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Segregated funds offer all the benefits of mutual fund investing – professional management, liquidity and diversification – and the added peace of mind of the potential for creditor protection. If you are a small business owner, or face personal liability in business, segregated funds may be for you.
Risky Business – Safeguarding Assets
Many small business owners have pledged some part of their personal assets in order to secure a loan for their business. In addition to pledging personal assets, many small business owners have not taken steps to protect uncommitted property. On top of having to face a potential business loss, small business owners must also deal with potentially losing some or all of their personal assets, whether it is their house, car, or funds earmarked for retirement.
Monies that have not been pledged as collateral may be protected against seizure by creditors through the purchase of segregated funds. Segregated funds are individual variable insurance contracts and may qualify for protection against the claims of creditors under provincial insurance laws. As an insurance product, segregated funds come with certain guarantees, such as a death benefit guarantee, a deposit maturity guarantee and ability for funds to by-pass estate on death; thereby avoiding probate (a family class beneficiary must be named). Segregated funds may qualify for protection from your creditors even in bankruptcy. Creditor protection may be available if the named Beneficiary of the funds is a spouse, parent, child or grandchild of the Annuitant or if the Beneficiary is named irrevocably.
Who Should Be Interested?
- Self-Employed Individuals
- Small Business Owners
How They Stack Up With Mutual Funds
In addition to offering creditor protection, segregated funds can offer the same growth potential of mutual funds as well as the extra benefits of deposit maturity and death benefit guarantees. Fund Management Expense Ratio (MER) fees may be slightly higher but there are comparable segregated fund choices available.
Segregated funds can be a useful tool for potential creditor protection. If you’re interested in protecting your hard-earned investments from creditors and building wealth outside your business, you should seek legal advice as to whether the protection would be available based on your personal circumstances. Your financial advisor can help you obtain this advice and assist you in making the right decision when it comes to segregated fund investing.