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Assessment >> Formal Assessment

Assessment: Risk Management and Estate Planning Web - Academic Partners Unit 9 Post-Assessment
(C117V13U9L0A25Q15)
Date Submitted: 07/09/2014 08:32:00 PM
Total Correct Answers: 14
Total Incorrect Answers: 1

Your Mark (total correct percentage): 93.3333333333333%

1 Caroline draws up a will. The will is typed and signed at the end by Caroline and two witnesses. Her
will does not need to be signed by an "authorized person" as designated by her jurisdiction.
Caroline's will is valid in all Canadian provinces. Which of the following forms of will has Caroline
made?

Correct
The correct answer:English form will
Your answer:English form will
Solution:

Caroline has made an English Form will.

(Concepts) An English Form will is recognized in all provinces in Canada. It can be handwritten, typed or a
combination of the two. To be valid, it must be signed by the testatrix and two witnesses. In contrast, a holographic
will is wholly written in the handwriting of the testatrix and no witnessing of the signature is required. Notarial wills
are only valid in Québec . International wills require an "authorized person" (i.e., authorized by the jurisdiction) to
witness and sign the will.

(Choice B) Caroline's will is recognized in all provinces in Canada. It is also typed and signed by Caroline and two
witnesses. So, Caroline has made an English Form will.

2 Edie's client, Mrs. Viscarti, needs to have a will drawn up for her estate plan. Edie advises Mrs.
Viscarti to have the will drawn up by a lawyer. In preparation for Mrs. Viscarti's meeting with her
lawyer, Edie drafts an outline of the required contents of the will following the commonly used
format. Which of the following items is not usually included in "initial matters"?

Correct
The correct answer:specific bequests
Your answer:specific bequests
Solution:

Specific bequests are not usually included in the initial matters section of a will.

(Concepts) While there is no required structure or format for a will, most wills contain several discrete sections. The
first section, "initial matters", usually includes the revocation of previous wills, appointment of a personal
representative, interpretation of common phrases, instructions to pay all debts and instructions regarding tax-
deferred assets. Specific bequests are usually covered in a later section under "disposition of assets".

(Choice C) So, specific bequests are usually included in the disposition of assets section, not the initial matters
section of a will.

3 In his will, Fred named his sister, Susan, as the executrix and trustee of his estate. Fred and Susan
live in a province that gives full legal title of the estate property to the trustee. Which of the
following statements is FALSE?

Correct
The correct answer:Susan's role as trustee is overseen by the court, which has full legal title to the trust property

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until it can be distributed.
Your answer:Susan's role as trustee is overseen by the court, which has full legal title to the trust property until it
can be distributed.
Solution:

The court does not have full legal title to the trust property until it can be distributed.

(Concepts) In all provinces except Québec, the trustee receives full legal title to the trust property to enable her to
carry out her duties. Although the trustee holds legal title to the property, she is obligated to manage that property
in the best interests of the beneficiaries. She must distribute the estate's assets and carry out the terms of any
testamentary trust deeds according to the terms of the will.

(Choice A is false.) So, the court does not have full legal title to the trust property until it can be distributed.

4 When Lionel set up a spousal RRSP for his wife, Rita, his financial planner advised him to include
instructions regarding the spousal RRSP in his will. Which of the following statements is FALSE?

Correct
The correct answer:Lionel's estate can make a contribution to Rita's spousal RRSP up to 90 days after the end of
the year of death.
Your answer:Lionel's estate can make a contribution to Rita's spousal RRSP up to 90 days after the end of the
year of death.
Solution:

Lionel's estate cannot make a contribution to Rita's spousal RRSP up to 90 days after the end of the year of death.

(Concepts) The Income Tax Act allows that the estate of the deceased may be used to make a contribution to a
spousal RRSP for the year of death up to 60 days after that year end, provided that the deceased had unused RRSP
contribution room. This can be used to create an additional deduction for the final income tax return of the
deceased.

(Choice B is false.) So, Lionel's estate can make a contribution to Rita's spousal RRSP up to 60 days, not 90 days,
after the end of the year of death.

5 Deanna is the executrix of Karen's will and is in the process of distributing Karen's estate. Before
she died, Karen had substantial debts outstanding. The part of Karen's estate that remains after all
debts have been paid and after all the specific bequests have been made is referred to as the:

Correct
The correct answer:residuary estate.
Your answer:residuary estate.
Solution:

The part of Karen's estate that remains after all debts have been paid and after all the specific bequests have been
made is referred to as the residuary estate.

(Concepts) The part of an individual's estate that remains once all debts have been paid and after all bequests have
been made to the beneficiaries is referred to as the residuary estate or residue.

(Choice B) So, the residuary estate or residue is that part of Karen's estate that remains once all debts have been
paid and after all bequests have been made to the beneficiaries.

6 Bob and Nancy McFarlane were involved in a serious car accident. Bob died at the scene of the
accident. Nancy died two hours later in hospital. They both had valid wills that left all of their assets
to each other. Neither of their wills included an extreme contingency clause. In their province of
residence, they are not considered to have died simultaneously. Which of the following statements
regarding the distribution of their assets is TRUE?

Correct

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The correct answer:Bob's relatives are not entitled to receive anything from his estate.
Your answer:Bob's relatives are not entitled to receive anything from his estate.
Solution:

Bob's relatives are not entitled to receive anything from his estate.

(Concepts) An "extreme contingency clause" specifies an alternate beneficiary in the event that the original
beneficiary does not survive the testator, often by a specified period of time such as 30 days. In most provinces, in
the absence of such a clause, if spouses who leave everything to each other in their wills die within a short time of
each other, the estate of the first to die passes to the second spouse, and is then distributed along with her assets
according to intestacy legislation.

(Choice B is true.) Both Bob and Nancy had valid wills that left all of their assets to each other. Because Bob died
first, his share of the estate passed to Nancy under his will. When Nancy died, Bob was already deceased and could
not inherit her estate under her will, so Nancy's estate was intestate. Their combined estates would thus be
distributed amongst Nancy's relatives according to provincial intestacy legislation. So, Bob's relatives are not
entitled to receive any share in his estate.

7 The NEXT 6 questions are based on the following information:

Becky and Harrison were recently married, and they have approached you about preparing an
estate plan. Becky is currently 23 years old, and she works full time as a junior librarian at the local
university. She has a two-year-old son, Gregory, from a previous relationship. Gregory's biological
father disappeared after Becky announced that she was pregnant.

Harrison is 28, and is a global account representative with an international publishing company. His
job requires him to travel extensively, and he is often out of the country for two weeks at a time or
even longer. Harrison and Becky have not yet had any children together, but they hope to start a
family shortly. Harrison has made it clear that he intends to treat Gregory as his son, and has
started the process required to formally adopt him.

Becky and Harrison purchased a house just after their marriage, and they registered the house in
joint tenancy. Because they are just starting out, they have very little in the way of other assets
besides their personal belongings, some second hand furniture and an old car. They recently
purchased term life insurance policies, naming the surviving spouse as the beneficiary. In addition,
Harrison's company pays for a life insurance policy on his life, with the proceeds payable to his
estate.

Harrison and Becky live in a province where the trustee legislation does not incorporate the prudent
investor principle.

Harrison is not Gregory's biological father and has not yet formally adopted him. As such, which of
the following is not one of the ways that Harrison can use his will to provide for Gregory?

Correct
The correct answer:Making a general bequest to his "children", without qualifying the term elsewhere in his will.
Your answer:Making a general bequest to his "children", without qualifying the term elsewhere in his will.
Solution:

Harrison cannot use his will to provide for Gregory by making a general bequest to his "children", without qualifying
the term elsewhere in his will.

(Concepts) When a testator makes a general bequest to "his children" in his will, this bequest does not include
individuals who are not the taxpayer's children in legal terms. If the testator means to include children other than
his own biological or adopted children, he must either make direct bequests to those children in his will, or clearly
define the term "children" in his will to include the desired beneficiaries.

(Choice B) Harrison is currently not Gregory's father. If he wants to provide for Gregory, he cannot simply make a
bequest to his "children", because in legal terms Gregory is not Harrison's child, although he will be once the
adoption is finalized. Harrison could adopt a more direct approach, by making a direct bequest to Gregory or
establishing a testamentary trust on his behalf, but this could preclude other children from benefiting from
Harrison's will, particularly if they were conceived but not yet born at the time of Harrison's death. So, Harrison
cannot use his will to provide for Gregory by making a general bequest to his "children", without qualifying the term
elsewhere in his will.

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8 Harrison is not confident that Becky would be able to administer his estate, and he is considering
appointing a professional administrator. Which of the following fee schedules would be
considered acceptable for a relatively straightforward estate?

Correct

The correct answer:1% to 2.5% of original estate assets, plus 1% to 2.5% of capital distributions, plus 5% of
trust income.
Your answer:1% to 2.5% of original estate assets, plus 1% to 2.5% of capital distributions, plus 5% of trust
income.
Solution:

A fee schedule that includes 1% to 2.5% of original estate assets, plus 1% to 2.5% of capital distributions, plus 5%
of trust income would be considered to be acceptable for a relatively straightforward estate.

(Concepts) Personal representatives are entitled to claim compensation. The amount of compensation must be fair
and reasonable in light of the "care, pain, and trouble" incurred by the trustee. The amount may be specified in the
will, or, if no compensation is specified, may be approved by a judge upon an application by the trustee. Acceptable
fees for administration are usually found to be in the range of 1% to 2.5% of the value of the original estate; plus
1% to 2.5% of the capital distributed; plus up to 5% of the income of the estate.

(Choice A) So, a fee schedule that includes 1% to 2.5% of original estate assets, plus 1% to 2.5% of capital
distributions, plus 5% of trust income would be considered to be acceptable for a relatively straightforward estate.

9 Through his will, Harrison could:

Correct
The correct answer:appoint Becky as the trustee for a testamentary trust that would hold the proceeds of the
company insurance policy for the benefit of Gregory and any other children they might have.
Your answer:appoint Becky as the trustee for a testamentary trust that would hold the proceeds of the company
insurance policy for the benefit of Gregory and any other children they might have.
Solution:

Through his will, Harrison could appoint Becky as the trustee for a testamentary trust that would hold the proceeds
of the company insurance policy for the benefit of Gregory and any other children they might have.

(Concepts) Minors cannot receive the death benefit of an insurance policy directly; the proceeds must be held in a
testamentary trust. The policyowner can specify the establishment of such a trust either in his insurance policy, or
via his will. Regardless of the method chosen, he can appoint the person of his choice as trust. However, if the
policyowner fails to make these arrangements and names a minor as the beneficiary of the policy, the death benefit
will be paid to the courts to be held in trust for the child.

When property is registered in joint tenancy, the share of a deceased joint tenant automatically passes to the
surviving joint tenant(s) via the right of survivorship. Therefore, a joint tenant has no post mortem control over his
share of the property, and cannot bequeath it to someone else in his will.

No contributions can be made to the RRSP of a taxpayer after that taxpayer's death. However, if the deceased
taxpayer had unused RRSP contribution room, estate assets can be used to make a contribution to a spousal RRSP
on behalf of the surviving spouse, and this contribution can be deducted on the deceased's final tax return. The
contribution must be made within 60 days after the end of the year of death.

(Choice A) Because Harrison and Becky already own the house in joint tenancy, Harrison cannot leave his share of
the house to his brother because it will automatically pass to Becky. Similarly, he cannot name Gregory as the
remainderman of the house, because he has no post-mortem control over that house. His personal representative
cannot make a contribution to Harrison's RRSP after Harrison's death because contributions to a taxpayer's RRSP
are not permitted after that taxpayer's death. However, if Harrison has remaining RRSP contribution room,
Harrison's personal representative can direct that the assets of his estate be used to make a spousal RRSP
contribution, as long as the personal representative is given this power by Harrison's will and the contribution is
made within 60 days after the end of the year of Harrison's death. So, through his will, Harrison could appoint
Becky as the trustee for a testamentary trust that would hold the proceeds of the company insurance policy for the
benefit of Gregory and any other children they might have.

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10 Harrison is not convinced that he needs a will, because it is his belief that everything will pass to
Becky upon his death, and besides, he has limited assets anyway. Which of the following is not one
of the benefits that Harrison would realize by preparing a will?

Incorrect
The correct answer:It would allow him to establish an inter vivos trust for the benefit of Becky or Gregory.
Your answer:It would allow him to direct the disposition of his personal possessions.
Solution:

Preparing a will would not allow Harrison to establish an inter vivos trust for the benefit of Becky or Gregory.

(Concepts) A will can only be used to establish a testamentary trust. An inter vivos trust is one that is created while
the settlor is still alive.

(Choice B) Harrison cannot establish an inter vivos trust through his will; an inter vivos trust must be established
while he is alive. Any trusts established through his will, will not be established until after his death. So, preparing a
will would not allow Harrison to establish an inter vivos trust for the benefit of Becky or Gregory.

11 Harrison drafts a will that is silent on the matter of trustee powers. He lives in a province where the
trustee legislation does not incorporate the prudent investor principle. As a result, Harrison's
personal representative will probably be able to invest the estate assets in:

Correct
The correct answer:government bonds.
Your answer:government bonds.
Solution:

Harrison's personal representative will probably be able to invest the estate assets in government bonds.

(Concepts) If the will is silent with respect to trustee investment powers, provinces that do not follow the prudent
investor principle restrict the investments that a trustee may hold on behalf of the estate to those included in a
legal list that is contained in the provincial trustee legislation. This list is quite conservative, and does not include
futures contracts, options, or even mutual funds.

(Choice B) Harrison's will is silent on the matter of trustee powers and he lives in a province where the trustee
legislation does not incorporate the prudent investor principle. Harrison's personal representative will be restricted
to the legal list specified in the provincial trustee legislation, which means that he will not be able to invest the
estate assets in futures contracts, mutual funds or options. So, of the investments listed, Harrison's personal
representative will probably only be able to invest the estate assets in government bonds.

12 Harrison wants Becky to be able to manage his financial affairs while he is away on business. Which
of the following statements is FALSE?

Correct
The correct answer:If Harrison drafts a power of attorney to meet his objective, Becky would be called the
principal.
Your answer:If Harrison drafts a power of attorney to meet his objective, Becky would be called the principal.
Solution:

If Harrison drafts a power of attorney to meet his objective, Becky would be called the agent, attorney, or proxy,
not the principal.

(Concepts) A power of attorney is a written legal document in which an individual (called the principal or the
grantor) appoints another person (called the attorney, the proxy or the agent) to manage his or her affairs under
specified circumstances. Even though the agent is usually referred to as an "attorney', the agent does not have to
be a lawyer.

(Choice C is false.) So, if Harrison drafts a power of attorney, Harrison would be called the grantor or the principal,
and Becky would be his agent, attorney or proxy.

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13 Philippe is acting as trustee for his brother's estate. His brother's will confirmed the statutory
obligations regarding the handling of outstanding debts and did not grant Philippe any special
powers in regards to debts. His brother had left his house in trust for his son, Gaston, aged 18, until
Gaston attains the age of 25. The house has a mortgage with a 3-year term and a floating interest
rate. Interest rates are dropping. Which of the following statements is FALSE?

Correct
The correct answer:Philippe cannot pay off the mortgage until it matures because it would incur a loss to the
estate.
Your answer:Philippe cannot pay off the mortgage until it matures because it would incur a loss to the estate.
Solution:

Philippe must pay off the mortgage even though it would incur a loss to the estate.

(Concepts) One of the basic obligations of the trustee under the default rules of the provincial Trustees Act is to
discharge all debts of the estate. In some cases, this may actually be detrimental to the estate. To avoid such
problems, a will should provide the trustee with the power to renew or maintain debt obligations.

(Choice C is false.) According to default trustee legislation, Philippe must discharge the mortgage as soon as
possible even if it means incurring a large early payment penalty or selling the house. The situation could have
been avoided if Phillip's brother had given him the authority to use his discretion when discharging debts. So,
Philippe must pay off the mortgage even though it would incur a loss to the estate.

14 According to the sample will for John Doe provided in lesson #1 and lesson #2 of this unit, what
statement regarding John's trustees is true?

Correct
The correct answer:John's trustees may invest in mutual funds.
Your answer:John's trustees may invest in mutual funds.
Solution:

John's trustees may invest in mutual funds.

(Concepts) In some provinces, the default rules of trustee legislation prohibit trustees from investing trust property
in anything but certain prescribed investments. This legal list is quite restrictive, and can even prohibit investment
in mutual funds. However, if an individual has specifically stated that his or her trustee is not limited to those
investments to which trustees are restricted by law, then his or her trustee may invest in mutual funds.

(Choice A is true.) John's trustees are not required to post a bond (Part I - Initial Matters: Executors and Trustees).
His trustees do have the authority to borrow money against his estate (Part III - Administration of Estate:
Borrowing) and may purchase estate assets (Part IV - Miscellaneous Provisions). John's will granted his broader
investment powers to his trustees (Part III - Administration of Estate: Investment Powers). So, John's trustees may
invest in mutual funds.

15 According to the sample will for John Doe provided in lesson #1 and lesson #2 of unit 9, what
statement is true?

Correct
The correct answer:If John's spouse does not survive him by 30 days, his children will inherit the residue of his
estate.
Your answer:If John's spouse does not survive him by 30 days, his children will inherit the residue of his estate.
Solution:

According to the sample will, if John's spouse does not survive him by 30 days, his children will inherit the residue
of his estate per stirpes.

(Concepts) A common disaster or extreme contingency clause specifies an alternate beneficiary in the event that
the original beneficiary does not survive the testator (i.e., either predeceases him or dies simultaneously). Many
people go one step further and specify that the beneficiary must survive them for a period of time (often 30 days)

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in order to qualify for the inheritance. If they fail to survive that period, the assets flow to the alternate beneficiary
named in the common disaster clause.

If a testator makes a gift to one of his beneficiaries prior to his demise, a subsequent bequest to that beneficiary via
the will may be reduced by the amount of the gift. This is referred to as ademption by advancement. If the testator
does not want these gifts prior to death to affect the distribution of his assets after death, he should include a
specific provision against ademption by advancement in his will.

Normally, if a beneficiary cannot be located, the court must declare them dead before the estate can be
administered. This can be a long and involved process, which could seriously delay the distribution of an estate. To
ensure that this does not happen, the testator can insert a clause indicating that if any beneficiary cannot be
located within a prescribed time period, then it is to be assumed that the beneficiary predeceased him.

(Choice D is true.) John's will does contain a provision against ademption for advancement (Part IV, item 10). His
will also says that if his beneficiaries have not been located within two years of his death, they are presumed to
have predeceased him (Part III, item 7(c)). John's will also includes an extreme contingency clause, which says that
if his spouse does not survive him by at least 30 days, his estate is to be divided into three equal shares, with one
share going to each child (Part II, item 2(h)). So, if John's spouse does not survive him by at least 30 days, his
estate will not be intestate, but will pass to his children.

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