QAFP Exam 1 review Flashcards
CPP OAS delay
don’t reduce back to base year, just use multiplier based on amount quoted. ex if cpp at age 66 is 1000, don’t discount back to 65 before calculating at 70.
Seg funds
they don;t reduce market risk, the risk still exists
CPP Enhancement, who’s most effected
young people with income at or in excess of enhanced ympe level
Residual Benefits, what is it and who is it important for?
residual benefits allow you to receive a disability benefit even if you are earning some form of reduced income. important for business owners. most group disability policies dont allow conversion to individual policies
group disability max coverage vs individual
group can be as high as 8k while personal can be as high as 25k
Pre-existing conditions
either have an exclusion or increased premium, no stability period
Severance, taxable benefits, excess commuted value and earned income calculation
doesnt count as earned income 1996 or after. before is 2k each year prior to 1996 + 1 and 1500 each year prior to 1989 and not a member of pension plan. taxable benefits count as earned income for rrsp (except union and professional dues and employment expenses claimed as deductions). excess commuted value isnt earned income (amount hat can’t go into lira
credit report issues
having only one credit product and limited employment history can be problematic
oas clawback determination dates
clawback based on last years return. affects july-june cycle
cheapest time to hire staff
low point in economic cycle
boe and disability insurance
own boe under the business for an amount equal to expenses (taxable as income but expenses are deductible). own disability personally
transportation costs in retirement
likely to be reduced in retirement
when you can take on risk beyond investor profile reocmmendation
long term objectives and previous experience with volatility at a given asset allocation
shared custody support obligation
based on income differential. based only on one persons income in their province of residency in sole custody arrangement
prospect theory
doesn’t want to sell something they’ve put work/money into
pensions and inflation
inflation won’t increase pension value directly. pension will grow based on service and income increases (if applicable). hospital shutdown doesnt impact pension. it’s important to consider whether or not inflation shows up in the estimate. if not, don;t include impact.
give an example of something strongly correlated to inflation
health care costs, not insurance (home and auto-somewhat), not things related to commodities, not mortgage payments
number one thing regarding estates
ensure that the client contacts those involved to inform them and ensure they are aware of their responsibilities
disability benefit taxation
cpp is taxable, employer paid disability also taxable, ei taxable (now 26 weeks)
dependent income level
must earn less than basic personal amount
Lira with minor beneficiary
can be annuitized and must be paid by 19th birthday (18-age when funds received). term certain annuity
home valuation
based on similar homes in area. not municipal assessment, appraisal, home insurance.
Is the question asking you about how to encourage behaviour? If so, don’t think about the technical aspect, think of the clients personality and human behaviour. a technical approach may make sense if that is what the client is responsive to.
attribution on separation end date
attribution stops on separation (spousal rrsp,etc)
When client has to cut spending in an area to meet their objective, how do you answer?
cutting spending on the core things they enjoy is usually not the answer. if a client forgoes an option, can they still benefit from it in the future (ie, carry forward of RESP grants)
sharpe ratio
think of % difference between the returns vs % difference between the ratios. A 7% return is 16% higher than a 6% return. If the 7% return has a 1.2% sharpe and the 6% return has a 1.1% sharpe, 7% return is the better option.
whole life policy for education
can be used.
rrsp vs tfsa in bottom tax bracket
rrsp will be the better option, tax savings and increased ccb for people with children.
pay attention to how the clients feel about what they’ve done in the past
if a client has paid down debt aggressively, they probably don;t want to leverage themselves to invest
diversify concentrated stocks or allocate to bonds
often answer is to allocate to bonds over diversifying among equities
leave money in savings when going through life transition, especially if cash flow is tight
when diagnosing an estate planning need, focus on what could cause the most harm if not completed
What will business owner have available upon disability?
ei only if they paid into it,
when it asks how much additional income is needed in event of disability, don;t forget about creditor protection coverage
term makes sense with weak cash flow, insuring children
db plan more expensive for the employer closer to retirement, high funding obligations. more expensive for employee earlier in career
enhanced cesg can bring grant total to $600 (no carry forward). bond is $500 in first year and up to 100 in years after.
emergency funds should include discretionary and non discretionary but not investments (3 months is standard)
does the client need disability? is their income meaningful to the household?
exempt test, 250% test, and passive income in corp are all things to consider when contributing to a universal life policy (personally owned with corp dollars)
corp low tax rate on active income helps most people in terms of taxes. due to section 85 rollovers, incorporating is relatively easy and flexible
winnings from gambling not taxable, unless its your business. life insurance premiums are reported on t4
income from exchange services for one another needs to be reported
life insurance through employer is likely inadequate. contractual terms on disability through mortgage are important, often end after 2 years, moving to any occupation definition. disability through employer is often adequate, but depends on personal expenses. geography of liability insurance probably fine,
gifting appreciated assets from rrif doesnt matter because tax implications are the same. moving registered investments into alter ego trust result sin deemed disposition as trust cant hold registered investments. insurance doesnt reduce tax bill, just pays it.
seg funds are still risky due to liquidity restrictions, especially when close to retirement. should not be considered principal protected for clients with very low risk tolerances. does the client need a guarantee? directly owned real estate cant be held in reg account, also has concentration risk.
collateral assignments are only available for institutions, not individuals. putting insurance in a trust for wifr and kids isnt acceptable if spouse must be a beneficiary as part of a divorce.
does death benefit cover needs? If question gives no indication, dont pick an answer saying it could be inadequate. most term is renewable so it expiring while they still have an insurance need is not a big deal. joint coverage can be an issue if the couple underwent a separation. assume needs analysis was done. having a joint policy paying only one death benefit isnt a problem.
poa powers, can make gifts that are established (giving to the church) but not new gifts. testamentary docs can;t be changed but insurance can be amended/cancelled. can change risk tolerance and pay yourself a reasonable fee.
dont use leverage if client is older and doesnt require higher returns. whole life doesnt reduce tax. naming grandkids as beneficiaries will only work if they are dependent on them, even then, they could become age of majority prior to the death of the account holder
paid for education must contribute to company profitability. whole life doesnt make sense for first 8-10 years due to surrender charges and little -no value.
what are pension values based on (DB)
long term interest rates, commuted value also dependent on years at or over ympe. cpp bridge benefit is included in calculation of pv.
