  D. It is a key player in Buy-Sell arrangements

  Correct Answer: D

• Question 42:

  If the funding of the forgoing requirements has been provided for through life insurance taken out in prior years that insurance should be reviewed as to both amount and type. The necessary amounts of insurance can change for several reasons. All of the following are those reasons EXCEPT:

  A. Inflation

  B. Increased value of the business

  C. Makeup of business ownership

  D. Potential earnings

  Correct Answer: D

• Question 43:

  Estate taxes become a problem only to the extent that:

  A. The estate's value exceeds the amount exempted from estate taxes

  B. The estate's value does not exceed the amount exempted from estate taxes

  C. Estate's value exceeds the amount separated from funding

  D. Estate's value becomes equal to the amount separated from funding

  Correct Answer: A

• Question 44:

  In general, the use of life insurance can fulfill all of the following basic needs EXCEPT:

  A. Liquidation of the stock of a disabled stockholder, either by the corporation or by other stockholder

  B. Payment of estate taxes

  C. Minimum interest rate based on U.S. Treasury rates

  D. Provision for continuity of the business after loss of a key person

  Correct Answer: C

• Question 45:

  Life insurance can serve as an important source of funding for stock purchase agreements pertaining to decreased shareholders. The advantages of using life insurance for the purpose are several. Which of the following is NOT out of such advantage?

  A. Deceased shareholders' estates

  B. The corporation's investment in the cash value of an ordinary life policy is a business asset.

  C. Any excess insurance the corporation carries over and above the value of the stock purchase agreement can be retained as earned surplus

  D. Provision for continuity of the business after loss of a key person

  Correct Answer: D

• Question 46:

  If the seller is in a low tax bracket and the buyer in a high one, it may be advantageous to:

  A. Structure the program to increase the interest rate and lower the price

  B. Structure the program to increase the interest rate and increase the price

  C. Structure the program to decrease the interest rate and increase the price

  D. Structure the program to decrease the interest rate and decrease the price

  Correct Answer: A

• Question 47:

  If the interest rate on a term contract is below the market interest rate for similar instruments at the time of event that triggers the transaction, the cash equivalent value the seller receives will be ___________ the contract's face value.

  A. Greater than

  B. Same as

  C. Less than

  D. Depends on agreement

  Correct Answer: C

• Question 48:

  In setting the interest rate in Buy-Sell agreement, we face the problem that market interest rates fluctuate considerably over time, and we have no way of knowing at what time in the future the Buy-Sell transaction will be triggered nor what the market level of interest rates will be at that time. There are several possible approaches to dealing with this dilemma. One approach is

  A. Simply to agree on an interest rate despite these uncertainties

  B. To set the interest rate by trying it to some index of interest rates

  C. Might be appropriate to use an interest rate index that represents securities

  D. Spread out the tax on the seller's gain

  Correct Answer: AB

• Question 49:

  The obvious disadvantage of the formal appraisal with regular update is:

  A. Cost

  B. Wastage of time

  C. Complexity of procedures

  D. Detailed reports having unnecessary information

  Correct Answer: A

• Question 50:

  Appraisers or real estate, equipment, or other physical property informally asserts that their appraisals are accurate to within ________________.

  A. Plus 5 and minus 10 percent

  B. Plus or minus 10 percent

  C. Minus 10 percent

  D. Plus or minus 5 percent

  Correct Answer: B