Your financial goals will change throughout the course of your life and the focus will eventually shift from asset accumulation and growth (saving! saving! saving!) to estate preservation and wealth transition (enjoying the sweet fruits of your labour). An estate wedge is a planning strategy that can help you with this shift from accumulation to estate planning.
The strategy involves allocating a portion of your non-registered assets into a segregated fund contract, giving you more control over these assets from an estate planning perspective. This can result in several benefits, such as:
- You maintain full control over your assets
- Payout options can be tailored to the needs of your estate including lump sum payments, annuity style settlement or a combination, which can be structured directly into your contract
- You can employ strategies to address the issue of cognitive decline
- Payouts are made directly to your named beneficiaries when you pass – these payouts should bypass probate with appropriate documentation and expedite the process of distributing assets
- Distributions are not subject to your will, which provides privacy and lowers overall settlement costs
If you’re contemplating your assets at retirement, you should also consider your will, select your executor, choose your beneficiaries and decide on which settlement option would work best for each of those beneficiaries. If you are still far from retirement but perhaps have aging parents, now might be a good time to consider whether your parents have a plan in place to simplify the transfer of their assets, and if you yourself have any experience in executing a will. Whichever scenario you find yourself in, you can give all of these factors some thought and review your options to see whether an estate wedge can simplify the whole process and help you meet your specific estate planning objectives.
Here is an example. You’ve selected two beneficiaries and at death, prefer an immediate payout of $100,000 to each. This would identify the need for a $200,000 estate wedge. You now have the option to choose a lump sum payment for one beneficiary and an annuity settlement payment for the other; all of this can be easily structured into the estate wedge, providing you with peace of mind knowing your assets are going to whom you want and how you want them to be delivered. And in the meantime, your assets can remain liquid and can continue to grow in a portfolio that can hold a combination of equity and fixed income funds.
There are various options for the timing and type of asset to divert into an estate wedge, which you can discuss with your advisor.
The estate wedge is not only easy to implement, it can also provide you with real value and peace of mind that is priceless.