 Estate Planning With Segregated Funds
Introduction
High probate fees (really probate tax), particularly in Ontario and British Columbia, have led to the increased use of probate avoidance tools. These include designation of beneficiaries of lie insurance, registered retirement savings plans, registered retirement income funds, pension plans and segregated funds, registration of property in joint tenancy and the use of trusts. This paper will focus on segregated funds. From the perspective of probate avoidance, segregated funds have the advantage of allowing the owner to designate a beneficiary, thereby enabling the asset to pass to the beneficiary outside the estate on the death of the owner. Since the funds do not form part of the estate, they are not available to the creditors and claimants of the deceased owner. This makes segregated funds excellent investment tools for people who are concerned about protecting their assets from the claims of creditors, both during life and on the death of the owner.
A major difficulty with using segregated funds for probate avoidance is that many people fail to fully appreciate the legal consequences of designating a beneficiary of the fund. In many circumstances, the intentions of the client are not carried out and it can also result in unintended income tax consequences.
Survivorship is one of the major themes of this article. One role of estate planners is to determine clients' intentions concerning the disposition of their property on death and then develop the esetate planning tools to carry out their intentions. Wills and estates lawyers ask clients a series of "what if" questions such as, "what if this beneficiary dies before you?" which leades to, "who will receive the deceased beneficiary's share?" The answers to these questions are very important to the clients. It is suggested that clients want the same results to apply to the devolution of their segregated funds.
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