LLQP Ethics & Professional Practice · Component 1.5 · 60% of the exam
A client names a registered charity as beneficiary of her life policy. On her death her estate will generally:
- Areceive no tax recognition, because the gift was made outside the will entirely
- be entitled to a donation receipt for the proceeds, which can reduce the tax payable
- Cbe required to pay income tax on the proceeds before the charity can receive anything at all
- Dlose the charitable treatment unless the gift was also mentioned in her will
Correct answer: B) be entitled to a donation receipt for the proceeds, which can reduce the tax payable
A direct designation to a registered charity generally produces a donation receipt that can be applied against income on the final return or the prior year. The proceeds also bypass probate, which the client may value.
Why the other options are wrong
- ADirect designations to charities do attract donation receipts.
- CA life insurance death benefit is not taxed in the hands of the recipient.
- DThe receipt does not depend on the gift being repeated in the will.
Exam tip
A charity named directly gives both a donation receipt and probate bypass.
Common mistake
Telling a client a charitable gift must go through the will to count.
What this tests
CISRO competency component 1.5 — Integrate into practice the legal aspects of insurance and annuity contracts — which is weighted at 60% of the Ethics & Professional Practice module. Written against the published curriculum.
More from component 1
- An 'assignee' of a life insurance policy is:
- A corporation as policyowner and beneficiary of a policy on a key employee:
- A 'trustee' named to receive proceeds on behalf of a beneficiary:
- The 'automatic premium loan' (APL) provision:
- A life insurance contract 'matures' when:
- The 'assignment' provision typically states that:
Practice the whole Ethics & Professional Practice module
Timed sets weighted like the exam, and review of every question you miss. Free to start.