LLQP Ethics & Professional Practice · Component 1.5 · 60% of the exam
A client names his adult daughter as beneficiary of his registered retirement income fund. His agent should point out that:
- Anaming a beneficiary avoids the income inclusion entirely for both of them
- Bthe daughter receives the fund free of tax and the estate has nothing further to pay
- Cthe fund is taxed to the daughter personally in the year she receives the payment
- the tax on the fund falls on the estate while the daughter receives the full amount
Correct answer: D) the tax on the fund falls on the estate while the daughter receives the full amount
The value of a registered plan is generally included in the deceased's final return unless a spouse or a financially dependent child is involved. Naming a non-spouse beneficiary can therefore leave other heirs paying the tax on money they never received.
Why the other options are wrong
- AA designation changes who receives the money, not the tax that arises.
- BThe tax is real; it simply falls on the estate rather than the recipient.
- CThe income inclusion arises on the deceased's return, not the daughter's.
Exam tip
Non-spouse designation on a registered plan splits the money from the tax.
Common mistake
Naming one child on a registered plan and leaving the estate with the tax.
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.