by Staff, AdvisorAnalyst.com
What is an estate wedge? An 'estate wedge' is an estate planning strategy can provide a lot of value for your clients, and provide you as an advisor with a great opportunity to showcase your expertise.
The best financial advisors put all the options on the table for their clients. Clients must be educated about the options in order to make smart, educated decisions.
An "estate wedge" is one of these options. It is such a valuable solution that it will help you to establish a great bond and trust with your clients. It's incumbent upon you however, and its best if you go out of your way to be the first to inform them about the potential value of this option for their personal estate. Think of it as a race to get the word out.
For example, older clients who are preparing for their future can name beneficiaries while they are still of sound mind. This offers significant value-add because powers of attorney (POA) cannot do so due to a conflict of interest.
However, using the 'estate wedge', a POA can direct assets such as home sale proceeds from an elderly parent into an existing seg fund (segregated funds, i.e. GIFs) contract to help achieve estate planning objectives.
As your clients get older, their financial goals may change to include estate preservation and wealth transfer. A new goal may include estate planning and wealth transfer. In this scenario, an estate wedge can help you.
One of the keys to estate planning is in allocating non-registered assets into a segregated fund contract, which besides being the basis for this strategy, also provide a protective floor against investment downside risk against the value of the invested assets. It gives your clients more control over their assets when it comes to estate planning and the transfer of their wealth.
This can result in several benefits, such as:
• The owners of the segregated fund contracts maintain control over their assets
• The payout options for an estate can be customized to meet the needs of the estate and family. A lump sum payment, annuity-style settlement, or a combination of both can be structured into the contract.
• Clients can implement strategies to cope with the issue of cognitive decline.
• When you die, your payout goes directly and rapidly to named beneficiaries without any probate. The process of distributing your assets is fast because there are no legal hurdles to jump through.
• When a policy owner passes away, the proceeds from his or her life insurance policy are not subject to the terms of his or her will. This provides privacy and lowers overall settlement costs.
To get the process under way, start by segmenting your clients by age groups. One way to spur a conversation pathway to talking with your clients about estate planning can be as easy as planning a seminar, with the help of subject matter experts and estate planners, for the 50-65 age bracket segment of your clients and invite the 70-90 year olds as well. You can also try to segment your clients according to needs such as, those who will need estate planning services soon and those who may need such services as executors or beneficiaries. This gives you an opportunity to discuss estate planning across both groups. A seminar could be a way to get the conversation started, especially if you're not quite comfortable with broaching the topic just yet.
Who do you want to take care of after you die?
These kinds of questions can be awkward at first, so here are some ways to get the snowball rolling down the hill. When a client turns 60, 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 millennials, ask if their parents have a plan in place to make it easy to transfer assets when they die. Ask them if they are they familiar with the process of creating and executing a will? See where it takes you.
Once you have a general idea about the client's estate, you can then introduce the "estate wedge" method. This will help simplify the process and meet their specific estate planning objectives.
As a case study example, a client may advise you they have two beneficiaries and that, when they are gone, they would like to provide each with an immediate payout of $100,000 to each beneficiary. To put it simply, this would identify a requirement for a $200,000 estate wedge.
For instance, This client may decide to have you settle their estate in lump sum payments 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 segmentation of assets and the different ways they can structure payouts and distributions.
One of the major benefits is that the assets can remain invested or liquid and may also continue to grow in a portfolio that can invest in a combination of segregated equity and fixed income funds. And by the way, there are a vast number of extremely well managed seg funds in the market today.
To maximize tax efficiency when implementing an estate wedge, one valuable tip is to focus on transferring assets that have a value that is around or near their Adjusted Cost Base (ACB), or alternatively are the proceeds from year-end tax-loss selling.
It might also be an opportunity or provide the optionality of allowing for the diversion of RRIF payments, maturing Guaranteed Investment Certificates, or the proceeds from the disposition of a property, into the 'estate wedge.'
In a nutshell, the 'estate wedge' strategy is simple to introduce and use for your clients, and it can create provide enormous value. It is one of those nifty ideas that could also effectively pave the way to referrals when clients see how flexible and useful this strategy can be - it creates a 'Wow!' factor, that clients take with them.