QAFP Exam 2 Flashcards
Permanent insurance provides a basis for estate planning. there has to be a need, buying young because its cheap isnt enough. term and perm can have level premium and are cheaper at a young age. tax deferral is only relevant if reg accounts are maxed and there is an insurance need
can use hbp to purchase for disabled relative. disability trust is testamentary, can’t be inter vivos. henson trust can be inter vivos, not short term though. rdsp is accessible at jan 1st at age 59, grants/bonds up until age 49.
rdsp grant and bond
1k bond per year up to 20k lifetime. 3x match on $500 and 2x match on $1000. 1x match on $1000 if above income threshold
pre-existing limitations on group disability only last 1-2 years (ex. join plan with a disability).
permanent insurance has to indicate a need.
Step 1 in planning process
describe business model (before conflicts on interest are dealt with)
objectives are important to develop strategies but asset allocation should be based on investment knowledge (may not be able to tolerate a loss with little knowledge)
potential for profit is the greatest reason to hold company shares
privately owned companies and stock options
can have employees defer gain on options until disposal (can’t be offered at a discounted price)
elections post mortem
can rollover to spouse if its more tax efficient
if investor profile doesnt match planners personal assessment, be conservative
pay attention to investing style and objectives
objectives established before building portfolio and showing potential returns
adding partner to group plan increases premiums, life insurasnce extended is minimal, coverage for spouse is up to 24 months usually. PHSA can bhe used to cover expenses not covered under group plan
what types on benefits plans are dependent on business type and income type
workers comp, cpp, ei
(salary vs dividends)
morningstar, what it tells us
how a fund performs compared to similar funds
DPSP Accessibility
The end of the year in which the beneficiary turns 71 years of age, and
90 days after the earliest of:
the death of the employee
the day on which the employee is no longer employed by a participating employer
the termination of the plan
most immediate priority - whats the cost of not fixing this? Becoming disabled with no insurance carries a much larger risk than carrying a credit card with a large balance. lost income would outweigh interest costs
overvaluing home could mean endowment effect and a reluctancy to sell an ASSET. prevent someone from making the correct decision
if owner is paying themselves dividends, be prepared to recalculate projected cpp benefits
cpp contribution is mandatory from 18-70 if not collecting
50% inclusion on 50% gis clawback on employment income above 5k (25% effectively)
penalty tax of 100% on tfsa overcontribution returns (some latitude on this) + 1% per month
can stop paying premiums and let csv pay them. you can cover just insurance but if cash flow is tight, rely on policy to pay itself.
charitable donations create tax credit and dont reduce earned income. employment expenses, pension contributions and childcare expenses do reduce income.
What rate of return is required to do better than pension? Calculated fv using a real rate of return. if its greater than 0, that’s your answer.
py and cy set to 12, unless it states compounding is annual
mortgage mutual fund needs
income, stability
discretionary portfolio managers report to provincial commission, no sro. fcac deals with federal regulated entities
LSIF tax credit rescinded if the investment isnt held until maturity. (usually 7 years)
METC. 3% of net income or 2635, whichever is lower
no attribution of rdsp
bond for rdsp lost at what income level
about 35k of family income
what type of risk is fluctuation of a commodity
market risk
ldap start at
59
retroactive period for grants and bonds rdsp
10 years
business losses not transferrable between spouses
if using seg funds to make a bequet make sure theres a reason to justify. just avoiding probate and creditor protection arent enough (unless theres reason to believe the risk is signaificant). better of to add charities as residual beneficiaries.
long term care insurance (not offered anymore?
appropriate where there is no one to support them. not offered anymore.
health and dental insurance
expensive for what you get. often better off to cover yourself
health care costs risk
often the biggest risk in retirement
should you commute, take bridge benefit, just pension?
is there an estate goal, survivor? no estate needs. are they still working after collecting? May not need bridge benefit, taxes are a big consideration
insurance=premiums paid-ncpi - dividends
non forfeiture, receive full or partial refund of premiums if policy lapses
receive csv -surrender charges, flip to extended term for same death benefit, reduced paid up permanent insurance, annuitize, automatic policy loan using csv to pay premiums (interest is charged).
treatment of collateral assignments for loans
always for business purpose, lesser of ncpi and premiums paid is tax deductible
mtg porting
no penalties
clients objectives (questions)
clients objective such as being mtg free is paramount. they can outweigh the math
cpp disability and cpp collection
cant collect both at the same time
cpp disability and survivor benefit
survivor collects 37.5% + flat rate until 65. then 60% of pension up to cpp maximum.
disability = 75% of benefit at 65 + flat rate (500)
assuris coverage
1,000,000 death benefit or 90%
5k monthly (disability, long term care, rrif,. annuities) or 90%, whichever is higher
250k health (critical illness, medical/travel insurance)
100k or 90% seg fund (guarantee value), cash value (csv), accumulation annuity,
conflict of interest
not the first thing you go over in planning process. usually done when defining the terms of engagement. first step is describing the role of a financial planner
t4 and rrsp room and us income
not required if working in the us for a us company, as long as you are still a canadian resident. can start contributing extra to rrsp in january of following year
prospect theory
loss hurts more than a corresponding gain feels good. loss aversion, not willing to accept a loss, will continue holding to avoid
mental accounting
treats different accounts differently
financial literacy
poor decision making, little knowledge of consequences
endowment effect
somethings better because i own it. value it more than something held by someone else. value an inheritance more than money you earned yourself
inheritance and account types for protection, and collateral for loan
can be held in any account (assuming its sole). for collateral or if its an inheritance
epsp, stock options and tax deferral
no tax deferral on epsp but there is on stock options (particularly private companies)
ipp
subject to same limits as rrsp (funding obligations may allow more to be contributed at 45)
regulated and licensing required
required for sale of products but not advice (although there is title protection for certain services)
orphan benefit
taxable but taxed to children (presumably have no income if minors)
time to reclaim amt credit
7 years
amt reclaim, fast or slow
can do slow in retirement if theres no urgency. better to stay in low tax bracket as long as all amt is reclaimed within 7 years
where attribution doesnt apply between couples
two adults who arent married or common law (don’t live together in conjugal relationship) no attribution applies. one could leave after gifting money and the gifter has no recourse. could transfer funds to tfsa and make joint on non reg with no attribution
corporate insurance, creditor protection and absolutes
there are no absolutes when it comes to protection
colateral assignment
not related to specific debt, based on relationship with borrower. stays in place until it is manually removed
ltd group coverage transfer to personal
only really works if you know the income level you’re moving into. if you’re just starting a business, likely not viable
converting life to individual policy from group
usually more expensive, assume you’re a smoker (no underwriting). assumes you’re converting because you’re unhealthy, so you get compared to healthy people.
high earning individuals (over 90k) and disability coverage, and spousal disability coverage
usually doesnt provide full coverage to high earners. lower income replacement. disability not available for spouses under plan (a small amount of life and accidental death)
credit unions and protection
most provinces have better protection for cu than cdic for banks (federally inc. can be cdic members)
rrsp reversals
can be taken out tax free in same year. putting in lump sum can present liquidity risk (problematic if your company gets bought out by another firm and theres uncertainty)
