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Estate Planning – Transferring Assets

Where’s the Money?

Having the conversation with family members about estate and succession planning may not be the easiest. However, initiating the conversation may prove to be beneficial for all involved.   There are options available for saving on fees, saving on taxes and ease of transitioning assets to loved ones. At a time which may be emotionally difficult, preparing ahead for the estate of a beloved parent can be invaluable.  Finding comfort and security knowing all matters have been addressed may be worth the investment with starting the talk.

Money on deposit with a life insurance company is treated the same as a life insurance policy. This means that a beneficiary can be named and the proceeds will be paid directly on death without the need for probate or the services of a lawyer. A beneficiary designation can be changed at any time avoiding the cost of re-writing a Will. Deposits with a life insurer can also be protected from creditors by using a certain beneficiary designation.

Here are a few examples when planning ahead can make a difference:

Kristin died in 2012 and most of her assets by her Will were therefore subject to probate. More than $200,000 was in a GIC and a fairly rapid transfer to her heirs would be expected. Unfortunately, the family had to wait until Spring of 2014 to receive the funds. Not only did the GIC attract legal and probate fees in excess of $10,000, but while they were waiting for their share, her kids had to pay income tax on interest earned on the money. This proved to be a hardship for some of them who were with a limited means of income and a single parent.   Had the GIC been deposited with an insurance company, there would have been no legal or probate fees and the family members would have received the funds in a matter of weeks.

Susan had two life insurance policies. The claim forms for the insurance were sent to the insurer, along with the death certificate within 2 weeks of her passing.  The family members designated as beneficiaries received the funds in less than 4 weeks after her death. What a difference.

Sanjay used named beneficiaries as part of his estate plan to ensure that his money went where he wished without the need for legal fees or probate costs and delays. When he died, his wishes were granted within a matter of weeks with no cost to his estate or beneficiaries.

Martin has other concerns; he worries about his beneficiary’s ability to manage money and wants to make sure that the insurance proceeds will last. He also wants to avoid the cost and potential tax issues of establishing a trust after he dies. Martin was able to address his concerns by utilizing special beneficiary arrangements. He directed that the death benefits would be paid out over a period of years in equal monthly instalments- no management costs, no trustee or legal fees and no ability for the beneficiary to get a lump sum.

The option to provide income rather than a lump sum may be more appropriate in many situations. Another option is a lump sum for part of the proceeds (to provide for the immediate cash needs) and the rest paid out as a lifetime income.

Here is an example when funds held under the umbrella of an insurance company can have a dramatic impact on a person’s assets while living;

A couple had to file for personal bankruptcy and most of their assets were seized, including bank accounts and GICs. Their life insurance policies and investment plans (both RSP and non RSP) were safe because they were with an insurance company.  They were protected in this circumstance for 2 reasons; first as life insurance policies with each other named as beneficiary and second, as husband and wife, they are preferred beneficiaries, which is one of the reasons when a life insurance company can provide protection from seizure.

The information in this article are presented for general knowledge and the content should not be relied upon as containing specific financial, insurance , tax or legal advice. Practitioners must seek their own independent professional advice to discuss their personal circumstances before implementing this type of arrangement.



Posted in Fall 2014 Bulletin

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