LLQP Segregated Funds & Annuities · Component 4.2 · 10% of the exam
For a non-registered segregated fund death benefit, the tax treatment is:
- ATaxable to the beneficiary as income in the year received, since the proceeds are a payment from an insurer
- BSubject to probate fees, since the contract formed part of the deceased's property at the date of death and passes under the will
- CTax-free to everyone, since a death benefit under an insurance contract is never taxed in Canada
- A deemed disposition on the deceased's final return; the beneficiary receives the proceeds without further tax or probate
Correct answer: D) A deemed disposition on the deceased's final return; the beneficiary receives the proceeds without further tax or probate
The deceased's estate bears the income tax; the beneficiary receives the benefit. A spouse rollover may defer the gain if the spouse is the beneficiary and elects.
Why the other options are wrong
- AThe beneficiary is not taxed on receipt.
- BNamed beneficiaries bypass probate.
- CThe deceased's final return may show a gain.
Exam tip
Non-registered death: deemed disposition on the deceased's return; beneficiary receives net; no probate.
Common mistake
Telling the beneficiary the proceeds are taxable to them.
What this tests
CISRO competency component 4.2 — Provide customer service during the validity period of the coverage — which is weighted at 10% of the Segregated Funds & Annuities module. Written against the published curriculum.
More from component 4
- A client's daughter was born last month and the client wants her added to the segregated fund designation. The agent should:
- A client wants to withdraw part of his segregated fund before maturity. The agent should explain:
- A client's segregated fund contract is approaching its maturity date. The insurer will:
- A client asks to add her adult son as a joint owner of her non-registered segregated fund contract. The agent should explain that:
- A client wants to replace the beneficiary on a contract where the current designation was made irrevocable. The agent must explain that:
- A client who has lost her job asks to pause her pre-authorized monthly contributions for six months. The agent should:
Practice the whole Segregated Funds & Annuities module
Timed sets weighted like the exam, and review of every question you miss. Free to start.