You’ve worked all your life to save for retirement. Now, you’ve found that you’re not going to be able to spend it all, or worse, you are afraid to spend your money. You’re saving it for your children. But there is a bigger problem.

One child may not be capable of receiving a large lump sum of money if you die. This may be due to inability to manage money, his or her personal situation or mental health issues. Your plan for your child may be to pay out income for five or ten years or for their lifetime. But, how do you do this when you die?

One alternative is to set up a trust. The trust then pays out your child in accordance to the trust by a named trustee. This can be very costly and time consuming. There is an alternative.

It is a wealth transfer option available to Canadians through certain life insurance companies, which is simple and flexible. It is called an annuity settlement option. Here’s an example of how it works.

Rita and Richard invest $400,000 into a guaranteed investment fund with a life insurance company. They have complete flexibility and control over the money while they are alive. They don’t want their son to have a lump sum as they are worried about his ability to manage money and prefer to have it paid out over time.

After discussing the situation, they select a 15 year payout to their son Sam as he is the beneficiary. The insurance company automatically does this when they die. It gives Rita and Richard control in which the assets are allocated to Sam and avoids probate fees and estate fees. It eliminates the need for a trust and ensures Sam will not receive a lump sum.

It can provide parents with disabled children an estate planning tool, as it allows you to make changes to beneficiaries and settlement options quickly and without fees. The plan can ensure children and grandchildren receive income over time rather than a lump sum.