By accepting this notice and continuing to browse our website you confirm you accept our Terms of Use & Privacy Policy. 0000001027 00000 n © Footnote * * Creditor protection depends on court decisions and applicable legislation, which can be subject to change and can vary from each province; it … <<008B55618BF569489829BFB05249E85D>]>> Creditor protection may be possible because provincial insurance laws provide that life insurance contracts, including annuity contracts such as segregated funds, may be exempt from seizure by creditors if the owner has designated certain related persons as the beneficiary of the contract. A seg fund usually has a higher MER than a mutual fund, partly to cover the fund’s insurance features. 0000000736 00000 n Share this article and your comments with peers on social media, Don’t let courts choose who gets dead clients’ RRIFs, Restraints to testamentary freedom when drafting a will, Effective beneficiary designations when converting RRSPs to RRIFs, Tax consequences when your client leaves Canada, Pandemic complicates discretionary trust payouts, Task force recommends sweeping changes to OSC, Ontario offers small businesses grants of up to $20,000, Misleading news releases about pot sector draw regulator’s ire. However, you must hold the investment for a certain length of time (usually 10 years) to benefit from that guarantee. document.write(CurrentYear) Q: My wife will be 56 years old this year and has about $150,000 invested with a financial planner who wants to move it all into segregated funds. For comparison purposes, a 1% difference in MER on $1 million would equate to an annual fee of $10,000. 0000005644 00000 n 0000001446 00000 n Irrevocable Beneficiary Designation This type of designation … Manulife Investment Management’s unparalleled segregated fund lineup offers access to the growth potential of the markets, estate planning and protection features, and a broad array of choices to meet a wide range of investment styles and needs. Creditor protection has long been taken for granted as a benefit of life insurance products, including fixed-rate and segregated funds accumulation annuities. When a client’s buying seg fund solely to minimize probate, she needs to consider whether the fund’s additional annual cost is more or less than the probate savings that will eventually be realized. Keith Masterman , LLB, TEP is vice-president, Tax, Retirement and Estate Planning at CI Investments. 26 22 Read: Don’t let courts choose who gets dead clients’ RRIFs. So if you’re potentially facing bankruptcy, creditor protection ensures that the funds in your segregated fund aren’t seized by creditors. The question before the court was whether the seg fund should pass to the sons (per the designation in the policy) or to the widow (per the direction in the will). Unlike mutual funds, seg funds provide a death and/or maturity guarantee that protects a portion of invested capital. A segregated fund or seg fund is a type of investment fund administered by Canadian insurance companies in the form of individual, variable life insurance contracts offering certain guarantees to the policyholder such as reimbursement of capital upon death. var CurrentYear = new Date().getFullYear() 0000006698 00000 n Creditor protection is typically available only when a family class beneficiary (e.g., spouse, child, grandchild or parent) is named on the plan contract. Seg funds for estate planning: advantages and pitfalls. If there is any suspicion that you purchased the funds as a shelter while you were facing financial difficulty, then your funds will not be protected from creditors. Segregated funds in a non-bankruptcy situation may not provide creditor protection from CRA income tax liabilities. Though not necessarily an estate-planning purpose, creditor protection is an additional benefit of a seg fund. While these products can provide creditor protection, the protection is not complete, nor is it available in all cases. Evaluating companies on how they recruit, retain and develop their workforce, The growth of ETFs and how they fit into client portfolios. As required by law, these funds are fully segregated from the company's general investment funds, hence the name. The proceeds of the segregated fund pass directly to a named beneficiary, and are not subject to probate, lawyer's or executor's fees. 0000059175 00000 n 0000001238 00000 n Certain RRSP and RRIF holdings are also protected from creditors under a provision of Canada's federal Bankruptcy and Insolvency Act, which came into force in July of 2008. It’s important for advisors to be aware of standard beneficiary designation language used in wills, and to review any seg funds clients may have. 0000002801 00000 n With segregated funds, the beneficiary can be protected from creditors and probate fees. Segregated fund solutions. If the market value of your segregated fund investments is higher than your net deposits, you can reset your maturity and death benefit guarantees based on the higher value. Business owners and professionals may want this feature to protect their personal assets, particularly funds not held in registered retirement accounts. |�G3��4Ix��x�p Today in Canada there are 1.1 million active incorporated businesses, of these 75% employ fewer than five people. He can be reached at kmasterm@ci.com. 0000002836 00000 n 0000003075 00000 n This feature is especially important for self-employed professionals and small business owners who want to protect their personal holdings from professional liability. protection from creditors, an insured RRSP or RRIF using segregated funds will continue to offer you the most complete protection against all creditor claims during your lifetime and on your death — whether the claim arises from bankruptcy proceedings, a professional liability or a general creditor claim. * Potential creditor protection: Small business owners and entrepreneurs can benefit from the fact that, under provincial insurance legislation, seg fund products may offer protection against creditors in the event of a bankruptcy. This difference is due to the cost of the death and maturity benefits. 0000006049 00000 n The reason is that it’s possible to inadvertently change the beneficiary designation in a will or seg fund contract, which can defeat the client’s estate-planning goals. That means your assets within a segregated fund policy, whether registered or non-registered, may be protected from creditors, where a specific type of beneficiary – like a spouse or a child – has been named. Your segregated fund assets may be protected from creditors in the event of a bankruptcy, which is especially important if you are a business owner or self employed. Another benefit of seg funds is that they can provide potential protection from creditors in the event of bankruptcies or lawsuits. Fund was held for ten years the increased MER would equate to an annual of! Situation may not provide protection from CRA income tax liabilities, retain and their! 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