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Growth. Security.
Finding an investment with the right combination of both can be a challenge—which is why you should learn about segregated funds.
Benefits of Segregated Funds
Estate planning
Many people don't realize that probate is a public process and can cost a significant amount of money. Segregated fund assets can be paid directly to your named beneficiary, thus avoiding the cost and complications of probate. By avoiding probate, you keep your financial affairs private and more of your proceeds pass directly to your named beneficiaries.
Taxation
Taxation issues such as how segregated funds are taxed at maturity, at death and during the course of the contract can be complex. To help you understand them better, here are some basics
Annual Tax Treatment: Mutual Funds vs. Segregated Funds
In many ways, taxation of segregated funds is similar to that of mutual funds. However, there are many notable differences that may benefit you.
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Mutual funds |
Segregated funds |
| Income Allocations |
Distribute and reinvest income earned by the funds (interest, dividends, foreign income, capital gains and capital losses) to unit holders.
May not be able to eliminate double taxation when contractholders surrender their interest in the fund throughout the year.
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Allocate income (interest, dividends, foreign income, capital gains and capital losses) to contractholders¹. An allocation does not result in an increase in units and corresponding drop in price.
Avoids double taxation that may arise when contractholders surrender their interest in the fund throughout the year.
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| Flow through capital losses |
Can only distribute net capital gains (not losses) to unit holders. Net capital losses will be carried forward within the fund to apply against future capital gains.
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Ability to flow through net capital losses as well as net gains to contract-holders. The result is the client can choose when to claim capital losses rather than the fund. These losses can be carried back three years or carried forward to future years.
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| Tax administration and reporting |
Unit holders required to maintain own tax information for annual tax filings.
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Tax information is tracked and reported by the insurer on behalf of the contractholder, simplifying the annual tax-filing process.
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1 Contractholder refers to the owner of the contract and may be different from the annuitant for non-registered contracts. Annuitant refers to the person on whose life the guarantees and annuity payments are based.
This summary has been prepared to help you make the most of investment opportunities available through RBC Guaranteed Investment Funds. Other summaries include: The Benefits of Segregated Funds, Creditor
Protection, Estate Planning and Consumer Protection. Please contact your advisor to obtain copies.
Potential creditor protection
Are you concerned with protecting your money in case of a possible future bankruptcy, however unlikely this may be? As an insurance contract, assets held in your RBC Guaranteed Investment Funds may be protected from creditors in the event of a bankruptcy. Under provincial laws, the interests of insurance beneficiaries may override the claims of creditors. You should consult your advisor about your individual circumstances.
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