Fundamentals of Financial Planning Flashcards
How to Advertise as a CFP
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LLP Repayment Details
(LLP)withdraw funds from RRSP
- finance full-time education or -yourself or your spouse or common-law partner
-not kids
- Eligibility:• Canadian resident.
• enrolled full-time qualifying educational program at a designated educational institution.
-part-time students disability that makes full-time study impossible.) - Amount You Can Withdraw:• $10,000 per calendar year.
• lifetime $20,000.
• Withdrawals are not subject to tax as long as they are repaid according to the LLP rules. - Qualifying Educational Programs:• The program at least three consecutive months.
• at least 10 hours per week on course work, which can include classes, labs, or work-related assignments.
• designated educational institution, which includes Canadian universities, colleges, and some foreign institutions. - Repayment:•10 years to repay
•must begin in the second year after the last year you made a withdrawal.
•at least 1/10th of the total amount withdrawn each year until the balance is paid off.
• If you do not make the required repayment amount added to your income for that year and taxed accordingly. - Multiple Withdrawals:•can make multiple withdrawals BUT remain within the annual and lifetime withdrawal limits.
• The LLP can be used again in the future if the prior LLP withdrawals are fully repaid and you meet the eligibility criteria again. - Re-enrollment:• If you stop attending the educational program or become a part-time student, you have to cancel your LLP withdrawals unless you qualify as a part-time student due to a disability.
- LLP and the Home Buyers’ Plan (HBP):• You can participate in both the Lifelong Learning Plan (LLP) and the Home Buyers’ Plan (HBP), but you cannot use the same RRSP funds for both programs..
What is the GDSR Formula, definition, and threshold?
GDSR = Principal + Interest + Taxes + Heat +50% condo fees / Gross Annual Income
- It is a debt service measure that financial lenders use to assess the proportion of housing debt that a borrower is paying in comparison to their income. The threshold is 32%
What is the TDSR Formula,
definition, and threshold?
TDSR = Principal + Interest + Taxes + Heat + 50% of Condo Fees + Other Debt/ Gross Annual Income
It is a debt service measure that financial lenders use when determining the proportion of gross income that is already spent on housing-related and other similar payments. The threshold is 40%
Net Cash Flow
- Shows the planner information regarding the client’s ability to maintain their lifestyle, build wealth and save funds to achieve their goals.
- Net Cash Flow = (Total Income) - (Total Expenses)
- Careful not to double count
Conventional Mortgage
- The minimum downpayment is 20%
- Does not carry any form of high ratio or lender insurance premium
What are the 4 Unities of Joint Tenancy?
- Interest
- Title
- Possession
- Time
Steps in the Financial Planning Process
- Engaging and determining your current financial situation
- Developing financial goals
- Identifying alternative courses of action
- Evaluating alternatives
- creating and implementing a financial action plan
- reevaluating, monitoring, and revising the plan
Describe the Home Buyers Program (HBP)
- must be considered a first time home buyers
- must have an agreement to build or buy a qualifying home for either yourself of a related person with a disability (don’t have to be a $0 for this to happen)
- That person must occupy the home as a principal residence
- $35,000 each ($70,000 couple)
- Jan 1 balance must be $0 and meet other HBP eligibility conditions to participate again.
- deposit funds 90 days before withdrawal from RRSP
- must buy or build by October 1 of the following year of withdrawal
- 15 years to make repayments
Describe the Lifelong Learning Plan (LLP)
- $10000 per year and $20,000 max for Single
- double the amounts for a couple
- 10 yr repayment
- complete the program or continue to be enrolled in the program
- start to pay back after the 5th calendar year after your year of withdrawal, or
- 2nd year after you can no longer claim the educational tax credit for 3 consecutive months.
- Must be enrolled full-time, or can be part-time only if you are disabled.
- money can be used for anything
Reasons for Liquidity in Financial Planning
- Emergency Funds
- Take advantage of investment opportunities
- To achieve a short-term goal (usually 1 yr.)
NOT KNOW PENDING EXPENSES…this can be met by proper cash flow planning.
Describe the details around Taxation on
U.S. Situs Assets
U.S. situs assets are assets that are considered located or connected to the United States, and for non-U.S. residents and non-citizens, these assets can be subject to U.S. estate tax. Below are the important details related to the taxation on U.S. situs assets:
U.S. situs assets are specific types of assets that, if owned by a non-U.S. citizen or non-resident (non-domiciled person), may be subject to U.S. estate tax. These assets include:
- Real estate located in the United States.
- Shares of U.S. corporations, regardless of whether the shares are held directly or through a foreign brokerage account.
- Tangible personal property located in the U.S., such as artwork, cars, jewelry, and other movable property.
- Certain debt obligations from U.S. individuals or entities, unless exempted by specific rules or a tax treaty.
For non-U.S. citizens and non-residents (non-U.S. domiciliaries), the U.S. federal estate tax applies to U.S. situs assets when the value exceeds the $60,000 exemption threshold. This is significantly lower than the estate tax exemption available to U.S. citizens and residents (currently $12.92 million in 2023).
- Any U.S. situs assets exceeding the $60,000 exemption threshold may be subject to estate tax, with rates ranging from 18% to 40%, depending on the total value of the assets.
U.S. federal estate tax rates are progressive, meaning the tax rate increases with the size of the taxable estate. For non-residents with U.S. situs assets exceeding the $60,000 exemption, the tax brackets are the same as those for U.S. citizens:
- 18% for the first portion of the taxable estate.
- The top rate can go up to 40% for the largest estates.
Non-residents and non-citizens are only taxed on U.S. situs assets for U.S. estate tax purposes. Non-U.S. situs assets (such as foreign real estate or foreign stocks) are not subject to U.S. estate taxes.
For example:
- U.S. real estate owned directly by a non-U.S. resident is a U.S. situs asset and subject to estate tax.
- Foreign real estate or non-U.S. securities (such as shares in a foreign corporation) are not U.S. situs assets and are not subject to U.S. estate tax for non-residents.
Some countries have estate tax treaties with the U.S. that provide relief to their citizens by either increasing the estate tax exemption or offering more favorable tax treatment. For instance, treaties may:
- Allow a non-resident from a treaty country to claim a prorated exemption of the same amount available to U.S. citizens and residents (currently $12.92 million in 2023).
- Reduce the U.S. estate tax burden for estates of non-U.S. citizens or residents from treaty countries, depending on the percentage of U.S. situs assets relative to the individual’s total worldwide assets.
Countries such as Canada, the United Kingdom, and Germany have such treaties with the U.S. that provide certain protections or increased exemptions.
- U.S. Real Estate: Fully considered U.S. situs and subject to U.S. estate tax.
- Shares of U.S. Corporations: Stock in U.S. companies (even if held in a foreign brokerage) is considered U.S. situs and taxable.
- Tangible Personal Property: Movable property located in the U.S. (e.g., cars, art, jewelry) is U.S. situs. However, certain personal items like clothing may not be considered for estate tax purposes.
- Debt Obligations: U.S. government bonds or other U.S.-based debts may be subject to estate tax unless covered under specific exemptions (e.g., some U.S. government bonds may not be considered U.S. situs assets for non-residents).Cash held in U.S. banks or other bank deposits are generally not considered U.S. situs assets and may be exempt from estate tax for non-residents, provided certain conditions are met (e.g., not part of an investment vehicle).
While non-U.S. citizens and residents face a $60,000 estate tax exemption for
- U.S. Citizens and U.S. Domiciled Residents:• The $11.7 million exemption (as of 2021, though it has increased to $12.92 million for 2023 due to inflation adjustments) applies to U.S. citizens and U.S. residents (those who are domiciled in the U.S.).
• This means that U.S. citizens or residents can leave an estate worth up to that amount without owing any federal estate tax. Only the value of the estate that exceeds the exemption is taxed at rates ranging from 18% to 40%. - Non-U.S. Citizens and Non-Residents (Non-Domiciled):• Non-U.S. citizens or non-residents (those who do not have U.S. domicile) are subject to a much lower $60,000 exemption on U.S. situs assets (such as U.S. real estate or stocks in U.S. companies).
• This means that only the first $60,000 of U.S. situs assets is exempt from U.S. federal estate tax. Anything above this amount can be taxed at rates ranging from 18% to 40%.
Differences Based on Domicile:
• Domicile refers to the place where a person has established a fixed and permanent residence with the intention of staying indefinitely. Unlike “residency” for income tax purposes, domicile is based on subjective intent and can involve factors like how much time someone spends in the U.S., where their family lives, and where they hold significant assets. • A non-resident alien for U.S. estate tax purposes is someone who is neither a U.S. citizen nor domiciled in the U.S. They are only taxed on U.S. situs assets (e.g., U.S. real estate, shares of U.S. companies), and the $60,000 threshold applies.
Treaty Benefits:
• Some countries have estate tax treaties with the U.S. that may increase the $60,000 exemption for their residents. For example, residents of Canada may qualify for a prorated portion of the $12.92 million exemption based on the proportion of their worldwide assets that are U.S. situs assets. These treaties can provide substantial relief from U.S. estate taxes for non-residents.
In summary, the $11.7 million (or more recently, $12.92 million) exemption applies only to U.S. citizens and U.S. domiciled residents. Non-residents and non-U.S. citizens are typically only eligible for a $60,000 exemption on their U.S. situs assets unless a tax treaty applies.
