ALL Flashcards
How are payments from a life insurance policy taxed?
a payment received as proceeds of a life insurance policy is not taxable
Which statement about critical illness insurance (CII) is correct?
a.
CII is not based on the insured’s ability to work.
b.
The benefit under CII is paid out on a monthly basis.
c.
The benefit paid under CII is proportionate to the severity of the insured’s condition.
d.
CII serves to manage the risk of contracting terminal diseases.
A.
What are the steps of a retirement income needs analysis
- Determine retirement goals
- Calculate how much a client will need to meet the retirement objectives.
- Determine the sources of income at retirement.
- Adjust finances to meet retirement goals.
Describe how you and your clients can use the projected cash flow statement as a planning tool.
To control spending, ensure liquidity and implement the financial plan.
What ethical principle requires a planner to attain an adequate level of knowledge and skill and make a commitment to continuous learning and professional development.
Competence
How much of the OAS will need to be repaid if the income is $87000 the OAS will be clawed back if over $77580
$87000-$77580 X 0.15= $1413.00
If a pensioner receives GIS and earns $4000 in income, how much will the GIS be reduced?
For a single, widowed, divorced or separated pensioner, the maximum monthly supplement is reduced by $1 for each $2 of other monthly income. There is an exemption for employment earnings to encourage participation in the labour market. The first $3,500 of earnings is fully exempt. ($4,000 - $3,500)/2
What are attribution rules?
The attribution rules provide that where property, including money, is transferred or loaned, directly or indirectly, by one spouse to another, then all income or loss from the property and any capital gain or loss on the disposition of the property will be attributed back to the transferor spouse
Which legislation deals with the custody of children
Married then the divorce act
Common Law or Unmarried then the Children’s Law Reform Act
What is a Constructive Trust
a constructive trust can be awarded by the courts to remedy a situation where one party is unjustly enriched to the deprivation of the other
What is a “proprietary award”
a court order that indicates one party receiving proportional ownership
What is ILA?
Name 2 characteristics of ILA
Independent Legal Advice
- not a formal requirement however it is recommended so that one party cannot overturn the contract in the future claiming they did not understand their rights
- ILA should always be provided to both parties, even if only one part pays for it
What are the 4 Life Cycle Approach?
- Accumulation
- few assets, significant debts
- income is low
- longer time horizon, portfolio growth - Consolidation
- Income exceeds expenses
- Portfolio shifted to more fixed income - Financial Independence
- Living expenses financed through investments and pension income
- Cant afford losses in the portfolio because they are no longer working
- More of the portfolio should be in fixed income and stocks should be blue chip - Gifting
- Sharing wealth with families and charities
- Time horizon switches from their own needs to be the needs of those receiving the gifts
What is fundamental analysis?
What is technical analysis?
Fundamental Analysis
- measures the future value of a stock based on many different factors including interest rates, the economy, industry conditions, the financial strength of the company
- study everything except historical stock prices when projecting future prices
Technical Analysis
- study of historical stock prices and stock market behaviour in an attempt to identify recurring patterns in the data
- a technical analyst studies numbers, price movements, trading volume, data on the number of stocks that rise in prices versus the number of stocks that fell in price
How far back can the courts go when considering retroactive child support orders?
3 years
How to conduct a capital needs analysis?
- Prepare asset inventory with asset values that would be part of the deceased estate
- Determine estate obligations at death based on immediate cash needs of survivors
- Determine the amount of capital to provide income needs for the survivors
After conducting a capital needs analysis for her clients, Anastasia and Denys, Padme, an advisor, estimates they will have $20,000 in final expenses, and need net monthly income for their survivors of $3,000. They currently have investible assets of $425,000. Assume a discount rate of 4.5%. Calculate the additional capital they will need.
(3000 x 12)/4.5% = $800,000
$800,000 + $20,000 - $425,000 = $395,000
Charley’s employer has opened a Retirement Compensation Arrangement (RCA) for him. Calculate the refundable tax that Charley employer must pay if $25,000 in contributions are made to the plan and $15,000 in income is earned in the RCA in that year. No benefits are paid out in the taxation year.
The RCA is a taxable trust set up by an employer to hold funds for an employee’s retirement. The employer pays tax—which is refundable when the money is eventually paid out—at 50% of all contributions made to the RCA during the year plus 50% of the returns (income and capital gains) earned for the year. In this example, Charley’s employer would pay ($25,000+$15,000) x 50%= $20,000
Guido, a Canadian resident, dies owning US$750,000 in vacation properties in Maine. His total assets worldwide are US$3,500,000. Calculate his U.S. estate tax payable.
Under the Canada-U.S. tax treaty, if an individual’s worldwide assets are below the exempt amount, there is no U.S. estate tax payable regardless of the value of the U.S. assets. Guido is below the exempt amount of US$11.18 million with worldwide assets of $3,500,000. He will still be subject to Canadian estate and other taxes.
Identify a personal tax-sheltered investment vehicle that allows spouses to split income at retirement.
A. Spousal Registered Retirement Savings Plan.
B. Registered Retirement Savings Plan.
C. Registered Pension Plan.
D. Deferred Profit Sharing Plan
A Deferred Profit Sharing Plan (DPSP) is not a personal investment vehicle, and it does not allow for income splitting at retirement; a Registered Pension Plan is not a personal investment vehicle; and a Registered Retirement Savings Plan does not allow for income splitting. However, a Spousal RRSP does allow for income splitting at retirement where the spouse with the lower marginal tax rate withdraws and pay taxes on the amount withdrawn.
Sionna has $30,000 invested in preferred shares in a company with a 5% dividend. She is thinking of buying a car worth $30,000 and has been offered a loan at 3.7%. Her marginal tax rate is 30% and she will not incur a capital loss or gain if she sells the shares.
A. She should take the loan as the before-tax cost of the loan is 1.7% less than the return on the preferred shares.
B. She should sell the shares as she would require a before-tax return of 7.14% on her investment to equal the interest paid on the loan.
C. She should sell the shares as she would require a before-tax return of 5.29% on her investment to equal the interest paid on the loan.
D. She should take the loan as the before-tax cost of the loan is 2.59%, less than the return on her preferred shares.
C. Loan Rate/(1-MTR) 3.7%/(1-30%) =0.037/(1-.3) =0.037/(.7) =5.28%
What happens if a principal terminates an agency relationship?
if a principal terminates an agency relationship, the principal may continue to be bound by the acts of the former agent, under the legal concept of apparent authority. The principal should therefore notify all persons with whom he does business that the former agent no longer has authority to contract on his behalf
What is excluded from errors and omission coverage
Certain acts are excluded form coverage, such as: fraudulent or criminal acts; services not stated in the policy; and Warrantees or guarantees for future performance
What is a salary deferral arrangement
an arrangement where they can defer a portion of their salary annually to fund a leave of absence in the future. This type of structure arrangement helps employees save in an organized and planned manner, and has no cost to the employer as it is completely employee funded. It allows employees to take a self-funded leave of absence with company approval in the future.
What does the Family Law Act allow as exclusions for calculating net family property?
- Damages or a right to damages for personal injuries, nervous shock, mental distress, or loss of guidance, care, and companionship, or the part of a settlement that represents those damages.
- Proceeds or a right to proceeds of a life insurance policy.
Mary realizes a $250,000 gain on sale of a property. She is able to elect to defer the recognition of the gain. Calculate the minimum amount that must be included cumulatively in income in the second year after the sale.
A taxpayer claiming a reserve for proceeds not due until after the end of the year must include, cumulatively, at least one-fifth (1/5) of the gain times the number of taxation years since the disposition in income. In this example, 1/5 x 2 x $250,000 = $100,000.
What should be done if someone cannot pay for child support payments
payor may issue a Motion to Change to avoid an accumulation of arrears and enforcement issues
Amir’s client, Bashir, has requested advice regarding a potential purchase of a bakery at an asking price of $350,000. Bashir projects that the bakery will provide an average after-tax income of $90,000. The owner bought new display cases last year, worth $25,000 and had decorated the shop with items from Italy, as it was an Italian bakery. These items are valued at $15,000. Bashir wishes to open a bakery that caters to Middle Eastern customers and will not use the decorations. Based on industry statistics of a capitalization rate of 30%, determine if Amir should recommend Bashir pay the asking price.
After-tax earnings/capitalization rate =
90,000/.30 = $300,000
You would recommend that he offer no more than $300,000.
The display cases are redundant assets and shouldn’t be included. The decorations are not of any value as the theme of the bakery will be Middle Eastern, not Italian.
what is the difference between current net worth/cash flow and projected net worth/cash flow
current statement evaluates a clients overall financial situation while projected monitor a clients progress
Which act stipulates the ‘maximum contact principle’
The federal divorce act
it is in the best interest of the child to have as much contact with each parent as reasonable
Shazia, age 56, works for a large bank and is covered under its extended health care benefits program. For prescription drugs, there is a calendar year deductible of $30 and the coinsurance factor is 85%. If Shazia incurs prescription drug costs of $478 this year, calculate the amount she will be reimbursed by the insurance company
$478-$30=$448
$448 X 85%= $381
How is trust income taxed
The general rule for the taxation of personal trusts is that the income is not taxed in the trust’s hands to the extent that it is paid, or payable in the year, to a beneficiary. Although considered an individual, a personal trust cannot deduct personal credits when computing federal taxes
Calculate the expected return on a portfolio given the information in the table below. Calculate your answers to 2 decimal places.
Risk-free Rate 2.63% Market Rate of Return 7.53% Portfolio's Beta 1.43
risk free rate+beta (market rate of return-risk free rate)
0.0263+1.43(0.0753-0.0263)
=9.64%
What is a split annuity program
Under a split annuity program, the funds available for annuity purchase are split between an immediate term-certain annuity and a single-premium deferred annuity. The term-certain annuity provides a guaranteed income over a pre-determined period. When the income from the term-certain annuity ceases, the full amount originally invested is available as a lump sum from the single-premium deferred annuity
What term is used to refer to the merging of CPP and QPP record of earnings and contributions when a CPP contributor moves to Quebec.
Portability
The 5-year average of the year’s maximum pensionable earnings (YMPE) is $55,420. Gerard earned an average of $65,000 over the last 5 years. Calculate the maximum monthly Canada/Quebec Pension Plan benefit payment to the nearest dollar.
The amount of retirement pension is 25% of a contributor’s average monthly pensionable earnings during the period when he or she was contributing to the plan. Pensions are available to persons who have contributed to the CPP/QPP in at least one calendar year. The maximum monthly CPP/QPP retirement benefit payable to a 65-year-old is calculated by taking the average YMPE over the past five years, dividing by 12, and multiplying by 25%. ($55,420 x 25%)/12 = 1,154.58
Amina receives a CPP survivor’s pension. She was 67 when her husband died. He was receiving a CPP pension of $700 a month but she was not eligible for a CPP pension. Calculate Amina’s survivor’s pension to the nearest dollar.
If the survivor is age 65 or over, the benefit is 60% of the deceased contributor’s retirement pension if the surviving spouse or common law partner is not receiving other CPP benefits. $700 x .60 = $420
For business valuations, what factors should be considered when determining a capitalization rate?
- Form of organization.
- Age of the company.
- Quality of management.
- Life cycle of products.
Quality of management and life cycle products
What is compensatory allowance
spousal support for QC
What is a spouse in family law
- Married couple
- Unmarried who have lived together for at least 3 consecutive years
- Unmarried, who have lived together, have child, and are in a relationship of some ‘prominance’
For a domestic contract to be enforceable it must be?
- fair
- in writing
- signed by both parties
- witnessed (by an independent third party)
How are normalized earnings determined?
The after-tax average earnings likely to be realized in the future, adjusted by non-recurring items and accounting for other factors likely to affect future performance.
What is the difference between the assets approach and the earnings approach of business valuation?
The earnings approach values the business as a going concern while the assets approach assumes the owner is just trying to sell the assets.
How is strategic asset allocation different than tactical asset allocation
Unlike Tactical Asset Allocation, which allows for deviation from the base allocation to take advantage of anticipated opportunities in the market, the SAA does not deviate from its original allocations,
ayne’s advisor suggests that an estate freeze would help reduce taxes in the event of Jayne’s death. The advisor recommends moving $600,000 of growth assets into the estate freeze. The assets have an Adjusted Cost Base (ACB) of $418,000. Calculate the taxable amount of the gain in the year of the freeze.
In the year of the estate freeze, no taxable gain would result from the transfer of assets. When the taxpayer dies or disposes of the assets accumulated to the date of the freeze are taxed as income to the taxpayer’s estate (or the taxpayer himself). Any subsequent added value is taxed as income to the taxpayer’s children or spouse upon disposal.
Calculate the maximum monthly Canada Pension Plan (CPP) benefit payable to a 65 year old retiring in Year 6 if the YMPE is $53,600 for Year 1, $54,900 for Year 2, $55,300 for Year 3,$55,900 for Year 4 and $57,400 for year 5.
he maximum yearly benefit would be $13,855, calculated as the average of (53,600 + 54,900 + 55,300 + 55,900 + $57,400)/5 x 25% = $13,855. The maximum monthly CPP/QPP retirement benefit payable to a 65-year-old is calculated by taking the average YMPE over the past five years, dividing by 12, and multiplying by 25%. $55,420/12 x 25% = $1,154.58.
Taylor has a participating life insurance policy purchased 15 years ago. He has paid an annual premium of $700 for a total amount of $10,500. The policy has a current cash value of $8,000. Total dividends paid are $3,000. The applicable Net Cost of Pure Insurance (NCPI) is $3,000. What is the taxable policy gain on the policy if it is surrendered by Taylor?
ACB= Premiums- dividends- NCPI = 10500-3000-3000 =4500 Policy gain= cash surrender value (csv)- ACB =8000-4500 =3500
Which of the following is/are criteria used to choose an insurance representative?
- Capability on technical side of insurance.
- License to sell insurance.
- Recognized designation in insurance or related field
All the above
Financial planning can be condensed into which two basic activities
Analysis and implementation
How do you obtain basic liquidity ratio
To obtain the basic liquidity ratio, divide liquid assets by monthly expenses
Which of the following correctly states the tax implications of life insurance RRSPs?
- Life insurance products may be registered as retirement savings plans.
- Life insurers offer RRSPs through deferred annuities.
- Premiums paid for life insurance RRSPs are not tax deductible.
- Payments made out of life insurance RRSPs are exempt from tax.
1 and 2 only
What is presumptive disability benefit?
A presumptive disability is one of a specific number of conditions identified in the policy contract.
How much of one spouse’s CPP/QPP benefits can be assigned to the other spouse
only 50% of one spouses cpp/qpp benefits can be assigned
The potential for income splitting using spousal RRSPs depends on which factors?
- How stable the couple’s marriage is.
- The contributing spouse’s tax rate after retirement.
- The amount of income of the non-contributing/recipient spouse after retirement.
- Whether the contributing spouse is self-employed or not.
- & 3.
What are the emotional cycle separating spouses go through?
- GUILT
- DENIAL
- ANGER
- SADNESS
- ACCEPTANCE
What is a marriage contract primary purpose
to provide for the division of property in case of a marriage breakdown
What is a marriage contract primary purpose
to provide for the division of property in case of a marriage breakdown
Mauricio and Aliz are divorcing. Their home is worth $1,500,000 would incur realty fees of $50,000. They have a mortgage of $1,000,000 on the house. Mauricio has assets of $1,000,000, an RRSP worth $500,000 and contingent liabilities of $400,000. Aliz has assets of $100,000, student debt of $15,000 and an RRSP worth $250,000. The value of Mauricio’s excluded assets is $450,000. Calculate the equalization payment.
$157500
What is Right in Rem and Right in Personam
Right in Rem= keep existing property
Right in Personam= equalization payment
When determining contingent liabilities to calculate a person’s net family property, how are future taxes treated?
Taxes should therefore be taken into account in determining a party’s net family property, with a present value discount if appropriate.
What are the key planning elements of a comprehensive financial planning
cash flow and debt management investment planning retirement planning risk management and insurance planning tax planning and education funding estate planning
Name characteristics of a DPSP
- The employer sets it up
- After 1991 an employee cannot pay into it
- all payments after 1991 to the employee, is treated as ordinary income
how are investment earnings allocated to unit holders of segregated funds.
Proportionately by investment units.
What is the mortgagor
What is the mortgagee
mortgagor= borrower mortgagee= lender
What are the three main sources of retirement income
- Government plans
- employers sponsored plans
- Personal saving
What are disadvantages of tangible assets
- difficulty converting to cash
- storage, upkeep and insurance costs
- estate planning complications
Omran Kalish owns a corporation which holds real estate properties currently worth $4,569,000 and mortgages of $1,245,000. The properties were purchased for a total of $2,450,000. Omran assumes there will be disposal costs of $150,000 and the corporation is taxed at 23%. Calculate the liquidation value of these properties.
4569000-2450000*23%
4569000-1395000-487370
=2716630
Which services are usually provided under LTC insurance
Homemaker assistance and skilled nursing care are usually provided under LTC insurance
