Accumulation Annuities (AA’s) vs. Guaranteed Interest Certificates (GIC’s)
Accumulation Annuities (AA’s) are an often over looked Estate Planning or Small Business Planning tool. They are an insurance industry guaranteed investment product that is very similar to banking industries Guaranteed Interest Certificate, but with two very desirable advantages.
The advantages come by the way of the AA having a named beneficiary. This means that upon the owner(s) death the funds in the AA are paid out to the person named as the beneficiary, just like as if it was a life insurance policy. Whereas the GIC would become part of the owner(s) Estate. The advantage to this is the beneficiary would receive the funds without lawyer or probate fees, while the funds in the GIC would be subject to both fees. Lawyers’ fees for handling an estate are typically three to five percent, and probate fees are currently set at one and a half percent.
Having a named beneficiary on the AA also offers the benefit of creditor protection in most cases, if certain conditions are met. Provincial insurance legislation in all provinces except Quebec, the annuity contract may not be seized by the policy holder’s creditors if the beneficiary is a married or common-law spouse, child, parent or grandparent of the life insured, or designated as an irrevocable beneficiary. An irrevocable beneficiary means that the policy holder cannot make any changes to the policy or contract without the consent of the irrevocable beneficiary. In Quebec the legislation states the beneficiary must be the married or the civil union spouse, or an ascendant or descendant of the policy holder, or designated as an irrevocable beneficiary. Designating a spouse in Quebec is deemed irrevocable unless otherwise stipulated.
There may be no protection if policyholder is different from the annuitant (life insured by the annuity) and the policyholder is the beneficiary. Also if the AA is entered into after the policyholder has been notified of being sued, or if the courts feel the AA is an attempt to secure money from a pending bankruptcy. Although Accumulation Annuities have advantages over GICs it is always recommended that you seek both financial and legal counsel to ensure they are the best option for you or your business.
Information in this article is not legal or financial advice:
The advice provided in this article is general advice only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this advice you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. You should not act or rely on any information in this article without consulting a qualified professional financial or legal adviser, as appropriate.
You may reach out to Raymond Knight at: [email protected].