LLQP Segregated Funds & Annuities · Component 1.3 · 35% of the exam
A client's registered plan is his largest asset and he has no spouse. The estate need this creates is:
- AConverting the plan to a tax-free account so the balance passes without tax
- Funding the tax on the plan's full value, which is included in income on his final return
- CNaming the estate as beneficiary, so the executor is able to pay the tax from the proceeds
- DNothing, since a registered plan passes to the named beneficiary free of any tax
Correct answer: B) Funding the tax on the plan's full value, which is included in income on his final return
Without a spousal rollover the whole balance is taxed as income in the year of death, which can consume a large share of what the heirs expected to receive.
Why the other options are wrong
- ATransfers are limited by contribution room and taxed on withdrawal.
- CAn estate designation adds probate without solving the tax.
- DThe beneficiary receives the proceeds, but the estate bears the tax.
Exam tip
No spouse means the plan is fully taxed at death.
Common mistake
Telling heirs a registered plan passes to them tax-free.
What this tests
CISRO competency component 1.3 — Assess the client's needs and situation — which is weighted at 35% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 1
- The first step before recommending a segregated fund or annuity is to:
- A client's 'time horizon' for an investment is:
- 'Risk tolerance' in an investor profile refers to:
- A client says he wants 'high returns with no risk of losing money'. The agent should:
- Investment objectives are commonly classified as:
- Why is the client's marginal tax rate relevant to a segregated fund recommendation?
Practice the whole Segregated Funds & Annuities module
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