# Seg Fund Advice



## 30seconds (Jan 11, 2014)

My grandmother recently sold her house and now has 400K in a non registered savings account and my parents are looking to find what to do with it. The account is in trust to my father.

Sun life offered them a seg fund as an investment for this money. Unfortunately I do not have the exact details of the the fund that was offered at the moment but if that is required I can get it. 

From what I have read seg funds are good if you are trying to protect money from creditors and to avoid probate fees as well as have access to the money quicker at the time of death. I guess the only thing of interest to me that the Seg funds offer are avoiding probate fees. 

With the markets being so volatile I think the money should be put into a GIC as she already has enough exposure to the market and it is better to preserve capital at this point in time. There is enough money to cover any costs that occur because of her death so the speed of get the money is not that important. 

Any suggestions on what to do?


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## OhGreatGuru (May 24, 2009)

Seg funds have very high fees, because you are basically buying an insurance contract along with the investment. As you suggest, they are mainly of use in estate planning, to pass on assets to an heir. But you can do the same by buying a simple insurance policy.

Depending on your mother's age and health, and her estate wishes, you might look into life annuities.


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## 30seconds (Jan 11, 2014)

She is 89, lives with my family and has a pension so living expenses is not to much of a concern. We are more so looking for the best way to protect the money that is in the non registered account.


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## OnlyMyOpinion (Sep 1, 2013)

Well it would have to be her decision of course, but if she is the one worried about probate fees, she could gift/give the money or some portion of it to her son right now. It will no longer be hers, no longer part of her estate and no longer subject to probate fees. Trying to save on probate fees should not be driving her to consider vehicles like seg funds in any event.


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## humble_pie (Jun 7, 2009)

i know very little about seg funds, but i'd always thought they were primarily a way to protect against taxable capital gains in the final year-of-death tax return of a deceased person? that they function, as Guru says, something like an insurance policy?

if this is true, then a long period of gains buildup would be called for. Multiple years. This length of time does not seem to apply here, nor would a recent $400k portfolio invested in GICs have any capital gains.

re gifting, it's a good idea but i believe the CRA looks back 3 years from the year-of-death tax return to see whether any large gifts had suddenly been made & if so, could disallow these? on the other hand, small gifts made at intervals would probably work OK.

30seconds, you do know of course, that Sun Life & every other financial product vendor out there is going to have *the* perfect investment to pitch to your family. Since you mention your grandmother already has exposure to stock markets, imho it makes good sense to place the funds in fairly short term HISA or GIC vehicles, exactly as you are mentioning. With $400k you could build a ladder.

it's too bad there are not glowing opportunities out there for conservative situations these days. But it is what it is. Good on you for recognizing that keeping things short & simple is best.


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## OptsyEagle (Nov 29, 2009)

Not sure what you mean when you say the account is "in trust" to your father. If he is the only heir then it makes things quite simple. Set up a fully guaranteed, staggered maturity, GIC account with your father and grandmother as joint owners. You never need to worry about volatility and the money will NOT go through the estate upon death or garner any probate fees. The money will be immediately available to the joint owner, upon death, by simply presenting a certificate of death to the financial institution.

Seg funds will subject your grandmother to volatility and are hard to find with a 100% maturity or death benefit guarantee for someone who is 89 years old. They also come with significantly higher fees. They do not avoid capital gains taxes and are not considered an insurance death benefit at death. They have death benefit features like a beneficiary election that can avoid probate, but none of them allow the owner to avoid taxation while alive or at death.


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## Eclectic12 (Oct 20, 2010)

humble_pie said:


> i know very little about seg funds, but i'd always thought they were primarily a way to protect against taxable capital gains in the final year-of-death tax return of a deceased person?


Another top reason to own a seg fund is that there is usually a set guarantee (maturity or by the owner) which protects the value. Where the holder dies when FMV is below the guarantee amount, the financial provider has to pony up the extra $$$ to the proceeds to hit the guaranteed amount.

http://www.rbcinsurance.com/service...s&ProspectID=89E0850C7340437FB1004D32ECDC84D8
http://www.investopedia.com/ask/answers/06/segfundsvsmutualfunds.asp
http://www.theglobeandmail.com/report-on-business/mutual-funds-seg-funds/article1134525/

The providers are not in the business to lose money so that guarantee comes at a cost.




humble_pie said:


> re gifting, it's a good idea but i believe the CRA looks back 3 years from the year-of-death tax return to see whether any large gifts had suddenly been made & if so, could disallow these?


This is the first I have heard of this. The tax book I had years ago simply commented that one should get a letter from the giver, spelling out that it was a gift and the amount. The potential issue was that without proper documentation for the source, CRA could suspect large $$$ was the tax payer hiding taxable income by claiming it was a bogus gift.




humble_pie said:


> it's too bad there are not glowing opportunities out there for conservative situations these days. But it is what it is. Good on you for recognizing that keeping things short & simple is best.


The main thing I can think of is to ensure a TFSA has been setup with the appropriate beneficiary being named. With other stock exposure, this might have already been taken care of.


Cheers


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## kcowan (Jul 1, 2010)

I think you will find that the probate fees are insignificant when compared to the costs of setting up segregated funds. And the cost of the insurance component will be outrageous given her advanced age.


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## OhGreatGuru (May 24, 2009)

Age 89 is late to be investing in anything other than fixed income, and too late for annuities to be worthwhile.

Joint wros GIC's with the person (or persons) to whom she intends to bequeath the money are a very simple way to pass money outside of probate. She will still receive the income until death. But the bank will transfer sole ownership to the survivor on presentation of a Death Certificate: and usually allow the GIC to be cashed at that time without penalty (though you should check this latter before buying).


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## OptsyEagle (Nov 29, 2009)

OhGreatGuru said:


> But the bank will transfer sole ownership to the survivor on presentation of a Death Certificate: and usually allow the GIC to be cashed at that time without penalty (though you should check this latter before buying).


Actually, they will probably find that with a jointly owned GIC, the bank will NOT cash a non-cashable GIC upon the death of one of the owners. Something to look into and think about, when deciding on the term of the deposits.


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## hboy43 (May 10, 2009)

Maybe I don't understand the situation exactly, but it seems to me that your grandmother has oodles of money. In which case I would suggest the $400k ought to be invested as per the heirs asset allocation needs, in which case GICs might not be the right thing.


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## 30seconds (Jan 11, 2014)

OptsyEagle said:


> Not sure what you mean when you say the account is "in trust" to your father. If he is the only heir then it makes things quite simple. Set up a fully guaranteed, staggered maturity, GIC account with your father and grandmother as joint owners. You never need to worry about volatility and the money will NOT go through the estate upon death or garner any probate fees. The money will be immediately available to the joint owner, upon death, by simply presenting a certificate of death to the financial institution.





> "Actually, they will probably find that with a jointly owned GIC, the bank will NOT cash a non-cashable GIC upon the death of one of the owners. Something to look into and think about, when deciding on the term of the deposits."


He has three siblings but from my understanding this is how it is set up under his name, since she is unable to manage her accounts due to her health. With that said I guess there is less to worry about and all that matters is how they (all the children of my grandmother) agree to how the money is invested.. or just stick it in a GIC and let the money be dispersed when the time of death comes. 



> Maybe I don't understand the situation exactly, but it seems to me that your grandmother has oodles of money. In which case I would suggest the $400k ought to be invested as per the heirs asset allocation needs, in which case GICs might not be the right thing.


She definitely doesn't have tons of money but was smart enough to save enough money to not die broke and having a pension definitely helps. The money we are talking about came from the sale of her primary residence. 

I mentioned gifting this money to the siblings but that didn't seem like it was a good option. It can be more difficult to talk about these things for some then others and that is obviously respected. 

So to sum everything up, as long as the money is set up properly in Joint Tenants with Right of Survivorship account then we shouldn't have to much of a problem accessing the money. As for investment type, a seg fund is defiantly not the right choice and a GIC would make the most sense while keeping everyone happy. We must consider the term of the GIC as these wont be sold if in a joint account so it will take that number of years to access the money.


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## humble_pie (Jun 7, 2009)

OptsyEagle said:


> Seg funds ... come with significantly higher fees. They do not avoid capital gains taxes and are not considered an insurance death benefit at death. They have death benefit features like a beneficiary election that can avoid probate, but none of them allow the owner to avoid taxation while alive or at death.



thanx very much for clearing that up


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## Eclectic12 (Oct 20, 2010)

30seconds said:


> ... I mentioned gifting this money to the siblings but that didn't seem like it was a good option. It can be more difficult to talk about these things for some then others and that is obviously respected.


Hmmm ... do you mean she was not willing to do this?
Or the recipients are in a much higher tax level than hers?


Mom and before than, Mom and Dad, have been doling out post-tax dollars over the years at various points to:
a) help us kids out when the need is there.
b) avoid a ton of assets in the final tax return.

It helps that half of us are financially responsible.


Cheers


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## dogleg1 (Jul 4, 2016)

kcowan said:


> I think you will find that the probate fees are insignificant when compared to the costs of setting up segregated funds. And the cost of the insurance component will be outrageous given her advanced age.


Hey Keith: Am I right about this? I have some Pfizer shares, if I cash them in I pay CRA capital gains...now is that' free' money in my account just like TFSA and would only be counted as probate value.? Could I gift it to my kids without tax implications? Thanks. I am really over my head with all these rules.


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## kcowan (Jul 1, 2010)

Yes and yes.


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