An Interesting Question

I received a call from one of my business owner clients saying he (and his wife) had a “bucket of no need cash”. At first, I said, “a what?” and then he explained. They had an investment that was set up years ago and contributed into regularly, that was earmarked for their children on the last of their deaths and that “he nor his wife would ever need in the future”. He had recalled some of my discussions we had regarding the benefits of segregated funds and wanted to know if that would help in this situation. 

Segregated Funds, the insurance companies’ equivalent to mutual funds, have many benefits, and a situation like this is ideal, as the funds on death, bypass Probate and flow directly to the beneficiaries. So, I suggested that he move those investments into the Segregated Funds with him being the Owner and his wife the Successor Owner and the children Irrevocable beneficiaries. This will assure that the funds end up in the children’s hands after the last death of the husband or wife and takes into consideration several possible issues:

1. On the last death of the husband and wife, the funds will be paid directly to the children within 30 days. These funds do not go through the Will, so therefore remain private in nature. Also, the funds will not be Probated.
2. Following the first death, the surviving spouse can still manage the Segregated Fund’s investments.
3. On the last death, the investments are not locked like they would be in a mutual fund, so these funds can therefore be preserved until distributed to the beneficiaries.
4. In this particular case, my clients chose to take obtain Segregated Fund with a 100% death guarantee. This means, that if on the last death, the markets have crashed and the value of the account is less than the originally invested funds, the death benefit paid out to the children is equal to that original invested amount
5. If during the subsequent years something happens to their business and it becomes insolvent or they become embroiled in a liability suit, these funds are Creditor Protected.
6. If one of the parents dies and the other remarries someone with children, these funds will go to their children and not to any of the stepchildren.

They like this planning idea and we are in the process of moving that “bucket of no need cash” into a well-structured Segregated Fund that matches their goals and their risk tolerance. In addition, after seeing how well these Segregated Funds worked for them, they introduced me to each of their widowed mothers and we are currently talking to them about the advantages of placing both their registered and non-registered funds into the Segregated Funds as well. These ladies are 81 and 84 years of age, still in good health with one still living in the family home and the other in a retirement home.