Rule #1 of Estate Planning: Even the best-planned estate leaves behind a bit of a mess and often results in asking many estate planning questions and answers. Estate planning is as much a planning process as it is a process of de-messification.
Today we are looking at a lesser-known way to de-messify your estate.
Introducing segregated funds…
Estate Planning Questions and Answers: What Is a Segregated Fund?
Segregated funds are essentially an investment fund wrapped with a smidge of life insurance and have a nice privacy garnish on top. Because of the insurance component, these segregated funds have guarantees and advantages that you can’t get from other investment funds.
They are also exclusively available from insurance companies, so you’ll need to touch base with a life insurance advisor agent to set one up.
Is a Segregated Fund More Efficient for Estate Transfer?
Is aAbsolutely. Like a life insurance contract, they have named beneficiaries with funds able to be passed on within weeks of someone’s expiry, instead of the months (or even years) for will-based assets. In fact, segregated funds bypass the whole probate process and related probate fees.
Wait, what on earth is probate?
Probate refers to the legal process of determining the authenticity of a will once you’re gone. It also grants your executor the authority to begin distributing your assets as per your indicated wishes. Unfortunately, probate can be a lengthy and often costly process (in British Columbia the fee is 1.4% on assets beyond $50,000). It can be weeks or months before an executor even applies for probate and another batch of weeks or months for the court to grant probate.
So, if you have assets that your lawyer and accountant say can flow outside your probated estate, you may want to consider segregated funds. The assets will go privately to your beneficiaries quickly and easily within weeks or your passing and the hassles and cost of probate will be avoided.
Here are a couple more benefits of segregated funds.
Do Segregated Funds Offer Creditor Protection?
Yes and no. Let’s say that just before you pass away you enter into a failed business venture and creditors start knocking at the door.
Obviously, this is not great.
The silver lining though is that due to the way segregated funds work, the money you’ve put into a segregated fund is most likely protected from creditors if you’ve named a family member as a beneficiary. This is especially helpful for self-employed professionals or small business owners as a way of “segregating” business and personal matters.
Are Segregated Funds Public or Private?
Are Segregated Funds Public or Private?No one likes having people (or the government) poking about in your loved ones’ estate after they’re gone which is why the privacy offered by segregated funds is so great.
Normally, mutual funds and other investments are put into the estate and then are subjected to being probated. When a will is probated it’s thereafter made visible as a matter of public record.
A segregated fund with a named beneficiary, on the other hand, doesn’t form part of the probatable estate. Instead, proceeds are quickly and privately paid out to the beneficiaries directly and without fanfare.
Hopefully, this article has addressed some of your estate planning questions and answers. A segregated fund is one of the best ways to help with estate planning and can make dealing with a loved one’s estate much less stressful.