The Estate Wedge

An estate wedge is a planning strategy that can provide tangible solutions for your clients and provide you, as their Advisor, with an excellent opportunity to demonstrate your value.

As your clients age, their financial goals are likely to change and their focus may shift from asset accumulation and growth to estate preservation and wealth transition – an estate wedge can help in this scenario. The strategy involves allocating a portion of your client’s non-registered assets into a segregated fund contract, giving them more control over these assets from an estate planning perspective. This can result in several benefits, such as:

  • Contract owners maintain control over their assets
  • Payout options can be tailored to the needs of the estate – lump sum payments, annuity style settlement or a combination of these can be structured into the contract
  • Clients can employ strategies to address the issue of cognitive decline
  • Payouts are made directly to named beneficiaries following the death of the annuitant, bypassing probate if there is appropriate documentation and expediting the process of asset distribution
  • Distributions are not subject to the terms of the annuitant’s will, which provides privacy and lowers overall settlement costs

To put this strategy into practice, start by segmenting your book of business into clients who will soon need estate planning services (typically a 70-90 age bracket), and those who are likely to act as beneficiaries, executors and power of attorneys (typically a 50-65 age bracket). There is an opportunity to discuss estate planning with both groups.

For the older group of clients, ask them about their will, their executor, who their beneficiaries will be and what settlement option they think would work best for each beneficiary. For the younger client demographic, ask if their parents have a plan in place to simplify the transfer of assets, and if they themselves have any experience in executing a will. Once you have gathered some information, you can introduce the estate wedge as a method of simplifying the whole process and helping each group meet their specific estate planning objectives.

As an example, your client may advise that they have two beneficiaries and that, at death, they would like to provide an immediate payout of $100,000 to each beneficiary. This would identify the need for a $200,000 estate wedge. Your client might then choose a lump sum payment for one beneficiary, and an annuity settlement payment for the other. This can easily be structured into the estate wedge, providing the client with peace of mind around this segment of assets. In the meantime, the assets can remain liquid and can continue to grow in a portfolio that can hold a combination of equity and fixed income funds.

To maximize tax efficiency when implementing the estate wedge, focus on transferring assets that have a value that is close to their Adjusted Cost Base (ACB), or proceeds from year-end tax-loss selling. It might also be an option to divert RRIF payments, maturing GICs or the proceeds from the sale of a property, into an estate wedge.

To summarize, the estate wedge is easy to introduce and implement for your clients, and it can provide real value. It could also open the door to referrals when clients see how useful and flexible the strategy can be.

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The Estate Wedge – Your Peace of Mind Option