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Segregated Funds and Estate Planning

Patricia Sim CIBC Wood Gundy. Segregated Funds and Estate Planning. Segregated Funds What are they? Benefits Common Pitfalls Things to avoid when planning your estate The Value of Naming a Beneficiary. Agenda. Segregated Funds What are they? Benefits. What does this mean?.

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Segregated Funds and Estate Planning

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  1. Patricia Sim CIBC Wood Gundy Segregated Funds and Estate Planning

  2. Segregated Funds What are they? Benefits Common Pitfalls Things to avoid when planning your estate The Value of Naming a Beneficiary Agenda

  3. Segregated FundsWhat are they?Benefits

  4. What does this mean? S E G R E G A T E D F U N D S What are they? • DEFINITION: • An individual variable deferred • annuity,based on the life of the • annuitant.

  5. S E G R E G A T E D F U N D S What are they? • An investment solution (mutual fund) that has an insurance contract which provides estate planning benefits and the possibility of creditor protection

  6. S E G R E G A T E D F U N D S Benefits • Maturity • Guarantees • 75% maturity guarantee • 10 year insurance contract

  7. S E G R E G A T E D F U N D S Benefits • Death Benefit • Minimum 100% death benefit • 2 resets per year upto age 70, 1 Reset per year from age 70-90

  8. S E G R E G A T E D F U N D S Benefits • Potential • Creditor • Protection • Eligible for protection if named beneficiary (family class)

  9. S E G R E G A T E D F U N D S Benefits • No Probate Fees • Proceeds pass directly to named beneficiary. • Funds are not subject to creditor's claims, probate lawyer's or executor's fees.

  10. Common PitfallsThings to avoid when planning your estate

  11. Fear of losing capital Fear of taxes and fees Fear of giving up privacy Fear of delays Fear of “affluenza” Common themes that were identified

  12. Fear of losing capital

  13. L O S I N G C A P I T A L Fear of losing capital • Worry that the value of their investments will be eroded if the markets fall • Idea that a gift could be diminished or disappear altogether

  14. Fear of taxes and fees

  15. T A X E S A N D F E E S Fear of taxes and fees • Estates are subject to various taxes and fees • Investments with an insurance company can minimize estate expenses

  16. T A X E S A N D F E E S The value of naming a beneficiary

  17. T A X E S A N D F E E S Fear of taxes and fees • Cover costs by purchasing an appropriate amount of life insurance

  18. Fear of giving up privacy

  19. P R I V A C Y Fear of giving up privacy • When a will is submitted to the courts for probate, it becomes a matter of public record • Size of estate and identity of beneficiaries

  20. P R I V A C Y Fear of giving up privacy • Segregated funds, GICs and life insurance • Death benefits are paid directly to the beneficiary and not accessible by the public

  21. P R I V A C Y Fear of giving up privacy • Survey of 3,250 families, 70% of family wealth does not make a successful transition to the next generation Source: Globe & Mail, April 27, 2004

  22. Fear of delays

  23. D E L A Y I N E S T A T E D I S T R I B U T I O N S Fear of delays • Obtaining probate often takes a few months • Process can be longer if estate is complicated or will is challenged

  24. D E L A Y I N E S T A T E D I S T R I B U T I O N S Fear of delays • Proceeds from an insurance company are usually paid about two to three weeks after receipt of proof of death

  25. Fear of “affluenza”

  26. “A F F L U E N Z A” F A C T O R Fear of “affluenza” • Loss of incentive and initiative that comes from having too much money • Concerned that their legacy will be squandered

  27. “A F F L U E N Z A” F A C T O R Fear of “affluenza” • Trusts • Annuity settlement option

  28. “A F F L U E N Z A” F A C T O R Annuity Settlement Option • Payments to beneficiaries over a pre-selected period of time • Flexible and free solution for those worried about “affluenza”

  29. What does this mean to you?

  30. What does this mean to you? • Ensure that your assets are passed onto your loved ones PRIVATELY • Minimize the taxes that your estate would have to pay • Allow your money to grow while protecting your assets from market volatility

  31. Segregated funds allow you to… • Invest in the stock markets while protecting your capital from market declines • Transfer assets to your loved ones effectively and efficiently • Have a peace of mind

  32. VALUE OF NAMING A BENEFICIARY

  33. GIF Series II 100% Death Benefit Guarantee -100% Deposit Value - Market Value - Previous Guarantee Value X FMV drops 5% 3 yrs. later -$15,000 (upon client’s death) X Non-Reg DSC Fee (4.5%) -$13,500 X Keep Seg Fund*** Collapse DSC Free Probate & Estate Fees**** -$14,688 (5.4%) No Tax Implications FMV + MKT value $300,000+* $300,000 minimum $300,000 minimum Net Proceeds $256,812 ARE YOUR CLIENTS EXPECTING TO GIVE OR RECEIVE AN INHERITANCE? Original Investment $300,000 Bypass Probate** * Annuitant is older than 80 yrs old. This example assumes the annuitant is over age 80. ** Only if a beneficiary is named *** Assumes a spouse/common-law partner is named as successor owner and annuitant. **** Cost will vary from province to province and on the complexity of the estate.

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