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Wealth Update – Can Too Much Probate Be Avoided?

We have spent a great deal of time promoting the beneficial properties of insurance company investments, but have we gone too far?

As a reminder, the main beneficial properties of insurance company investments (annuities, GIAs, segregated funds) are:

• Potential creditor protection.

• Capital loss reporting.

• ACB tracking.

• Naming of beneficiaries on non-registered accounts.

• Probate avoidance.

Let’s focus on the last bullet, probate avoidance. Probating a will is not a bad thing but a necessary thing. Without having the will probated, no assets can transfer to the beneficiaries named in the will. In particular, a home or cottage.

Consider the situation where you’ve maximized probate avoidance. You’ve done such a good job that no liquid assets are going to flow through the estate. And now the unfortunate happens, and your client passes away.

When the executor of the estate begins to settle debts and taxes, they discover there is no money in the estate. How will they pay off those debts and final taxes? Now, the beneficiaries of the estate could be responsible for some of the debts and taxes owing. For sure, CRA will be asking the beneficiaries to settle any taxes owed on RRSPs and RRIFs. Moreover, the executor may have to sell some hard assets to cover these expenses and taxes.

So here is a thought for your consideration, perhaps help clients make sure there is some money in their estate for the purposes of settling debts, taxes, final expenses etc. This can be easily achieved by naming the estate as one of the beneficiaries of the contract. Perhaps 10% to the estate and 90% to beneficiaries?

By the way, part of a life insurance death benefit could be directed to the estate too.

As always, we look forward to your comments.

Scott Edgington, CEA

Director, Advanced Planning, Wealth

Qualified Financial Services

Jim Lyons

Regional Vice President, Business Development - Wealth

Qualified Financial Services


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