Welcome to Soundbites – weekly insights on market trends, and investment strategies, brought to you by Investment Executive, and powered by Canada Life.

For today’s soundbites, we discuss retirement planning with John Yanchus, a tax and estate consultant with Canada Life’s sales enablement team. We discussed the often-overlooked power of segregated funds to achieve retirement goals. And we started by asking why they can be such an effective solution for some clients.

John Yanchus (JY): Segregated funds may be a lesser-known option but can be very powerful for estate planning for certain situations. Because they are defined as a life insurance policy under the Income Tax Act, they would have certain abilities that afford flexibility. You can name the estate, or you can pass these assets outside of the estate, avoiding probate, avoiding contestation, and avoiding other potential creditors of the estate. Many, many people love the idea of avoiding probate. The problem is they lack the knowledge on which avenue to use. Segregated funds can provide a great way to bypass the estate and therefore bypass probate.

On controlling asset dispersal.

JY: Settlement options are the industry’s best-kept secret. They are available on a life insurance policy or on a segregated fund, and this provides the ability to determine how your beneficiaries receive their inheritance. It’s almost a way to control from the grave. A settlement option, when used in conjunction with a segregated fund, allows you to give your beneficiary either a life annuity, a term-certain annuity, or a lump sum.

On the appeal of privacy.

JY: If you understand the probate process, once that has been completed, the will becomes a public document, and anybody can obtain a copy of your will. When a segregated fund has been used, and bypasses the estate, it also bypasses the probate process, and does not become a public document. So, your affairs will remain private. Now, there is a disclaimer for Saskatchewan. Some privacy may not be fully obtained in Saskatchewan.

Where quick resolution is important.

JY: Another advantage of segregated funds arises on the payment of the death benefit. When the annuitant passes, the death benefit becomes payable to the named beneficiary or multiple beneficiaries. Once notified of the passing of the annuitant, the insurance company generally pays that benefit out in 5 to 12 business days. From an estate, you’re looking at least one year, if not more, depending on the complexity of the estate in question.

On charitable donations.

JY: Charitable donations is very easy if you name the charity as a beneficiary, and that gets directly paid. Easy and done. Where it becomes a little more difficult is when we’re thinking about different incentives offered by the Ministry of Finance. We have one called a zero capital gain inclusion when we do in-kind donations, and segregated funds do qualify as an in-kind donation. But because of the legal structure of the contract, the client has to donate first the segregated fund in-kind while living, and second, they would have to donate the contract in its entirety. So, we have to think about multiple policies in varying levels, so they can do that over their life.

Summing up the power of seg funds for estate planning.

JY: Segregated funds can be very powerful when accomplishing certain estate planning goals. They can provide the ability to determine how your beneficiary gets paid. You can bypass the estate, and bypass probate. You can take advantages of liquidity and timing of the payment, protect those funds from creditors, and also accomplish your philanthropy goals, all in one action.

Well, those are today’s Soundbites, brought to you by Investment Executive, and powered by Canada Life.

Our thanks again to John Yanchus, a tax and estate consultant with the sales enablement team at Canada Life.

Visit InvestmentExecutive.com, where you can sign up for our AM newsletter. We’ll be back on Aug. 11th for another Soundbite.

Thanks for listening.

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