WME Exam 2 (2026 v1): Family Law, Risk Management and Tax Planning

Topic snapshot

Sample questions

These questions are original Securities Prep practice items aligned to this topic area. They are designed for self-assessment and are not official exam questions.

Question 1

Topic: Family Law, Risk Management and Tax Planning

David, age 67, lives in Ontario and is in a second marriage. His main asset is a $600,000 RRIF. His will creates a spousal trust that would pay income to his wife, Lena, for life, with the remaining capital going to his two adult children from his first marriage. David understands that naming Lena directly as successor annuitant would be the simplest tax-efficient choice, but it would bypass the will. Which recommendation best fits David’s priority?

• A. Name Lena direct beneficiary and rely on her later will.
• B. Name Lena successor annuitant for the tax-deferred rollover.
• C. Split the RRIF now between Lena and the children.
• D. Name the estate beneficiary so the spousal trust controls the RRIF.

Best answer: D

What this tests: Family Law, Risk Management and Tax Planning

Explanation: In a blended-family case, control over who ultimately benefits can outweigh pure tax efficiency. Routing the RRIF through the estate so the will’s spousal trust applies best matches David’s goal of supporting Lena for life while protecting the children’s remainder interest.

The core concept is that the most tax-efficient choice is not always the best planning choice. Here, David’s primary objective is family control: provide Lena with lifetime support while ensuring any remaining capital ultimately passes to his children. A direct successor annuitant designation may offer simpler tax deferral, but it sends the RRIF outside the will and weakens David’s ability to enforce that remainder plan. If he wants the spousal trust terms to govern both the income to Lena and the eventual transfer to his children, the RRIF must be directed through the estate or another structure that aligns with the will.

The closest alternative is the direct spouse designation, but that solves the tax issue better than it solves David’s family objective.

• Tax-first focus naming Lena as successor annuitant improves tax efficiency, but it bypasses the will and reduces control over the children’s eventual share.
• Informal reliance naming Lena directly and trusting her later will does not securely protect David’s intended outcome in a blended-family situation.
• Premature split dividing the RRIF between Lena and the children weakens the planned lifetime-support structure and may create unnecessary tax or fairness issues.

This keeps the RRIF subject to the will’s spousal trust, preserving David’s intended family outcome even if it is less tax-efficient.

Question 2

Topic: Family Law, Risk Management and Tax Planning

Leila, 42, is self-employed and earns $190,000. Her spouse earns $28,000, and they have two children plus a $680,000 mortgage. Their savings include a $45,000 emergency fund and a non-registered account in which 65% is one Canadian utility stock inherited from Leila’s father. They also spend weekends on back-country skiing, and Leila has only $250,000 of term life insurance with no disability coverage. Which risk-management recommendation should their advisor address first because it has the most immediate planning impact?

• A. Transfer Leila’s income-loss risk with disability insurance
• B. Reduce the single-stock risk through diversification
• C. Retain minor loss risk through the emergency fund
• D. Avoid recreation risk by stopping back-country skiing

Best answer: A

What this tests: Family Law, Risk Management and Tax Planning

Explanation: The first priority is Leila’s uncovered disability risk. She is the main income earner, the family has dependants and a large mortgage, and their $45,000 emergency fund would not support the household for long if her income stopped.

Risk-management priorities should focus first on exposures that are both severe and financially unmanageable. Here, Leila’s earnings support most of the household, yet she has no disability coverage. If she became unable to work, mortgage payments and living expenses would continue, and the family’s cash reserve would likely be depleted quickly. That makes income interruption the most immediate material risk, so the best response is to transfer that risk through insurance.

• Concentration in one stock is a real concern, but it is typically addressed by reducing risk over time through diversification.
• Recreation-related injury exposure can be avoided or reduced, but that is still secondary to protecting the family’s core cash flow.
• Small unexpected losses are often appropriate to retain when a client already has an emergency fund.

The key takeaway is to deal first with catastrophic risks that the client cannot absorb personally.

• Diversification matters, but concentration risk is a portfolio issue that is usually less immediate than losing the main family income.
• Stopping skiing could reduce injury exposure, but it does not solve the broader financial consequence of any disabling event.
• Emergency savings are useful for retained small losses, but they are too limited to cover a prolonged loss of employment income.

As the primary earner with dependants and no disability coverage, Leila faces a catastrophic income-loss risk the family cannot readily absorb.

Question 3

Topic: Family Law, Risk Management and Tax Planning

Nina, 68, lives in Ontario, is widowed, and wants her estate divided equally among her three adult children. Her $220,000 TFSA is one of her largest assets. To “keep things simple,” she plans to name her oldest son as the sole TFSA beneficiary because she trusts him to split it with his sisters after her death. What is the primary risk or tradeoff of this plan?

• A. The TFSA would become taxable each year once a child is named.
• B. The son would receive the TFSA directly with no automatic duty to share equally.
• C. Nina would lose the ability to change TFSA investments later.
• D. The TFSA would have to pass through the estate before payout.

Best answer: B

What this tests: Family Law, Risk Management and Tax Planning

Explanation: The plan does not match Nina’s goal of equal treatment among her children. Naming only one child as TFSA beneficiary means that child receives the asset directly, and the siblings have no automatic legal claim to equal shares based only on Nina’s informal wishes.

The core issue is alignment between Nina’s estate goal and the mechanism she plans to use. In Ontario, a TFSA beneficiary designation generally sends the account directly to the named beneficiary outside the estate. That can be efficient, but it can also create an unintended result when the client wants equal treatment across multiple children.

If Nina names only her oldest son, he becomes the direct recipient of the TFSA proceeds. Her verbal expectation that he will “split it” is not the same as a formal legal instruction that guarantees equal sharing. That creates a real risk of unequal outcomes, misunderstandings, or family conflict.

The key takeaway is that a convenient designation can be the wrong tool when the client’s true objective is fairness among family members.

• The option about losing investment control fails because Nina keeps ownership and control of the TFSA while she is alive.
• The option about annual TFSA taxation fails because naming a child beneficiary does not make the TFSA taxable during Nina’s lifetime.
• The option about the TFSA passing through the estate fails because a direct beneficiary designation is generally meant to bypass the estate, not flow through it.

A direct beneficiary designation gives the named child the proceeds, so equal sharing depends on that child acting voluntarily.

Question 4

Topic: Family Law, Risk Management and Tax Planning

Jordan, 34, and Priya, 32, live in Ontario with two children ages 2 and 5. Jordan earns $125,000, Priya is currently at home with the children, and they have a $640,000 mortgage with limited savings. Jordan’s employer provides life insurance equal to one year of salary and LTD equal to 60% of salary; Priya has no personal coverage. A draft risk-management recommendation says, “Use surplus cash to buy a participating whole life policy on Jordan for long-term estate value, and review other insurance later.” Which criticism of this draft is most important?

• A. It should also recommend updating beneficiary designations on all registered accounts.
• B. It should compare quotes from several insurers before selecting any policy.
• C. It should review home and auto deductibles to improve overall premium efficiency.
• D. It overlooks their immediate need for affordable family income protection, especially term life coverage.

Best answer: D

What this tests: Family Law, Risk Management and Tax Planning

Explanation: This couple is in the family-building stage, with young dependants, a large mortgage, and one main earner. Their most important risk-management priority is affordable income replacement for the household, not long-term estate accumulation through permanent insurance.

Life stage drives risk-management priorities. For a young family with small children, high debt, and limited savings, the biggest financial risk is loss of the earning or caregiving capacity that supports the household. That usually means focusing first on adequate, cost-effective protection such as term life insurance and reviewing whether disability coverage is sufficient.

A participating whole life policy may have uses later, but this draft jumps to an estate-oriented solution before addressing the couple’s immediate dependency risk. With only one year of employer life coverage and a large mortgage, the family is likely underinsured for its current obligations and lifestyle needs.

The key takeaway is to match insurance recommendations to the client’s life stage before considering more complex or longer-term products.

• Beneficiary update: Important administrative housekeeping, but it does not address the family’s larger immediate protection gap.
• Shopping quotes: Good practice once the right need is identified, but it is secondary to defining the priority correctly.
• Property deductibles: Useful for premium management, but minor compared with protecting a young family’s core income needs.

At their young-family life stage, protecting dependants and mortgage cash flow is a higher priority than estate-focused permanent insurance.

Question 5

Topic: Family Law, Risk Management and Tax Planning

Sonia, 34, and Eric, 36, have two children ages 2 and 5. Eric earns most of the family income, they recently took a $650,000 mortgage, and their savings are modest. They want to add coverage now, but cash flow is tight and their main goal is to protect the family until the children are independent. Which recommendation best fits their most important current risk-management priority?

• A. Buy a universal life policy for flexible premiums and investment features.
• B. Buy a participating whole life policy to build cash value over time.
• C. Rely on employer group life and direct surplus cash to the TFSA.
• D. Add a 20-year term life policy with enough coverage for income replacement and the mortgage.

Best answer: D

What this tests: Family Law, Risk Management and Tax Planning

Explanation: This family is in a life stage with high temporary obligations: young dependants, a large mortgage, and limited savings. A 20-year term policy best matches that need because it provides substantial protection at a lower cost during the years when the financial risk is highest.

Life stage is the key factor here. Sonia and Eric are in the early family-building stage, so their biggest risk-management priority is replacing income and covering major obligations if the main earner dies before the children are grown and the mortgage is reduced. That need is large, but it is mainly temporary.

Term life insurance is usually the best fit when clients need the highest death benefit for the lowest premium over a defined period. Permanent policies can be useful for lifelong needs such as estate liquidity or leaving a guaranteed inheritance, but those are not the primary concern in this case. The best recommendation is the one that aligns affordable coverage with the period of greatest family vulnerability.

• Cash value focus misses the main issue because building equity inside a permanent policy is less urgent than maximizing affordable protection now.
• Group coverage reliance is weak because modest savings and a large mortgage make basic employer coverage unlikely to fully protect the family.
• Flexible permanent insurance highlights product features, but flexibility and investment options are not the decisive need at this life stage.

Their main risk is a large but temporary need for family income protection during the child-raising and debt-heavy years.

Question 6

Topic: Family Law, Risk Management and Tax Planning

All amounts are in CAD. Priya, age 57, earns employment income of $210,000 and has $45,000 of unused RRSP contribution room. To lower this year’s taxable income, she plans to contribute in kind 1,000 shares from her non-registered account to her RRSP. The shares are worth $45,000 and have an adjusted cost base of $25,000. What is the primary tax tradeoff she should understand before proceeding?

• A. The accrued gain will be taxed as regular employment income instead of a capital gain.
• B. The direct transfer avoids current tax because no actual sale occurs.
• C. She gets an RRSP deduction on the fair market value, but the transfer also realizes the accrued capital gain.
• D. Her RRSP deduction is limited to the shares’ adjusted cost base.

Best answer: C

What this tests: Family Law, Risk Management and Tax Planning

Explanation: An in-kind RRSP contribution can reduce taxable income, but it does not erase the tax effect of moving appreciated securities out of a non-registered account. Priya can claim a deduction based on the shares’ fair market value, yet the transfer is also treated as a disposition that crystallizes the built-in capital gain.

The key concept is that an in-kind contribution to an RRSP has two tax effects at the same time. First, the contribution is generally deductible based on the asset’s fair market value, as long as the client has enough RRSP room. Second, transferring an appreciated security from a non-registered account into the RRSP is treated as a deemed disposition at fair market value.

Here, Priya contributes shares worth $45,000 with an adjusted cost base of $25,000, so she realizes a $20,000 capital gain on the transfer. The RRSP deduction may help offset taxable income this year, but the accrued gain is still brought into her tax position now rather than deferred until a later sale.

The main tradeoff is immediate recognition of the accrued gain in exchange for the RRSP deduction and future tax-sheltered growth inside the plan.

• The idea that no tax arises because there is no cash sale fails because an in-kind RRSP transfer is still treated as a disposition.
• The claim that the deduction is based on adjusted cost base is incorrect; the contribution value is based on fair market value, subject to available room.
• The option treating the gain as employment income uses the wrong income category; the transfer realizes a capital gain, not salary income.

An in-kind RRSP contribution is treated as a disposition at fair market value, so she gets the deduction but also triggers the unrealized gain.

Question 7

Topic: Family Law, Risk Management and Tax Planning

Priya, 58, and Daniel, 61, have been married for three years in Alberta. It is a second marriage for both, and each has two financially independent adult children from a prior relationship. They own their home jointly, keep most investment accounts separate, and say they want the surviving spouse financially secure but ultimately want their own children to inherit most of their respective estates. Which conclusion is INCORRECT under these facts?

• A. Because all children are adults, the blended-family issue is low priority.
• B. Current wills and any domestic agreement should be confirmed.
• C. Children from prior relationships are a key planning fact in this case.
• D. Ownership and beneficiary designations should be reviewed with the estate plan.

Best answer: A

What this tests: Family Law, Risk Management and Tax Planning

Explanation: In a second-marriage or blended-family case, the existence of children from prior relationships is immediately relevant, even when those children are adults. That fact can affect estate intentions, beneficiary designations, ownership choices, and the need to coordinate legal documents.

The core issue is competing family expectations in a blended-family structure. Priya and Daniel want to protect the surviving spouse, but they also want their own children to receive most of their respective estates. That makes the family dynamic central to the planning discussion now, not later.

Key facts that matter most are:

• each spouse has children from a prior relationship
• assets are partly separate and partly joint
• their stated wishes may not line up automatically with current ownership or beneficiary arrangements
• existing wills or domestic agreements may not reflect the second-marriage plan

The weak conclusion is the one suggesting adult children make the issue low priority; adult children can still be at the centre of estate conflict or unintended outcomes.

• The option emphasizing children from prior relationships is supportable because that is the main family-dynamics fact driving the case.
• The option about ownership and beneficiary designations is supportable because those arrangements can bypass or distort intended estate results.
• The option minimizing the issue because the children are adults fails because adulthood does not remove competing inheritance interests.
• The option calling for review of wills and any domestic agreement is supportable because second-marriage arrangements often need legal coordination.

Adult children from prior relationships can still create competing estate expectations, so this remains a primary planning issue.

Question 8

Topic: Family Law, Risk Management and Tax Planning

Rina, a widowed Ontario resident, has three adult children. She wants to add her daughter Priya as joint owner of her $220,000 non-registered investment account because Priya already helps with bills and appointments. Rina says she wants to “keep things simple” and still be fair to all three children. Before her advisor finalizes any recommendation, which missing fact matters most?

• A. Whether Rina wants Priya to inherit the account or hold it for the estate
• B. Whether the account has large unrealized capital gains
• C. Whether Priya can continue helping with Rina’s day-to-day tasks
• D. Whether the other children have already been told about the plan

Best answer: A

What this tests: Family Law, Risk Management and Tax Planning

Explanation: The key information gap is Rina’s beneficial-ownership intent. If that is unclear, adding Priya jointly could cause the account to pass to one child outside the estate and create an unfair or disputed result for the other siblings.

This question turns on the difference between convenience and ownership. When a parent adds one adult child as a joint owner, the most important issue is whether the parent intends that child to receive the asset personally at death or simply help manage it while the true benefit remains with the estate. Because Rina says she wants to be fair to all three children, that intention must be clarified and documented before advice is finalized.

If the intention is unclear, joint ownership can produce an unintended result: Priya may receive the account by survivorship even if Rina expected all children to share equally. Tax details, practical caregiving support, and family communication are all useful, but they are secondary until the ownership intention is confirmed.

• Tax detail matters for planning, but unrealized gains do not resolve who Rina wants to benefit.
• Caregiving help may support the convenience rationale, but it does not answer the ownership-and-fairness question.
• Family communication can reduce conflict, but telling the siblings is not a substitute for clear legal intent.

That fact determines whether joint ownership would intentionally benefit one child or unintentionally create an unequal outcome among the siblings.

Question 9

Topic: Family Law, Risk Management and Tax Planning

Amira, 38, recently separated and expects her property settlement to be finalized within two years. She has enough unused TFSA room and wants to save $40,000. She may need the money to buy out her former spouse’s share of the home, but if that does not happen, she will leave it invested for retirement in 25 years. Her adviser proposes putting all savings into her TFSA and investing it in a growth-oriented ETF portfolio. What primary tradeoff matters most in this plan?

• A. Her high income means an RRSP is always the better account.
• B. TFSA withdrawals would be taxed when used for the home buyout.
• C. TFSA assets cannot be withdrawn before retirement without penalty.
• D. It mixes short- and long-term goals, so risk should suit the earlier need.

Best answer: D

What this tests: Family Law, Risk Management and Tax Planning

Explanation: The key issue is not TFSA access or taxation of withdrawals. The main tradeoff is that using one TFSA for both a possible near-term home buyout and long-term retirement savings means the investment risk should reflect the earlier possible use of the money.

A TFSA is often useful when a client has an uncertain time horizon because contributions are flexible and withdrawals are generally tax-free. But the account choice does not remove investment-horizon risk. In Amira’s case, the same money may be needed within two years for a home buyout, even though it could otherwise stay invested for 25 years.

That means the earliest likely use should drive the asset mix. A growth-oriented ETF portfolio may be suitable for pure retirement savings, but it can be too volatile for money that might be needed soon. The core tradeoff is flexibility versus growth potential: combining both goals in one TFSA may force a more conservative approach than she would use for retirement alone.

The RRSP deduction point is secondary here because liquidity and uncertain timing are the more immediate planning constraints.

• The claim that TFSA withdrawals are taxable is wrong because TFSA withdrawals are generally not included in income.
• The idea that TFSA money is locked in until retirement confuses a TFSA with less flexible arrangements.
• The RRSP deduction argument can matter for high-income clients, but it is not the main issue when the funds may be needed soon.
• The proposed growth portfolio is the concern, not the TFSA’s basic withdrawal flexibility.

Because the home buyout could happen soon, the portfolio should be built for that shorter horizon, which can limit retirement-oriented growth.

Question 10

Topic: Family Law, Risk Management and Tax Planning

Louis, 64, is in a second marriage. He has two adult children from his first marriage, and his spouse, Karen, 60, has one adult child. Louis wants Karen fully supported if he dies first, but he also wants most of his estate to reach his own children eventually. They plan to sign simple mirror wills leaving everything to the survivor, then dividing the estate equally among the three children on the second death. What primary risk or limitation matters most in this plan?

• A. Probate and estate costs could still apply to estate assets.
• B. The survivor could later redirect assets away from Louis’s children.
• C. The children would control the assets during the survivor’s lifetime.
• D. The first death would automatically trigger tax on all transferred assets.

Best answer: B

What this tests: Family Law, Risk Management and Tax Planning

Explanation: The key issue is control after the first death. In a second-marriage or blended-family case, leaving everything outright to the surviving spouse may support that spouse, but it can also leave the first-deceased spouse’s children unprotected if the survivor later changes the plan.

This question turns on the main blended-family tradeoff: support for the surviving spouse versus certainty for children from a prior relationship. Simple mirror wills may reflect today’s intentions, but they generally do not stop the surviving spouse from changing beneficiaries or rewriting a will later. That makes them a weak solution when one spouse specifically wants assets to end up with their own children.

In this case, the most relevant family-dynamics fact is that Louis has children from a prior marriage and wants them to inherit eventually. Once Karen inherits outright, Louis no longer controls where those assets go on her later death. A more protective approach might involve a structure that supports Karen while preserving capital for Louis’s children.

The closest secondary concern is estate cost, but the real planning risk is loss of control over the eventual distribution.

• Probate and estate costs may still exist, but that is not the main blended-family risk in this fact pattern.
• The tax claim is too broad because transfers to a surviving spouse can often defer tax rather than trigger it immediately.
• The children do not gain present control merely because the couple uses mirror wills.

In a blended-family situation, simple mirror wills usually do not bind the surviving spouse from changing the later distribution.

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