WME Course For Investment Managers (WME-IM) Practice Questions And Answers

Joint accounts can be held as either joint tenancy with rights of survivorship (JTWROS) or tenancy in common (TIC). However, regardless of the type of joint account, each account holder has ownership rights only to their portion of the assets. This means that assets in a joint account are not automatically transferred to the surviving account holder(s) upon the death of one holder, unlike the common misconception.

In the case of joint tenancy with rights of survivorship (JTWROS), the surviving account holder(s) automatically inherit the deceased’s portion of the assets. In contrast, tenancy in common (TIC) allows each account holder to designate beneficiaries for their portion of the assets, which would then pass through their estate upon death.

The other options are incorrect because:

(a) Joint accounts can be held as either JTWROS or TIC, but they are not always considered as JTWROS.
(b) Joint accounts are typically not subject to probate upon the death of one account holder if held as JTWROS, as they automatically pass to the surviving account holder(s).
(d) While JTWROS accounts automatically transfer assets to the surviving account holder(s) upon death, this does not apply universally to all joint accounts.

RRSP assets are considered part of the deceased’s estate upon their death. When a beneficiary receives RRSP assets, they are taxed as income in the year they are received, regardless of whether the beneficiary is the spouse or child of the deceased. Therefore, Emily will be required to pay income tax on the RRSP assets she receives from her father’s plan.

The other options are incorrect because:

(a) RRSP assets received by a beneficiary are subject to income tax.
(c) RRSP assets bypass probate if a beneficiary is designated, thus avoiding probate fees.
(d) Mr. Smith can designate Emily as the beneficiary of his RRSP, as long as she meets the requirements set out by the financial institution holding the RRSP.

A power of attorney is a legal document that grants authority to an appointed individual (the attorney-in-fact) to make financial, legal, and sometimes healthcare decisions on behalf of the grantor. However, the authority granted by a power of attorney automatically terminates upon the death of the grantor.

The other options are incorrect because:

(b) Healthcare decisions are typically covered by a separate document known as a healthcare directive or healthcare power of attorney.
(c) A power of attorney can be limited or specific in nature, granting the attorney-in-fact authority only over certain financial matters.
(d) A power of attorney can be granted to any competent individual chosen by the grantor, not limited to blood relatives.

Probate is a legal process that validates a deceased person’s will and confirms the authority of the executor to administer the estate. In Canada, probate is a public process, and details of the deceased’s assets and liabilities, as well as the terms of the will, become part of the public record. This transparency allows interested parties to access information about the deceased’s estate.

The other options are incorrect because:

(a) Probate is not mandatory for all estates; whether probate is required depends on various factors, including the jurisdiction and the nature of the assets.
(c) Probate fees may vary depending on the jurisdiction, but they are not typically calculated as a percentage of the estate’s total value.
(d) While the executor named in the will often initiates the probate process, probate can also be initiated by other interested parties, such as beneficiaries or creditors, under certain circumstances.

A Power of Attorney for Personal Care is a legal document that allows an individual (the grantor) to appoint someone they trust to make healthcare and personal care decisions on their behalf in the event they become incapable of making such decisions themselves. This document outlines the grantor’s wishes regarding medical treatment, end-of-life care, and other personal matters.

The other options are incorrect because:

(a) A Trust Agreement is a legal document used to outline the terms and conditions of a trust, which may include financial matters but typically does not address healthcare decisions.
(c) A Last Will and Testament primarily deals with the distribution of assets and appointment of guardianship for minor children after the testator’s death.
(b) A Joint Tenancy Agreement is a legal arrangement used to co-own property and does not address healthcare or personal care decisions.

Creating a trust is a common estate planning strategy that allows individuals to transfer assets into the trust, thereby avoiding probate upon their death. By creating a trust, Mr. and Mrs. Lee can specify how their assets should be distributed and managed, potentially minimizing taxes and ensuring a smoother transfer of assets to their children.

The other options are incorrect because:

(a) Designating children as joint tenants on bank accounts may expose those assets to the creditors or legal issues of the children. Additionally, this strategy does not provide comprehensive estate planning.
(c) Drafting multiple wills can lead to confusion and legal disputes, especially if the wills conflict with each other or fail to address all assets adequately.
(d) Keeping assets solely in Mr. Lee’s name may lead to complications, especially if he predeceases Mrs. Lee or if his estate exceeds certain thresholds subject to probate.

It is generally considered a conflict of interest for an executor to also be a beneficiary of the will. Such a scenario may raise questions about the executor’s impartiality and could lead to a challenge of the will’s validity on grounds of undue influence or conflict of interest.

The other options are incorrect because:

(b) The proper signing of a will by the testator and witnesses according to legal requirements enhances its validity and reduces the likelihood of a challenge.
(c) Updating a will to include a new beneficiary shortly before passing away is not inherently invalid, especially if done in accordance with legal requirements and with the testator’s full capacity and understanding.
(d) Clearly expressing wishes regarding asset distribution in a will strengthens its validity and reduces the likelihood of a challenge.

As the executor of her late uncle’s estate, Ms. Garcia has a fiduciary duty to act in the best interests of the estate and its beneficiaries. This includes managing the estate assets responsibly, paying off debts and taxes, and distributing the remaining assets according to the terms of the will or applicable laws.

The other options are incorrect because:

(a) Executors are obligated to distribute estate assets according to the terms of the will or applicable laws, not according to their personal preferences.
(b) Executors should act prudently and responsibly when managing estate assets, avoiding speculative investments that may put the assets at undue risk.
(d) Using estate funds to cover personal expenses would be a breach of fiduciary duty and could result in legal consequences for the executor.

A testamentary trust is created within a will and comes into effect upon the testator’s death. Ms. Thompson can establish a testamentary trust in her will to provide financial support for her grandchildren’s education. The trust can specify how and when funds should be distributed for educational purposes, ensuring that her grandchildren receive the support they need while also preserving the integrity of the trust assets.

The other options are incorrect because:

(b) Designating grandchildren as joint tenants on investment accounts may expose those assets to the grandchildren’s creditors or legal issues and does not provide the structured support that a trust can offer.
(c) A power of attorney for personal care deals with healthcare and personal care decisions, not financial matters or educational support.
(d) A living will, also known as an advance directive, specifies an individual’s medical treatment preferences in the event they become incapacitated but does not address financial support for education.

Naming charitable organizations as beneficiaries of life insurance policies can be an effective strategy to minimize estate taxes. Life insurance proceeds paid directly to charitable organizations are typically not subject to probate and can reduce the taxable value of the estate, potentially lowering estate taxes for Mr. and Mrs. Patel.

The other options are incorrect because:

(a) Converting RRSPs to joint accounts with children may not effectively minimize estate taxes and could have adverse consequences, including tax implications for the children.
(b) Gifting assets during their lifetime may trigger gift taxes and may not fully address estate tax concerns.
(d) Detailed funeral arrangements in wills do not directly impact estate taxes and are primarily for the testator’s personal preferences and arrangements.

A revocable trust, also known as a living trust, allows the grantor (in this case, Mr. and Mrs. Reynolds) to retain control over the trust assets during their lifetime. They can modify or revoke the trust at any time, including changing beneficiaries or the distribution of assets. This type of trust would enable them to provide for their grandchildren’s education while maintaining flexibility and control over the trust assets.

The other options are incorrect because:

(b) An irrevocable trust cannot be modified or revoked once established, which would limit Mr. and Mrs. Reynolds’ control over the trust assets.
(c) A testamentary trust is established within a will and comes into effect upon the testator’s death, providing less control during the grantor’s lifetime.
(d) A charitable trust is designed to benefit charitable organizations, rather than specific individuals such as grandchildren.

By establishing a living trust, Ms. Carter can transfer her assets into the trust during her lifetime, ensuring that they are managed and distributed according to her wishes upon her passing. A living trust allows for the efficient transfer of assets to beneficiaries without the need for probate, potentially reducing delays and administrative costs associated with the probate process.

The other options are incorrect because:

(a) Creating a joint tenancy agreement may expose the assets to the creditors or legal issues of the joint tenant and may not provide the structured distribution that a trust can offer.
(b) An attorney-in-fact appointed through a power of attorney document is authorized to make financial and legal decisions on behalf of the grantor during their lifetime but does not address the distribution of assets after death.
(c) A living will outlines healthcare preferences and treatment decisions in the event of incapacity but does not deal with the distribution of assets after death.

A durable power of attorney is a legal document that allows an individual (the grantor) to appoint an agent to make financial and legal decisions on their behalf in the event they become incapacitated or unable to manage their affairs. Unlike a regular power of attorney, a durable power of attorney remains valid even if the grantor becomes incapacitated, ensuring that their financial and legal matters are taken care of by a trusted agent.

The other options are incorrect because:

(a) Designating beneficiaries for retirement accounts and life insurance policies is typically done through beneficiary designation forms and does not involve a durable power of attorney.
(c) Healthcare preferences and end-of-life care instructions are typically addressed in a separate document known as an advance directive or living will.
(d) Establishing joint ownership of real estate property is typically done through a deed or title transfer, not through a durable power of attorney.

In a joint tenancy with rights of survivorship (JTWROS), each joint tenant has an equal ownership interest in the property. This means that upon the death of one joint tenant, their interest in the property passes to the surviving joint tenant(s) outside of probate, regardless of the provisions of the deceased’s will or estate.

The other options are incorrect because:

(a) Upon the death of one joint tenant, the deceased’s interest in the property does not pass to their estate but rather to the surviving joint tenant(s) under JTWROS.
(b) Joint tenants do not need to be blood relatives to establish JTWROS; they can be any co-owners of the property.
(c) JTWROS assets bypass probate upon the death of one joint tenant and transfer directly to the surviving joint tenant(s).

A Last Will and Testament allows individuals to specify their wishes regarding the distribution of assets and the appointment of guardianship for minor children in the event of their death. By including provisions in her will, Ms. Rodriguez can designate a guardian to care for her minor children and ensure that their needs are met according to her wishes.

The other options are incorrect because:

(b) An advance directive, also known as a living will, outlines an individual’s healthcare preferences and treatment decisions but does not address guardianship of minor children.
(c) A power of attorney for personal care appoints someone to make healthcare and personal care decisions on behalf of the grantor but does not involve the appointment of a guardian for minor children.
(d) A trust agreement outlines the terms and conditions of a trust and the management of trust assets but does not address guardianship of minor children.

A discretionary trust allows the grantor to retain control over the distribution of assets while providing protection against potential creditors. The trustee has discretion over how and when to distribute assets to beneficiaries, shielding the assets from creditors’ claims and ensuring they are distributed according to the grantor’s wishes.

The other options are incorrect because:

(a) Creating a joint bank account with her spouse may expose the assets to potential creditors of either party and does not provide the level of protection that a trust can offer.
(c) Designating children as joint tenants on real estate properties exposes the assets to the children’s creditors and legal issues and may not align with Ms. Anderson’s distribution preferences.
(d) A living will outlines healthcare preferences and treatment decisions but does not address asset protection or distribution after death.

A letter of wishes is a non-binding document that accompanies a will and provides guidance to the executor and trustees regarding the administration of the estate and any trusts established under the will. It allows the testator to express their intentions, preferences, and instructions regarding the distribution of assets, the care of beneficiaries, and other matters related to the estate and trust administration.

The other options are incorrect because:

(a) Specific preferences regarding asset distribution are typically outlined in the will itself, not in a letter of wishes.
(b) The appointment of an executor is done through the will, and a letter of wishes does not serve this purpose.
(d) Healthcare preferences and treatment decisions are typically addressed in a separate document known as an advance directive or living will, not in a letter of wishes.

Lifetime gifts reduce the taxable value of the donor’s estate for estate tax purposes, potentially lowering the overall tax liability upon the donor’s death. By gifting assets during their lifetime, Mr. and Mrs. Thompson can transfer wealth to their children and minimize the size of their taxable estate, potentially reducing estate taxes.

The other options are incorrect because:

(a) Canada does not impose gift taxes on lifetime gifts, although there may be other tax implications depending on the nature of the gift and the parties involved.
(c) While certain gifts may need to be reported for tax purposes, not all lifetime gifts must be reported to the Canada Revenue Agency (CRA), especially if they fall below certain thresholds or meet specific criteria.
(d) Lifetime gifts may transfer ownership of the assets to the recipients immediately, but this is not always the case, as some gifts may have conditions or restrictions attached to them.

By creating a testamentary trust in her will, Ms. Garcia can specify how assets should be managed and distributed to provide for her parents’ care while ensuring that her children’s financial security is also addressed. A testamentary trust allows for flexibility in asset management and distribution, ensuring that the needs of both her parents and children are met according to her wishes.

The other options are incorrect because:

(b) Designating her parents as beneficiaries of her RRSP may have tax implications and does not provide the structured support and management that a trust can offer.
(c) A living will outlines healthcare preferences and treatment decisions in the event of incapacity but does not address financial support for family members.
(d) Establishing a joint tenancy arrangement for her primary residence may expose the asset to the creditors or legal issues of the joint tenant and does not provide the comprehensive planning that a trust can offer.

A codicil is a legal document that allows the testator to make changes to specific provisions of an existing will without revoking the entire document. It may be used to clarify ambiguous language, modify beneficiaries or asset distributions, or update other provisions of the will to reflect changing circumstances or preferences.

The other options are incorrect because:

(a) A codicil does not revoke the entire will but rather modifies specific provisions while leaving the rest of the will intact.
(c) The appointment of an executor is typically done through the original will, and a codicil does not serve this purpose.
(d) End-of-life care preferences are typically addressed in a separate document known as an advance directive or living will, not in a codicil.

Trusts are legal arrangements that involve the appointment of a trustee to manage and administer the assets held in trust for the benefit of the beneficiaries. The trustee has fiduciary duties to act in the best interests of the beneficiaries and to manage the trust assets according to the terms of the trust agreement.

The other options are incorrect because:

(a) Trusts can be created either during the lifetime of the grantor (inter vivos trusts) or upon the grantor’s death through their will (testamentary trusts).
(b) Trusts can be established for various purposes, including asset protection, estate planning, and providing for beneficiaries, not just for charitable purposes.
(d) Trusts are recognized as legal entities in Canada and are governed by provincial or territorial legislation, such as the Trustee Act in Ontario.

Establishing joint tenancy arrangements for real estate properties allows for the automatic transfer of ownership to the surviving joint tenant(s) upon the death of one joint tenant, bypassing the probate process. This can help avoid the costs and delays associated with probate and ensure a smoother transfer of assets to the surviving joint tenant(s).

The other options are incorrect because:

(a) Designating the estate as the beneficiary of life insurance policies may subject the proceeds to probate and does not bypass the probate process.
(c) A living will outlines healthcare preferences and treatment decisions in the event of incapacity but does not address the probate process or asset distribution after death.
(d) A power of attorney for personal care appoints someone to make healthcare and personal care decisions on behalf of the grantor but does not address probate or asset distribution after death.

Living trusts, also known as inter vivos trusts, are established during the lifetime of the grantor and can help avoid the probate process upon the grantor’s death. Assets held in a living trust are not considered part of the grantor’s estate and therefore do not go through probate, potentially saving time and reducing administrative costs.

The other options are incorrect because:

(a) Living trusts are established during the lifetime of the grantor, not upon their death.
(b) Living trusts may be subject to taxation depending on various factors, including the nature of the trust assets and applicable tax laws.
(d) Living trusts can be established for various purposes, including estate planning and asset management, not just for charitable purposes.

An irrevocable trust can provide asset protection by removing assets from the control and ownership of the grantors (Mr. and Mrs. Davis) and placing them under the management of a trustee. Once assets are transferred into an irrevocable trust, they generally cannot be reached by creditors or lawsuits against the grantors, providing a level of protection for the assets and beneficiaries.

The other options are incorrect because:

(a) Creating a joint bank account with their children exposes the assets to potential claims from the children’s creditors and does not provide the same level of protection as an irrevocable trust.
(b) A living will outlines healthcare preferences and treatment decisions in the event of incapacity but does not provide asset protection.
(c) Designating the estate as the beneficiary of life insurance policies may subject the proceeds to probate and does not offer asset protection during the grantors’ lifetimes.

A testamentary trust is created within a will and comes into effect upon the testator’s death. This type of trust allows for the ongoing management and distribution of assets for the benefit of the disabled sibling, ensuring that their needs are met without affecting their eligibility for government benefits. By incorporating specific provisions into the trust, Ms. Thompson can safeguard her sibling’s financial security while preserving their access to essential benefits.

The other options are incorrect because:

(b) A revocable trust allows the grantor to modify or revoke the trust during their lifetime and may not offer the same level of protection for the disabled sibling’s eligibility for government benefits.
(c) An irrevocable trust, once established, cannot be modified or revoked by the grantor and may not provide the flexibility needed to address changing circumstances or needs.
(d) A charitable trust is established for charitable purposes and would not be suitable for providing ongoing support to a disabled sibling.

By establishing a testamentary trust in her will, Ms. Jackson can provide for her favorite charity while also ensuring that her children receive their inheritance. She can specify the terms of the trust, including how and when funds should be distributed to both beneficiaries, thereby achieving her dual objectives of charitable giving and providing for her children.

The other options are incorrect because:

(a) A living will outlines healthcare preferences and treatment decisions in the event of incapacity but does not address financial matters or charitable giving.
(c) A power of attorney for personal care appoints someone to make healthcare and personal care decisions on behalf of the grantor but does not involve financial matters or charitable giving.
(d) Designating children as joint tenants on investment accounts may expose those assets to the children’s creditors and does not provide the structured support and management that a trust can offer.

A Last Will and Testament allows individuals to specify their wishes regarding the care of minor children and the management of assets on their behalf in the event of their death. By including provisions in their will, Mr. and Mrs. Wilson can appoint a guardian for their children and establish a trust to manage and distribute assets for their benefit until they reach adulthood or a specified age.

The other options are incorrect because:

(b) A Power of Attorney for Personal Care appoints someone to make healthcare and personal care decisions on behalf of the grantor but does not address the care of minor children or the management of their assets.
(c) A Living Will outlines healthcare preferences and treatment decisions in the event of incapacity but does not address guardianship or asset management for minor children.
(d) A Trust Agreement outlines the terms and conditions of a trust but does not appoint a guardian or address the care of minor children in the same comprehensive manner as a will.

A pour-over will is a type of will that directs the distribution of assets into a trust upon the testator’s death. The trust is typically established during the testator’s lifetime and is funded by assets transferred through the pour-over will. This allows the testator to maintain control over the trust assets and specify how they should be managed and distributed after their death.

The other options are incorrect because:

(a) While pour-over wills may facilitate the transfer of assets into a trust, they do not distribute assets directly to beneficiaries outside of probate.
(b) Appointing a guardian for minor children is typically done through the will itself and does not involve the concept of a pour-over will.
(c) Healthcare preferences and treatment decisions are typically addressed in a separate document known as an advance directive or living will, not in a pour-over will.

Establishing a testamentary trust in their will allows Mr. and Mrs. Lee to specify how their assets should be managed and distributed to their beneficiaries, potentially minimizing tax implications. Testamentary trusts can be structured to take advantage of tax-saving opportunities, such as income splitting among beneficiaries, reducing the overall tax burden on the estate and beneficiaries.

The other options are incorrect because:

(a) Designating the estate as the beneficiary of life insurance policies may subject the proceeds to probate and does not offer tax planning benefits for the estate.
(b) Creating a joint bank account with their children may expose the assets to potential claims from the children’s creditors and does not provide tax-saving opportunities.
(d) A power of attorney for personal care appoints someone to make healthcare and personal care decisions on behalf of the grantor but does not address tax implications of the estate.

Establishing an irrevocable trust for her beneficiaries allows Ms. Roberts to preserve her family’s wealth for future generations while providing for their financial needs. Irrevocable trusts can help protect assets from creditors and ensure structured distributions to beneficiaries according to her wishes, promoting long-term financial stability for her family.

The other options are incorrect because:

(a) A living will outlines healthcare preferences and treatment decisions in the event of incapacity but does not address wealth preservation or structured distributions of assets.
(c) Designating children as joint tenants on real estate properties exposes the assets to potential claims from the children’s creditors and may not align with Ms. Roberts’ wealth preservation goals.
(d) Creating a joint bank account with her spouse does not offer the same level of asset protection and structured distribution as an irrevocable trust.