by Investing School on April 8, 2013
A guaranteed investment fund is similar in nature to mutual funds, in that it is a group of assets put together by a portfolio manager with the goal of meeting specific investment objectives.
The difference is that this fund is offered by insurance companies and the assets can be invested in an equity, bond and/or index fund while guaranteeing a minimum value at maturity or when the investor dies. The insurance company running the fund charges quite a bit for this guarantee: up to 1% of your investment annually.
The advantage to placing funds in a guaranteed investment fund is that you are certain to recoup your investment. Furthermore, if your fund has a particularly good year you can opt to reset the guarantee at the higher value. The problem is that it can be very difficult to figure out how such a fund performed in comparison to normal mutual funds since the structures are so different.
Deciding between the two funds is matter of personal need and the advice of a good financial expert. If your goal is to provide additional security for your family or heirs then a GIF may be a good option, especially if it is run by a well known, reputable insurance company. The fund should also sport a good record of success.
The Guaranteed Investment Fund should not be mistaken with the Guaranteed Investment Contract. The latter is an insurance contract that guarantees the owner both the repayment of principal and a specific interest rate for a preset period. This is a fund that is usually offered to institutions rather than individuals.
by Investing School on April 1, 2013
The Grantor Retained Annuity Trust is an estate planning tool that decreases the tax liability that occurs when a there is an inter-generational transfer of assets. By using such plans it is possible to create a temporary irrevocable trust; when the trust expires, the beneficiary gets a tax free disbursement.
The goal of a GRAT is to reduce the tax burden associated with an estate or gift. The grantor who sets up the trust transfers assets into the trust. The trust is designed to provide a steady stream of income to the grantor over a specified period. After that time has elapsed the remaining funds are passed to a beneficiary.
Every time a GRAT is set up a grantor, trustee and beneficiary must be named. The grantor funds the trust, the trustee manages the assets and, if the conditions of the trust are met, the beneficiary collects the assets at the end of the predetermined period. One of those conditions is that the beneficiary must be a family member of the grantor. Additionally, since this is a form of irrevocable trust, the grantor is removing assets from their estate so that no taxes will be due on them.
The reason that GRATs are popular as estate planning tools is that they allow the grantor to reduce the size of their estate. It also provides the grantor with a regular source of income while the annuity is being paid out. If the grantor dies before all the annuity payments are made then the balance of the trust automatically transfers to the beneficiary.