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CFP Canada > Legal Fundamentals > Flashcards

Legal Fundamentals Flashcards

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1
Q

Every contract that does not include some type of renumeration (consideration) in exchange for completion of service or a promise rendered is not recognized by the law except in what instance?

A

When a seal is used, there is no requirement for renumeration of consideration.

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2
Q

What are the circumstances that could result in a contract being considered void or unenforceable?

A
  • Mistake about the terms or assumptions
  • Undue influence
  • Duress
  • Misrepresentation
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3
Q

What is undue influence?

A

It occurs when one party dominates another party in such a way to deprive the individual of making an independent decision.

The contract becomes voidable at the option of the victim.

Eh can happen in special relationships between a husband and wife, parent and child, doctor and patient, lawyer and client.

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4
Q

What is duress?

A

When one party uses actual or threatened violence as a means to coerce the other party into a contract.

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5
Q

Explain misrepresentation.

A

A material misrepresentation is when a false assertion is made that influencers an individual to enter into a contract.

If the misrepresentation is fraudulent, courts may award payment of damages to the innocent party in addition to voiding the contract

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6
Q

For a contract to be valid, the parties entering into the contract must have a legal capacity to enter the contract.

How are minors and individuals with an unsound mind, or are incapacitated due to drug or alcohol influence treated in terms of legal capacity?

A

A minor can enter into a contract but it is generally unenforceable against the minor. It can be enforced by the minor however.

Individuals with diminished capacity also have the capacity where the contract is unenforceable against them but can be enforced by them against the contracting party.
But they must prove that they didn’t have the ability to make a rationale decision at the time of the contract if they claim diminished capacity due to alcohol, drugs or insanity.

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7
Q

What is a waiver in terms of performance and agreement if a contract?

A

A waiver of another agreement where the two parties to an existing contract choose not to perform the required obligations.

That is, it is an agreement not to proceed with the contract as it already exists.

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8
Q

Where does the law of tort fall under?

A

Common law

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9
Q

What is a tort?

A

A tort is a private wrong caused by one individual (the offender) against another individual who experiences a loss because of the offender’s actions.

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10
Q

What is the term the law of torts?

A

It is used when a wrongful act is committed against another person or that person’s property because the offending party failed to meet a legal duty of proper care.

The law of torts allows the injured party to seek financial retribution from the individual who caused the harm.

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11
Q

What is negligence?

A

Failure to to exercise reasonable care that results in careless injury to another individual.

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12
Q

What are the three things that a litigant who initiated a negligence suit must prove against another party?

A
  1. That the defending party owed the litigant a duty of care
  2. The defending party breached the duty of care
  3. The defending party’s actions caused injury to the litigant
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13
Q

What is a fiduciary responsibility?

A

A fiduciary responsibility is one where there is a relationship of trust, confidence or responsibility.

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14
Q

What is an example of a breach of fiduciary duty?

A

Failure to disclose a conflict of interest

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15
Q

What is express authority?

A

Express authority is the specific directions that the principal has given to the agent as to what is permitted.

Eg, an insurance professional may have actual authority to accept the initial premium from the client to give the insurer.

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16
Q

What is implied authority?

A

Implied authority is when the insurance professional is permitted to collect the premium as maybe a cheque or money order.

It accompanies express authority.

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17
Q

What is apparent authority?

A

Apparent authority is when the agent appears to a third party to have authority based on circumstances but in reality the agent has no authority, express or implied.

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18
Q

What are the two forms of joint ownership?

A
  1. Joint tenancy with right of survivorship

2. Tenants in common

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19
Q

What is the difference between joint tenancy and tenants in common?

A

Joint tenancy basically had the shares of the property pass down to the surviving co-tenant in equal shares upon co-owner’s death. This is created through express agreement only.

Tenants in common has the shares of the property pass down to the deceased tenant’s heirs (not to the surviving tenant). This is the default option if there is no formal agreement or arrangement.

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20
Q

What is an example of a joint tenancy?

A

The ownership of a family home between 2 spouses

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21
Q

Does the deceased’s share of a property owned through joint tenancy pass to the deceased’s estate before passing to the surviving tenant?

A

No. It passes immediately upon death to the surviving tenant

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22
Q

Can a joint tenant sever his share in a property through his will? If yes or no, provide the reason.

A

No, because the property passes automatically to the surviving tenant.

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23
Q

Can a joint tenant sever his interest in a property prior to death? And if so what happens if there are three parties in the joint tenancy?

A

Yes.

The person who receives the transferred interest becomes a tenant in common with the other two parties who continue their joint tenancy arrangement.

Recall tenants in common is the default.

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24
Q

Does a joint tenant need the consent of the other tenant to sever his share of his property before death?

A

No.

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25
Q

What are the four unities that a valid joint tenancy requires?

A
  1. Unity of interest
  2. Unity of title
  3. Unity of possession
  4. Unity of time
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26
Q

What is a domestic contract?

A

A contract that establishes or sets out the rights and obligations of both spouses during a relationship.

27
Q

What are the common uses for domestic contracts between spouses?

A
  1. Marriage contract
  2. Cohabitation agreement
  3. Separation agreement
28
Q

Do marriage contracts deal with child custody or access issues?

A

No

29
Q

What are the three methods by which a couple may decide to establish the agreement relative to children, spousal support and property?

A
  1. Separation agreement - legal document between spouses where independent legal advice is required before document becomes legally binding (in some jurisdictions)
  2. An application - can be made to court to establish custody, support and property arrangement (which call within laws of province/territory)
  3. Informal agreement - between spouses but there is no legal protection if one spouse backed out or didn’t honour agreement.
30
Q

Can a common law couple (not legally married) negotiate a separation agreement?

A

Yes

31
Q

June and Elliott have been living together for 5 years. They have acquired house, furniture and cars during their relationship. They are not getting along and would like to split. Can they write a separation agreement?

A

Yes.

It is recommended that each spouse seek legal advice before signing the agreement.

32
Q

When it comes to separation and divorce, which laws guide each?

A

The federal laws govern divorce including spousal support through the Divorce Act.

While the provincial legislation governs all other relationships.

33
Q

What is the requirement for applying for a divorce in Canada?

A

The individuals must be legally married, intend to separate permanently and at least one spouse must have lived in Canada for a year immediately before applying for a divorce.

34
Q

What is the difference between a contested divorce and an uncontested divorce?

A

A contested divorce is one which both spouses agree to all issues.

An uncontested divorce is when there is a disagreement between both spouses.

35
Q

What is the criteria under which the Divorce Act acknowledges a breakdown?

A
  1. The two spouses have lived separately for one year
  2. One spouse committed adultery
  3. Mental pr physical cruelty
36
Q

What is corollary relief?

A

A claim for child support, spousal/common law partner/ dependant support or a claim for custody

37
Q

Does the reason for a divorce have any impact on the financial obligations of either spouse?

A

No

38
Q

What is sole custody?

A

When the child lives with one parent at least 60% of the time over the course of the year.

39
Q

What is split custody?

A

When each parent has sole custody of one or more children.

Each parent calculates the amount of child support payable to the other parent for the children in custody of the other parent. The two amounts met out and the parent owing the higher amount pays the net amount to the other parent.

40
Q

What is shared custody?

A

It applies if both parents have the child in their care for at least 40% of the time over the course of the year.

Each parent must have physical custody or access to the child for at least 40% of the time.

41
Q

Does bankruptcy absolve the payer or his or her obligation under a support order?

A

No

42
Q

What are the tax rules for child support payments? Are they deductible for the payor or taxable to the recipient?

A

Child support payments are:

  1. Not deductible for the paying parent
  2. Non taxable for the receiving parent
43
Q

What is the tax treatment for spousal support payments?

A
  • Taxable to receiving spouse

- Tax deductible by paying spouse in the year payments are paid

44
Q

What is the specific criteria that must be met for the spousal support to qualify for it to be tax deductible to the paying spouse and taxable to the receiving spouse?

A

Must be:

  1. Subject to use at recipient’s discretion
  2. Payable on a periodic basis
  3. For the maintenance of recipient and/or recipient’s children
45
Q

Can a taxpayer who is claiming a spousal or common law partner tax credit, claim an amount for an eligible dependant credit?

A

No

46
Q

Who can claim an eligible dependant credit?

A

An individual who supports a person related by blood, adoption, marriage or common law partnership.

47
Q

What are the eligibility requirements to claim an eligible dependant credit for a dependant child in case of a relationship breakdown?

A
  1. Taxpayer must have provided some support to the child

2. Child must have been related to taxpayer and lived in Canada with taxpayer at some point during the year.

48
Q

Can more than one taxpayer claim the eligible dependent credit for the same child in the same year? And can the credit be split between 2 parents?

A

No

49
Q

When there is a breakdown in relationship or marriage, what is the criteria for an amount being transferred directly from an individual’s TFSA to the other’s TFSA affecting the contribution room?

A
  1. Transfer is a direct transfer
  2. The couple is living separate and apart at time of transfer
  3. There is a court order, judgement of court, decree or a written separation agreement in which the payor is required to pay or the other is entitled to receive the amount to settle rights out of the relationship during a breakdown.
50
Q

If there is a TFSA transfer due to relationship breakdown, is it considered a withdrawal and is it added back to the transferor’s room the following year?

A

No, it’s not a withdrawal and it is not added back to the transferor’s room the following year. It also will not eliminate any excess amount if applicable in the TFSA.

51
Q

If the individual chooses to receive the settlement amount of TFSA due to relationship breakdown before contributing all or part of it to their own TFSA, does it affect their TFSA room?

A

Yes, such a contribution will be a regular contribution that reduces the balance of the TFSA room

52
Q

Are legal fees that are used to establish a right to support a child or spouse deductible or non deductible?

A

Deductible

53
Q

Are legal fees used to establish a custody or obtain a divorce or determine division of property, or increase child or spousal support deductible?

A

No. They are not tax deductible.

54
Q

What was the previous tax treatment of testamentary trust and what is the current tax treatment?

A

Testamentary trusts before Jan 1, 2016 used to be taxed at graduated rates, like the way individuals are taxed.

Now, after Jan 1, 2016, they are taxed at the highest marginal tax rate determined by the province in which the trust resides, like inter vivos trust.

55
Q

What are the two exceptions to the top rate tax treatment of testamentary trust?

A
  1. Graduated rate estate (GRE)

2. Qualified disability trust (QDT)

56
Q

What is a graduated rate estate?

A

A graduated rate estate (GRE) is an estate that arises as a consequence of an individual’s death on or after December 31, 2015 and no more than after 36 months after the person’s death. The estate at that time must be a testamentary trust and a dead person can only have on GRE.

57
Q

Can testamentary trusts established through a person’s qualify for the graduated tax rate treatment?

A

No. They will be taxed at the top marginal personal tax rate

58
Q

At what point does a graduated rate estate no longer qualify for GRE status and it becomes treated as a testamentary trust under the new tax structure?

A

36 months or after 3 years after the death of death.

59
Q

How do graduated rate estates treat their year end?

A

A GRE will have the option to select a non calendar year end which will apply throughout the GRE period. The executor must indicate in the first tax return that it is a GRE.

Testamentary trusts that do not qualify for GRE status will be subject to a calendar year end December 31st from onset.

When a GRE reaches its 3 year anniversary, when it ends, it will be followed by a subsequent year end on Dec 31 in that same year and be subject to Dec 31 for its remaining existence

60
Q

What is a qualified disability trust?

A

A Qualified Disability Trust (QDT) is a testamentary trust, that arose on the death of a particular individual, that jointly elects with one or more beneficiaries under the trust to be a qualified trust for the year.

61
Q

What is the tax treatment of a property transferred by a deceased’s estate to the testamentary trust?

A

The property transferred from the estate had already been subject to the deemed disposition rules upon death. So the ACB = FMV except in the case of spousal rollovers.

62
Q

What is the tax treatment of property transferred from the testamentary trust to the beneficiary?

A

The property rolls over from the trust to the beneficiaries ficiary tax free at time of transfer. It defers the capital gain until the property is sold or disposed of later.

Basically taxes are not paid when beneficiaries receive properties from a testamentary trust but instead pay taxes when they dispose of the property that has capital gain.

63
Q

When can multiple wills be used?

A

Multiple wills can be used when an individual has assets in different jurisdictions. The wills can be independent of each other.

64
Q

What is a codicil?

A

A codicil is an amendment to a will, used when only single or few items need updating in the will

CFP Canada (26 decks)

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