Tom and Sharon have been together for about 8 years. This is a second marriage for both of them. Tom is semi-retired; Sharon is a retired schoolteacher. The couple are both wary investors; they still feel the pain of the big market correction in 2008–09. They moved their investments to segregated funds for the insurance guarantees including the ability to reset the minimum guarantees based on the growth on their investments. These benefits offer them peace of mind. Tom had much of his savings in a Registered Retirement Savings Plan (RRSP) and is now in the process of converting it into a Registered Retirement Income Fund (RRIF). He and Sharon are concerned about cancellation charges and setup fees. They want any benefits Tom gets to be passed on to Sharon. They both want the RRIF to be easy to manage on transition from Tom to Sharon in the event that he predeceases her.
What can they do?
Tom can base the payment stream of the RRIF using Sharon’s age. Tom would get more flexibility that way because the required minimum payment would be lower if Sharon is younger than Tom. Alternatively, he can appoint Sharon as successor annuitant of his RRIF directly with the insurance company at any time before he passes away. Should Tom predecease Sharon, she becomes the annuitant and contract owner. The contract will continue with no death benefit payable at that time. Any pending benefits like resetting minimum guarantees or maturity benefits will continue uninterrupted. The retirement income payments will continue to Sharon. Alternatively, Sharon may make changes to the investments or payment stream if she chooses. Unlike RRIFs invested in mutual funds, Tom cannot appoint Sharon as successor annuitant in his will if he wants the plan structure and benefits to transition to Sharon.
Please keep in mind, that if the underlying product is a guaranteed withdrawal benefit plan like Empire Life’s Class Plus 3.0, when the successor annuitant takes over the contract a reset of the death benefit (if the successor annuitant is less than 80 years old), the income base, and the guaranteed income takes place. The guaranteed income available from the contract could increase or decrease as a result of these resets.
© 2020 by Peter A Wouters. Republished with permission by Peter A Wouters. For the complete list of articles, please visit here.
A description of the key features of the individual variable insurance contract is contained in the Information Folder for the product being considered. Any amount that is allocated to a Segregated Fund is invested at the risk of the contract owner and may increase or decrease in value. Please read the information folder, contract and fund facts before investing. Performance histories are not indicative of future performance. Policies are issued by The Empire Life Insurance Company.
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