There are some things that you
should just try to avoid at all costs. For one: Brussels sprouts, those little
cabbage looking things that your mother told you to eat, and supposedly are
good for you. Fiber and protein are good, however it’s that funny texture and
odd aroma that gets me. Too bad some retirement investments didn’t come with an
odd smell that would ward off unsuspecting baby boomers. I’m referring in
particular to one aspect of a Mutual Fund which most investors are simply
unaware… Your Estate.
The question that you should ask
is “If I predecease my spouse, what path
will the proceeds in my RRSP “Mutual Fund” take?” The answer may surprise
you, as it does most people. Let’s say you have a mutual fund and you use it as
your retirement savings. You have named a beneficiary- say your husband or your
wife. Let’s also say you are 60 years old, even though you look younger. At
your death, the mutual fund becomes part of your estate regardless to whom you
stated as your beneficiary.
Your estate is a legal entity which is created upon
your death, and all assets personally owned become part of your estate. Depending on the size of your estate, many factors start to come
into play. A lawyer may be needed as well as an accountant. Your executor may
also be involved, and maybe even a judge. Hopefully, your will is up to date as
your will becomes your voice around this table.
If your will is contested, or if
someone is suing you at the time of your death, the cost of settling the estate
increases. Lawyers, accountants, and even the executor need to be paid for
their time. But eventually the dust will settle. With good luck, the Mutual
Fund remains intact, and the named beneficiary is awarded the money through
revenue Canada’s 60J rollover. However the estate also has an obligation to
settle the estate first and the beneficiary becomes a second payer, if others
need to be paid. In fact, if there is no money left, the beneficiary is out
of luck.
So, how do you avoid your estate
and guarantee your beneficiary their due?
Avoid buying a Mutual Fund, and invest in a Segregated fund as an
alternative. A segregated fund is
contractually different than a Mutual Fund in several ways. One distinct
feature is the insurance component. At death, a segregated fund is paid
directly to the beneficiary, period. No estate, no lawyers, no accountants, no
judge.
People work hard enough for
their money. Avoiding your estate is the art of dying neatly. The small cost involved
in proper planning, may avoid a great deal of pain. A recommendation may be to
take the time to plan properly, avoid your estate when you can, and only eat
Brussels sprouts at your mothers. This way everyone stays happy… except you,
cause you’re dead.
If you are in Nova Scotia and would like
some insurance advice, please contact Corry Collins:
902-444-7000
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