Skip to Main Content

The Estate Wedge: A New Way to Build Value

Richard Poulin reveals the "estate wedge" strategy Advisors have been missing all along - with practical tips on how to implement.

July 2021

Photo of Richard Poulin

Richard Poulin

Director, Intermediary Distribution, Niagara

Read bio

Advisors looking to expand their business and bring meaningful, value-add solutions to their clients should look to the “estate wedge” strategy, according to Richard Poulin, Director, Intermediary Distribution, Niagara, who outlines how to make this a reality by building awareness and taking a targeted approach to client segmentation.

Playing offense and defense

Business growth for Advisors isn’t just about prospecting, or playing offense, particularly in this socially-distanced environment. It’s also about digging deeper with existing clients and enriching your relationships, or in other words, defense. An “estate wedge” is a simple estate planning strategy that allows you to accomplish both from within your practice – adding tremendous value to your toolbox.

How does it work? As a sleeve within a non-registered account, it’s similar to a cash wedge – which is used as a means for drawing income during retirement – in the sense that it allows clients to park assets. But the end result for an estate wedge is ultimately different, as assets are allocated to segregated (seg) funds to help achieve estate goals, and protect against potentially compromising scenarios such as cognitive decline. Seg funds – which mitigate downside risk by providing a hard floor on investment returns regardless of market environment – offer up several estate planning benefits for your clients, including by-passing a long and expensive probate process, multiple settlement options and the quick and private distribution of assets to named beneficiaries.

At the same time, here’s what it boils down to for your business:

  • Generate referrals
  • Gather new assets
  • Increase revenue
  • Strengthen relationships

Opening the door to opportunities

I’ve worked with many successful Advisors who feel a fiduciary duty to put all the planning options on the table so clients can make a smart, educated decision. An estate wedge is one of these options, and being the first to inform them about its potential value to their personal estate goes a long way to establishing – and engendering – trust for the long-term. For instance, aging clients taking advantage of this preparative strategy are able to name beneficiaries while they are still of sound mind, which offers significant value-add, since powers of attorney (POA) are unable to do so due to a conflict of interest. However, with the estate wedge, a POA can easily direct assets such as home sale proceeds from an elderly parent into an existing seg fund contract to help achieve estate planning objectives.

7 client benefits to highlight in conversations:

  • Quick payouts to beneficiaries
  • Assets remain liquid and within control of the contract owner
  • No probate process following the death of annuitant
  • Distribution of assets remain private (not subject to will)
  • Planning to protect against negative effects of cognitive decline
  • Various payout options to meet estate goals (lump sum and/or installments)
  • Reduction of assets that flow to the estate, lowering overall settlement costs

Aside from those clients aged 70-90 who would clearly benefit from estate planning strategies, there’s also an untapped referral stream to explore through the pre-retirees in your book. Think about those clients who are beneficiaries and executors of their parents’ estate, or POA. Perhaps their parents live in a different city, don’t have a financial Advisor of their own, or have assets scattered among many different financial institutions. Not only would you make your existing clients’ lives easier by streamlining the estate settlement process through someone they trust – thereby deepening the relationship – you’d also benefit from a referral to the older generation, bringing more assets and revenue into your business. It’s an effective strategy that works seamlessly through the organic mining of your book. Simply integrating the question, “do you expect to receive an inheritance?” into a regular financial plan update unlocks the door to new possibilities.

Steps to easily implement an estate wedge strategy:

  1. Segment your book: Separate between those clients who require estate planning services now versus the beneficiaries, executors, or POAs, of a will (a potential new referral source). The former group generally falls in the 70 to 90 age-range, while the latter is typically between 50 to 65 years old. This will help to establish a more targeted approach and a disciplined process going forward.
  2. Go on a fact-finding mission: For annuitants, dig deeper and take the time to review aspects of their estate plan, and ask specific questions: (Pro Tip: consider elderly widowed clients as a starting point) Who is the executor of your will? Who are your beneficiaries and what settlement options make the most sense for them? Are there any health concerns, and do you have a POA in place? If so, who have you entrusted? Once these questions are answered, you can look to align their portfolios to better achieve their estate planning goals, and ensure their assets are transferred to the next generation as quickly, cleanly and privately as possible. For the younger demographic, get a sense of what their financial acumen is: Have your parents made a plan for you to easily access their assets? Do you have any experience with executing a will?
  3. Maximize the opportunities: For example, a client who has given you a referral to an aged and widowed parent with $750,000 in assets could translate into $75,000 in revenue over 10 years – and immeasurable value-add to your existing relationship through a simplified estate settlement process.

Choosing the right structure for your client

Ideally, as a starting point, an estate wedge should comprise of anywhere between 20%-50% (or more) of an overall client portfolio and potentially increase over time as a client ages, to minimize assets subject to the probate process. As a next step, Advisors should consider asking the annuitant how much they want to pay out, and to how many beneficiaries.

Client Portfolio

Client Portfolio

If, for example, a client has $1 million in a non-registered account, and three beneficiaries, the question to pose is: how much would you like them to receive and how soon? If they want to give $100,000 within two weeks of the annuitant’s death, that translates into a 30% estate wedge within the overall portfolio. Some clients may choose a lump sum payout option, while others may opt for installments paid out over a specific duration (annuity settlement), or even select a combination of the two. Either way, these funds will remain liquid, within the control of the contract owner, and continue to grow steadily, with investment strategies ranging from 100% fixed income to 100% equity.

To minimize taxes when implementing the estate wedge, consider moving client assets that are close to their Adjusted Cost Base (ACB), or proceeds from regular year-end tax-loss selling initiatives. It may also be a question of diverting excess Registered Retirement Income Funds (RRIF) payments, consolidating maturing GICs, or even proceeds from the sale of a home or cottage, into an estate wedge.

BMO Guaranteed Investment Funds (GIFs) feature additional advantages, including competitive, “mutual fund pricing” – making it possible for clients to avoid overpaying for insurance in their latter years. On top of this, they can leverage different guarantee levels depending on their risk tolerance to suit unique needs. There are also actively managed balanced and income options, which remove the burden of rebalancing decisions at a time when many clients prefer to have their portfolio run on autopilot.

Winning the long game

In the current environment, where a traditional breakfast seminar or a face-to-face meeting are few and far between, now is as good a time as ever to start looking at the gaps in client portfolios and ask the questions that matter most. Through a simple, targeted approach, implementing an estate wedge strategy in your practice could go a long way to securing client goals and bringing them peace of mind in their golden years. At the same time, it provides a golden opportunity for you to grow your business, continue to add value for clients – and maintain deep, lasting relationships.

For more innovative ideas to enhance your practice, and build a robust portfolio, contact your BMO Global Asset Management Regional Sales Representative.

To learn more on our full suite of BMO GIF investment strategies, click here.

BMO Global Asset Management Disclosures:

BMO Global Asset Management is a brand name that comprises BMO Asset Management Inc., BMO Investments Inc., BMO Asset Management Corp., BMO Asset Management Limited and BMO’s specialized investment management firms.

®/™Registered trade-marks/trade-mark of Bank of Montreal, used under license.

Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent simplified prospectus.

This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance. The testimonial(s) in this article may not be representative of the experience of other people/advisors. The testimonials are no guarantee of future performance or success. These are solicited testimonials.

Commissions, management fees and expenses (if applicable) all may be associated with investments in mutual funds. Please read the fund facts before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Distributions are not guaranteed and are subject to change and/or elimination. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns.

For a summary of the risks of an investment in BMO Mutual Funds, please see the specific risks set out in the prospectus.

BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.

BMO Life Assurance Company is the issuer of the BMO Segregated Funds individual variable insurance contract referred to in the Information Folder and the guarantor of any guarantee provisions therein. The BMO GIF Information Folder and Policy Provisions provide full details and govern in all cases. BMO GIF products are offered through BMO Life Assurance, a separate legal entity than BMO Global Asset Management and wholly owned by BMO Financial Group. Segregated funds are only available for sale by individuals with appropriate insurance licences and are not considered a mutual fund. Segregated fund fees are higher than mutual funds as they include insurance fees to provide for the guarantees on deposits at maturity or on death.

®/™Registered trade-marks/trade-mark of Bank of Montreal, used under licence.

BMO Global Asset Management is the brand name for various affiliated entities of BMO Financial Group that provide investment management, and trust and custody services. BMO Global Asset Management comprises BMO Asset Management Inc., BMO Investments Inc., and BMO Asset Management Corp. Certain of the products and services offered under the brand name, BMO Global Asset Management are designed specifically for various categories of investors in a number of different countries and regions and may not be available to all investors. Products and services are only offered to such investors in those countries and regions in accordance with applicable laws and regulations. BMO Financial Group is a service mark of Bank of Montreal (BMO).

BMO ETFs are managed and administered by BMO Asset Management Inc., an investment fund manager and portfolio manager and separate legal entity from Bank of Montreal. Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the prospectus before investing.

Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated.

BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.

Commissions, trailing commissions (if applicable), management fees and expenses all may be associated with mutual fund investments. Please read the ETF facts, fund facts or prospectus of the relevant mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

For a summary of the risks of an investment in the BMO Mutual Funds, please see the specific risks set out in the prospectus. ETF Series of the BMO Mutual Funds trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.

BMO Life Assurance Company is the issuer of the BMO Segregated Funds individual variable insurance contract referred to in the Information Folder and the guarantor of any guarantee provisions therein. The BMO GIF Information Folder and Policy Provisions provide full details and govern in all cases. BMO GIF products are offered through BMO Life Assurance, a separate legal entity than BMO Global Asset Management and wholly owned by BMO Financial Group. Segregated funds are only available for sale by individuals with appropriate insurance licences and are not considered a mutual fund. Segregated fund fees are higher than mutual funds as they include insurance fees to provide for the guarantees on deposits at maturity or on death.