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Assessment >> Formal Assessment

Assessment: Risk Management and Estate Planning Web - Academic Partners Unit 10 Post-Assessment
(C117V13U10L0A25Q15)
Date Submitted: 07/15/2014 10:54:00 PM
Total Correct Answers: 15
Total Incorrect Answers: 0

Your Mark (total correct percentage): 100%

1 Helen is 75 years of age and lives in a province that recognizes living wills. To ease the burden on
her family as she ages, she decided to prepare a power of attorney for personal care. She would like
the document to include specific instructions relating to her future personal and health care. These
instructions are referred to as:

Correct
The correct answer:an instructional directive
Your answer:an instructional directive
Solution:

These instructions are referred to as an instructional directive.

(Concepts) A living will that contains an instructional directive provides specific instructions to the attorney related
to both personal care and health care decisions. These instructions can include decisions relating to medical
procedures and daily life functions such as shelter, nutrition and safety. A proxy directive refers to the appointment
of a substitute decision maker for personal and health care decisions.

(Choice C) Helen would like her living will to include specific instructions relating to her future personal and health
care. So, these instructions are referred to as an instructional directive.

2 Chandler wants to include a power of attorney for personal care in his estate plan. Which of the
following statements is FALSE?

Correct
The correct answer:Chandler's power of attorney for personal care is restricted to instructions on emergency life
saving measures.
Your answer:Chandler's power of attorney for personal care is restricted to instructions on emergency life saving
measures.
Solution:

Chandler's power of attorney for personal care is not restricted to instructions on emergency life saving measures.

(Concepts) A power of attorney for personal care (also known as a "living will) is a legal written document that
appoints an individual to make health care decisions and personal care decisions in the event that the grantor
becomes incapacitated (i.e., a proxy directive.) It could also include specific instructions regarding his or her future
personal and health care, including treatments that the grantor would or would not find acceptable under certain
circumstances (i.e., and instructional directive).

(Choice B is false.) Chandler's power of attorney for personal care can include the appointment of a substitute
decision maker (i.e., a proxy directive), as well as specific instructions regarding his future personal and health
care, including treatments that he would or would not find acceptable under certain circumstances. So, Chandler's
power of attorney for personal care is not restricted to instructions on emergency life saving measures.

3 Samuel and his sister, Amanda, are about to buy a house together. They are unsure whether they
should register their joint ownership as a joint tenancy or a tenancy-in-common. Which of the
following statements is FALSE?

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Correct

The correct answer:If they register their ownership as a joint tenancy, Samuel can bequeath his interest in the
house to his brother, Max.
Your answer:If they register their ownership as a joint tenancy, Samuel can bequeath his interest in the house to
his brother, Max.
Solution:

If they register their ownership as a joint tenancy, Samuel cannot bequeath his interest in the house to his brother,
Max.

One of the main differences between a joint tenancy and a tenancy-in-common relates to how the co-owner can
dispose of the property after death. During life, the co-owners of either a joint tenancy or a tenancy-in-common
have equal right of possession of the whole property. Tenants-in-common may dispose of their portion as they see
fit, while they are alive, or in their will. However, in a joint tenancy, the co-owners are treated as a single owner for
legal purposes. One tenant may not dispose of his or her share without the consent of the other joint tenants. Upon
the death of one co-owner, the ownership interest of the deceased flows automatically to the surviving owners
under the right of survivorship, regardless of what may be indicated in a will. Thus, a co-owner in a joint tenancy
cannot bequeath his or her interest in the property to someone other than the surviving co-owners.

So, if they register their ownership as a joint tenancy, Samuel cannot bequeath his interest in the house to his
brother, Max.

4 Two brothers, Jesse and Nicholas, purchased a house together several years ago. They each put up
half of the purchase price, and registered the house in joint tenancy. For the first two years, Jesse
and Nicholas lived in the house together. Last year, Nicholas decided to move out of the house and
move in with his girlfriend, although he still had free access to the house he owned with Jesse.
Nicholas then decided he needed some cash, so, with Jesse's permission, he sold 50% of his
interest in the house to his sister, Tiffany. The joint tenancy has reverted to a tenancy-in-
common as a result of Nicholas violating what unity?

Correct
The correct answer:interest
Your answer:interest
Solution:

The joint tenancy reverted to a tenancy-in-common because Nicholas has violated the unity of interest.

(Concepts) Four unities are required to form a valid joint tenancy. They are the unities of possession, interest, time
and title. The unity of interest says that each co-owner must have an equal interest in the property. If one of the
co-owners subsequently sells a portion of his interest in the property, the unity of interest will be violated and the
joint tenancy will revert to a tenancy-in-common.

(Choice B) So, the joint tenancy reverted to a tenancy-in-common because Nicholas has violated the unity of
interest when he sold half of his interest to Tiffany.

5 Altare and Sable purchased a townhouse together as tenants-in-common. Altare contributed

$75,000 to the purchase price of $100,000. Sable contributed $25,000. Which of the following
statements is FALSE?

Correct
The correct answer:If they rent out the townhouse, 50% of the net rental income will be attributed to Altare.
Your answer:If they rent out the townhouse, 50% of the net rental income will be attributed to Altare.
Solution:

If they rent out the townhouse, 75% of the net rental income will be attributed to Altare.

(Concepts) In a tenancy-in-common, all co-owners have an equal right to possess and use the whole property,
along with the right to dispose of their interest in that property however they see fit during life and after death. Any
property income realized by property held as a tenancy-in-common will be attributed to the co-tenants in proportion
to their ownership interest

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(Choice D is false.) So, if they rent out the townhouse, 75% of the net rental income will be attributed to Altare.

6 Jung and Maurice purchased a house as tenants-in-common. Jung met with his personal financial
planner to discuss the estate planning implications of the purchase. Which of the following
statements is FALSE?

Correct
The correct answer:Jung will automatically inherit Maurice's share of the property if Maurice should predecease
him.
Your answer:Jung will automatically inherit Maurice's share of the property if Maurice should predecease him.
Solution:

Jung will not automatically inherit Maurice's share of the property if Maurice should predecease him.

(Concepts) An individual is said to have "post-mortem control" over his property when he is free to bequeath his
share of the property to whomever he chooses through a beneficiary designation or will. In a tenancy-in-common,
all co-owners have an equal right to possess and use the whole property, along with the right to dispose of their
interest in that property however they see fit during life and after death. Property that is owned in the form of a
tenancy-in-common forms a part of the deceased tenant's estate and, as such, it is subject to probate fees.

(Choice D is false.) A tenancy-in-common does not carry automatic right of survivorship. So, Jung will not inherit
Maurice's share of the property when Maurice dies unless Maurice specifically bequeaths it to him.

7 Which of the following individuals are not designated beneficiaries?

Correct
The correct answer:Joshua, who will receive his brother's interest in the property that they hold in joint tenancy
upon his brother's death.
Your answer:Joshua, who will receive his brother's interest in the property that they hold in joint tenancy upon his
brother's death.
Solution:

Joshua is not a designated beneficiary.

(Concepts) A "designated beneficiary" is the person specified by the property owner to be given ownership of the
property upon the death of the original property owner. Property that can have a designated or named beneficiary
is generally property that is held by a trustee, including the death benefits of life insurance policies, pension
benefits, annuities, RRSPs and RRIFs.

(Choice C) Although Joshua is entitled to receive his brother's ownership interest in the house upon his brother's
death, this is a result of the form of ownership arrangement, not because his brother named him as beneficiary. So,
Joshua is not a designated beneficiary.

8 Moe bought a term annuity with unregistered funds and names his son as the beneficiary. He named
his daughter as the beneficiary of the group life insurance policy that he has through his employer.
He named his wife as the beneficiary of his RRSPs and his registered pension plan. Which of the
following statements about property that has a named beneficiary is FALSE?

Correct
The correct answer:If Moe dies before the end of the term, the commuted value of the annuity would be subject
to a capital gain or loss.
Your answer:If Moe dies before the end of the term, the commuted value of the annuity would be subject to a
capital gain or loss.
Solution:

If Moe dies before the end of the term, the commuted value of his annuity would not be subject to a capital gain or
loss.

(Concepts) Property that can have a designated or named beneficiary is generally property that is held by a trustee,

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including the death benefits of life insurance policies, pension benefits, annuities, RRSPs and RRIFs. Property with a
named beneficiary bypasses the estate of the deceased, so it is not available to creditors of the estate, and will not
be subject to probate fees. In the case of an unregistered annuity with a named beneficiary, the commuted value of
the annuity will be paid to the owner's estate or to his named beneficiary. The commuted value represents the
remaining value of the annuitant's capital, which in turn represents after-tax funds because it is an unregistered
annuity. This amount is not subject to capital gains or losses.

(Choice C is false.) So, if Moe dies before the end of the term, the commuted value of his annuity would not be
subject to a capital gain or loss.

9 The disposition of a sole proprietorship, partnership, or corporation can lead to different estate
planning challenges. Which of the following statements is FALSE?

Correct
The correct answer:The owner of shares of a corporation can never bequeath his or her shares to a family
member because they automatically flow to the surviving shareholders.
Your answer:The owner of shares of a corporation can never bequeath his or her shares to a family member
because they automatically flow to the surviving shareholders.
Solution:

The owner of shares of a corporation can bequeath his shares to a family member so long as there is no buy-sell
agreement in action that will supersede his will.

(Concepts) The shares of a corporation or interests in a partnership are considered capital property. As such, the
owner of the capital property can usually dispose of the property in any way he or she sees fit in his or her will.
That is, the owner is not automatically constrained by the shareholders or partners when deciding upon the
disposition of his or her share of the property. However, a buy-sell agreement can be used to give the surviving
partners or shareholders the right to purchase the interest of the deceased, and this supersedes a disposition in the
will.

(Choice B is false.) So, the owner of shares of a corporation can bequeath his shares to a family member so long as
there is no buy-sell agreement in place that will supersede his will.

10 One of your clients does not see the need for preparing a will. He is married, has two adult children
and an estate valued at $1.4 million. If he does not prepare a will, which of the following would be
FALSE?

Correct
The correct answer:His spouse would receive all of his assets.
Your answer:His spouse would receive all of his assets.
Solution:

If your client does not prepare a will, his spouse would not receive all of his assets.

(Concepts) An estate plan that does not include a valid will can create many problems. Drafting a will can help
ensure that the client's estate is distributed the way he or she sees fit. Neglecting to prepare a will leads to the
application of provincial intestacy legislation, probate fees and the potential for unhappy family members. If the
deceased is survived by a spouse and children, they all would share in his or her estate. The exact procedure for
division would depend on the province.

(Choice D is false.) Your client has a spouse and two adult children, and if he dies without a will, they would all
share in his estate according to his province's intestacy legislation. So, if your client does not prepare a will, his
spouse would not receive all of his assets.

11 Peter died intestate; he is survived by his wife and two adult children. The intestacy laws of the
province in which Peter lived stipulated a $50,000 preferential share to the spouse and a
distributive share of 50% to the spouse and 50% to surviving children or issue. After all costs were
paid, Peter's estate was valued at $200,000. How much would Peter's wife receive from his estate?

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Correct

The correct answer:$125,000

Your answer:$125,000
Solution:

Peter's wife will receive $125,000 from his estate.

In most provinces, the intestacy legislation requires that a set amount of the estate, called the "preferential share",
goes to the spouse of the deceased. The remainder of the estate is divided between the spouse and surviving
children or grandchildren in the form of "distributive shares".

Peter's wife received a preferential share of $50,000. The intestacy laws of the province in which Peter lived
stipulated a distributive share of ½ for the spouse. This is equal to ½ of the remaining value of the estate after all
costs and the preferential share are paid. Peter's wife will receive a distributive share of $75,000, calculated as
((value of Peter's estate - preferential share) ÷ 2) or (($200,000 - $50,000) ÷ 2). So, Peter's wife will receive
$125,000 from his estate, calculated as (preferential share + distributive share) or ($50,000 + $75,000).

12 When Andrea died, she left her stock portfolio, valued at $120,000, to her husband, Mike, in her
will. They have three children. They reside in a province where the preferential share is $200,000.
However, she neglected to include a cottage she owns valued at $125,000, in her will, and her will
did not address the disposition of the residue of the estate. Which of the following statements is
FALSE?

Correct
The correct answer:Mike is entitled to the entire value of the cottage.
Your answer:Mike is entitled to the entire value of the cottage.
Solution:

Mike is not entitled to the entire value of the cottage.

(Concepts) In most provinces, the intestacy legislation requires that a set amount of the estate, called the
"preferential share", goes to the spouse of the deceased. The remainder of the estate is divided between the spouse
and surviving children or grandchildren in the form of "distributive shares". If the deceased had a will, but the will
failed to address the disposition of some estate assets, it will result in a partial intestacy, and those assets will be
distributed according to provincial intestacy legislation. If the surviving spouse already has an entitlement under the
will, his or her preferential share under the intestacy legislation will be reduced by the value of the assets received
under the will.

(Choice A is false.) By not including the cottage in her will, Andrea's estate is partially intestate. Mike would be
entitled to something less than the full value of the cottage because he already has an entitlement under the will. If
the preferential share is $200,000, (assuming he received no other bequests) Mike would be entitled to only
$80,000 from the cottage, calculated as (preferential share - value of stock portfolio) or ($200,000 - $120,000). He
will also be entitled to a distributive share, the size of which depends on the number of Andrea's surviving issue.
So, Mike is not entitled to the entire value of the cottage.

13 Provincial intestacy legislation may not always fit each client's specific situation. In the case of an
intestacy, which of the following statements would be FALSE?

Correct
The correct answer:RRSPs with a named beneficiary might instead be distributed according to the intestacy rules.
Your answer:RRSPs with a named beneficiary might instead be distributed according to the intestacy rules.
Solution:

RRSPs with a named beneficiary would bypass the estate and would not be distributed according to the intestacy
rules.

(Concepts) There are many problems that can arise when someone dies intestate. Clients need to be made aware
that a valid will is an essential element in a financial plan. A will can protect his spouse or children from financial
difficulty in the event of his death. Otherwise, his estate will be distributed according to provincial intestate laws.
Property with a named beneficiary bypasses the estate and thus is not distributed according to intestacy rules.

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(Choice D is false.) So, RRSPs with a named beneficiary would bypass the estate and would not be distributed
according to the intestacy rules.

14 Lilly's client, Mr. Mathews, is self-employed as a carpenter. He has a dependent wife and two adult
children who work in different provinces. He and his wife rent an apartment and do not own a
home. Mr. Mathews has a health problem that makes him ineligible to take out disability or life
insurance. Recently, Mr. Mathews inherited a rental property valued at $150,000, and this is his
only real asset. The property was in poor repair and generated little income but Mr. Mathews does
not want to sell it. Lilly advises Mr. Mathews to make a will. However, he is reluctant to do so
because he believes that everything he owns will automatically pass to his wife. The intestacy laws
of the province in which Mr. and Mrs. Mathews live do not provide for a preferential share to the
spouse. If Mr. Mathews dies intestate, which of the following statements regarding the rental
property will be TRUE?

Correct
The correct answer:Mrs. Mathews will be left with a part share in the rental property, few assets and little income
unless her children consent to the sale of the rental property.
Your answer:Mrs. Mathews will be left with a part share in the rental property, few assets and little income unless
her children consent to the sale of the rental property.
Solution:

Mrs. Mathews will be left with a part share in the rental property, few assets and little income unless her children
consent to the sale of the rental property.

In cases where there is only one asset in an estate, and no preferential share, the surviving spouse and children will
each receive an equal interest in the property. This property cannot be sold unless all of the involved parties
consent.

So, if the children do not consent to the sale of the property, Mrs. Mathews will be left with a part share in the
rental property, few assets and little income.

15 Branson wants to set up a trust fund, so that his assets can pass to his family without being subject
to probate fees. Which of the following statements is FALSE?

Correct
The correct answer:Branson can transfer his property to a trust while he is alive and still retain full control of the
property until his death.
Your answer:Branson can transfer his property to a trust while he is alive and still retain full control of the
property until his death.
Solution:

Branson can transfer his property to a trust while he is alive but he will not retain full control of the property.

(Concepts) An individual can transfer his or her property to a trust while he or she is still alive. However, property
transferred to a trust fund ceases to belong to the donor and is no longer controlled by the donor. Property held in a
trust fund is not included in the donor's estate when he or she dies and, therefore, is not subject to probate. The
cost of establishing and maintaining the trust, especially over a long period of time, may more than negate the
savings realized on probate fees. The feasibility of this strategy for simply avoiding probate fees is restricted to
large estates and would likely only be used if the trust also met some other estate planning objective.

(Choice A is false.) So, Branson can transfer his property to a trust while he is alive but he will not retain full control
of the property.

Close

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