Don’t Leave a Lump Sum of Money

You’ve worked all your life to save for retirement. Now, you’ve found that your not going to be able to spend it all, or worse, you are afraid to spend your money. You’re saving it for your children.

But there is a bigger problem. One child may not be capable of receiving a large lump sum of money if you die. This may be due to inability to manage money, his personal situation or mental health issues.

Your plan for your child may be to pay out income for five or ten years or for their lifetime. But, how do you do this when you die?

One alternative is to set-up a trust. The trust then pays out your child in accordance to the trust by a named trustee. This can be very costly and time consuming.

There is an alternative. It is a wealth transfer option available to Canadians, which is simple and flexible. It is called to annuity settlement option.

Heres an example of how it works. Rita and Richard invest $400,000 into a Guaranteed Investment Fund with a life insurance company. They have complete flexibility and control over the money while they are alive. They don’t want their son Sam to have a lump sum as they are worried about his ability to manage money and prefer to have it paid out over time.

After discussing the situation, they select a 15 year payout to Sam as he is the beneficiary. The insurance company automatically does this when they die. It gives Rita and Richard control in which the assets today and use the money as they wish.

The remaining balance is paid out to Sam over 15 years equally and can be paid monthly or annually. It also avoids probate fees, legal and executors fees, sales charges or estate fees. The insurance company simply invests it and pays out principal and interest over 15 years, its that simple. It may eliminate the need for a trust and ensures Sam will not receive a lump sum. It can provide parents with disabled children an estate planning tool, as it allows you to make changes to beneficiaries and settlement options quickly and without fees.

The plan can ensure children and grandchildren receive income over time rather than a lump sum.

It is a commonly used estate planning tool that can be incorporated into your estate plan where you foresee problems with a child and money.

Written by Grant Hicks

Grant Hicks, C.I.M., FCSI is a professional speaker, co-author and a Retirement Planning Specialist with Manulife Securities and Hicks Financial. A leader in the financial industry, Grant has been helping Vancouver Island residents plan and create their retirement lifestyles since 1989.

One Response to Don’t Leave a Lump Sum of Money

  1. my trust co. is instructed to look after my estate which consists of a comertial rental property and money invested in stocks.ihave one daughter and she has 4 children.apon my passing daughter will recieve a monthly incme from my investments for the rest of her life and her chldren will recieve whatever is in the trust after she psses on, the children dont become ellagable until their 50th birthday

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