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Linear Thinking

Posted by David Gobeil on

Throughout your education, you probably were successful by doing step 1, and then step 2, then step 3. Most of the world is A B C D and 1 2 3 4, not A D C B and 1 4 3 2. Most candidates practice this linear thinking.

Marvin and Angela Smithers are professionals in their mid-40s. They have no children of their own, but dote on Angela’s sister’s two children, Samuel and Mariner. Samuel is 12 years of age and attending Upper Canada College. Mariner is 21 years of age and attending Queen’s University for another four years. The children’s father was recently killed and the family is experiencing serious financial difficulty. Marvin and Angela want to provide each child with $20K per year until he completes his education. The Smithers have significant capital and income.

What should Angela do and what would be the consequences?

A linear thinker would read the root of the question carefully. The root has 97 words. Some of the questions on Exams will have more than 100 words.

If you were to analyze the root as you read it, you would identify a number of potential issues. The children’s father was recently killed. Is the mother OK? Did he leave a lot of life insurance? Can they file a wrongful death suit? Are the boys traumatized by the death and are they receiving counselling? Was the CPP death benefit large enough to pay for his funeral? You get the idea.

The statements and choices were as follows:

  1. Angela should transfer $250K to a trust for Samuel.
  2. Angela should gift $20K per year to Samuel.
  3. Any property income earned from Angela’s gift by Samuel or his trust would be attributed to Angela.
  4. Any capital gains earned from Angela’s gift by Samuel or his trust would be attributed to Angela.

(A)       1 and 3

(B)       2 and 3

(C)       1 and 4

(D)       3 and 4

A linear thinker would look at:

  • statement 1 and try to figure out if Angela should transfer $250K to a trust for Samuel;
  • statement 2 and try to figure out if Angela should gift $20K per year to Samuel;
  • statement 3 and try to figure out if any property income earned from Angela’s gift by Samuel or his trust will be attributed to Angela; and
  • statement 4 and try to figure out if any capital gains earned from Angela’s gift by Samuel or his trust will be attributed to Angela.

There is a much better way!


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