GICs that Bypass Your Estate

There is over $555 billion in GIC assets held here in Canada, an amount that is steadily growing.

Guaranteed Interest Certificates (GICs) have their downfalls. Primarily that with today’s low interest rates, your buying power after interest goes down once you take inflation and taxes into account. Yet their security is still appealing to many retirees who aren’t worried about making money but instead want only to be sure that they won’t lose what they’ve built up.

The majority of these GIC assets are held by those already retired and due to the previous generation’s different views on debt and savings (plus the pensions that don’t exist anymore), many of these retirees will end up passing this money on to their kids and grandkids.

But what happens to this enormous amount of wealth once all of this GIC money is passed on? You guessed it, the tax man will stick their nose in for a piece of the action. And on top of probate taxes, there are numerous other estate related costs including legal, trustee and accounting fees that are often also charged on a percentage of the estate’s worth.

There is a good solution out there though – GIC investments that bypass the estate and go directly to your chosen beneficiaries. Often referred to as GIFs (Guaranteed Income Funds) instead of GICs, these estate efficient investments are sold by insurance companies and they allow one or more beneficiaries to be named to their accounts. They have some additional benefits too including potential protection from creditors, privacy (estate filings are public information in BC), and the money is paid quickly to the beneficiaries instead of being locked up for up to a year (or longer) in probate.

But in the end, the number one criterion for evaluating GIC/GIF offerings is still what rate they pay. Banks typically have the lowest rates out there; a quick scan today showed a three-year GIC pays roughly 1.5 per cent per year from any of the big banks.

Credit Unions typically have better GIC rates and the best I saw among the provincial credit unions was 2.6 per cent for a three-year term.

I then checked some GIF rates from common insurance providers and saw their three-year rate currently at 2.6 per cent as well, which makes them very competitive to the best rates out there. So, you can get all the added benefits of an estate bypassing, creditor proof GIC for the same top rates.

But that’s not all, there is one more big benefit of GIFs from certain insurance companies. Some also have a “graduated inheritance” beneficiary option that you can affix to your GIC account to pass on your money over time in the manner that you chose, without all of the time and money required to setup a complex trust. Stay tuned next week for more information on that unique option.

While not the right choice for all retirement plans, GICs still remain a big part of Canadian’s retirement savings. If you hold or are considering purchasing GICs, be sure to take a look at those issued by insurance companies for all of the added benefits they provide, as long as their rates are good too!