Non-Registered Segregated Funds: A Comparison with Traditional Bank Investments
Estate planning is essential for a smooth transfer of assets to your beneficiaries. While traditional non-registered (non reg) investment accounts from the big banks (& Credit Unions too) – like mutual funds and GICs – are popular, non reg segregated investment fund accounts (“seg” funds), similar to mutual funds but offered by insurance companies, provide many unique benefits that can enhance your estate planning. Here’s a look at a few of these advantages.
Bypassing Probate
One key benefit of seg funds is their ability to bypass the probate process, even for non-registered accounts. This is possible because segregated funds are considered insurance products, for which beneficiaries can be named. You can’t do that with non-reg accounts at banks and Credit Unions (CU), so they are subject to probate, which can be lengthy and costly. In Ontario, an estate with non-reg accounts of $500,000 would pay $6,750 in probate fees. Upon the death of the accountholder, seg funds are transferred directly to the named beneficiaries. No probate fees. Bypassing probate accelerates asset distribution and preserves the value for beneficiaries.
Guaranteed Death Benefit
Seg funds come with a guaranteed death benefit, many ensuring up to 100% of the principal investment regardless of market performance. This guarantee provides financial security to beneficiaries, ensuring they receive a minimum predetermined amount while not limiting the upside if markets perform strongly. In contrast, the value of traditional bank & CU non-reg investments depends entirely on market conditions at the time of the investor’s death, which can result in lower payouts if the market performs poorly.
Ease of Management & Payout
Claiming seg fund benefits at time of a death is straightforward and typically much faster than the traditional probate process. Beneficiaries often receive the proceeds within a few weeks, providing timely financial support. Non-reg bank & CU investments can take months or even years to be distributed through an estate due to probate complexities.
Advantage: Your Heirs
Compared to traditional non-registered investments offered by the banks and Credit Unions, seg funds offer distinct estate planning advantages. By bypassing probate, guaranteeing death benefits, and facilitating ease of payout, seg funds can significantly benefit your heirs.
As a Financial Planning professional, Del works primarily with successful business owners, professionals, and retirees. His unique process will Organize, Simplify, and Optimize your financial life. If your current “plan” is actually just a collection of investments but no actual plan reach out to Del for a better perspective.
