Liam, a 45-year-old self-employed consultant in Quebec, is considering investing in a segregated fund contract. He is concerned about potential personal bankruptcy affecting his investments. Which of the following statements correctly describes the creditor protection offered by segregated funds in his situation?

Question: Liam, a 45-year-old self-employed consultant in Quebec, is considering investing in a segregated fund contract. He is concerned about potential personal bankruptcy affecting his investments. Which of the following statements correctly describes the creditor protection offered by segregated funds in his situation?

Answer options: ✅ "Segregated funds offer creditor protection if a valid beneficiary designation other than 'estate' has been made, shielding the proceeds from Liam's creditors in the event of bankruptcy."

• "Only segregated funds held within registered plans like RRSPs offer creditor protection; non-registered segregated funds do not."
• "Creditor protection for segregated funds in Quebec is absolute, regardless of beneficiary designation, due to the unique provisions of the Civil Code of Quebec."
• "Segregated funds offer no creditor protection for self-employed individuals in any province, as their business and personal assets are generally not separated legally."

Correct answer: "Segregated funds offer creditor protection if a valid beneficiary designation other than 'estate' has been made, shielding the proceeds from Liam's creditors in the event of bankruptcy."

Explanation: Segregated fund contracts offer a degree of creditor protection, particularly if a 'preferred class' beneficiary (spouse, child, parent, grandchild, or ascendant/descendant in Québec) is named, or if a general beneficiary is named and the designation is irrevocable. Under common law, and similar principles in Québec for 'preferred class' or irrevocable designations, the proceeds bypass the estate, making them inaccessible to creditors in bankruptcy, provided there was no intent to defraud creditors at the time of designation.