Estate planning tips
In Canada there are two basic financial acts the affect us all – The Bank Act and The Insurance Companies Act. I am not a lawyer and I do not give legal advice, but we can all find this on the internet, and you will see approximately 1,000 articles in each act if you are so inclined to check them out. It is complex information, and we need our friends at the law firms and accounting firms to keep it straight. But is it always 
Segregated funds are where you can invest your RSP, RRIF, LIRA, LIF, TFSA or non-registered investments but they are life insurance contracts. That means they have features that can greatly benefit a family at a time of greatest turmoil, stress, and raw emotion – the death of a loved one.
The ease with which assets are distributed to beneficiaries has been a topic I have been emphasizing with clients for years. But even though I have known that, still, it doesn’t stick with you until you have been through it. We are privileged as advisors because we can learn so much from our clients.
It is a rewarding experience to work with a family that is dealing with the loss of a parent knowing that the outcome will be exactly as the deceased wanted it to be. No interference, no delays, no fees, and no unnecessary erosion of value of the assets. I recently settled a significant sized estate by getting three signatures from the primary beneficiary. It was a fifteen-minute business meeting and then we spent a half hour talking about how great it was to have known the deceased. The beneficiary was in disbelief at how simple it was to settle the distribution of a lifetime of work. “Everyone should know how this works” he said.
This is a simple example, so how can this be even a greater benefit? Let’s consider some examples.
The blended family. Divorce or death often leads to second relationships and the intertwining of financial assets. The prospect of a bright future together is wonderful; however, it can mean complicated situations exist keeping the family money intact. A lot of people in this situation want to keep what’s theirs in their family. Segregated funds can help.
A black sheep. Multiple beneficiaries do not always get along. A contract holder can have a separate and private distribution to a particular beneficiary that may not be cooperative with or approachable by an executor.
Capacity to manage. Life isn’t always easy, and many families are dealing with beneficiaries that lack the necessary acuity to handle an inheritance. Therefore, some people choose to limit the inheritance if it’s just going to be slid into a slot machine or used to buy alcohol or drugs. The privacy aspect may be important.
Isolated beneficiaries. The world is a small place these days. Family members can be living in faraway lands. Most insurance companies now allow electronic signatures. This is not unique to insurance of course, but the benefits of a simpler estate settlement are amplified if a beneficiary is living in Tibet.
“What is the downside,” you ask? There needs to be an insurance agent involved; just kidding. But there are, generally, slightly higher MERs and management fees over other investment options. A lot of people feel it is worth it.
The information in this article is not intended to be legal or tax advice. You should contact your legal and tax advisors for proper legal and tax advice.
Tom Hyde CFP Bag CAFA is an advisor under HUB Financial in Canada and operates Pallister Financial, a financial services company in Portage la Prairie, Manitoba.
