In early September, Toronto-based Guardian Capital released a suite of “uniquely modern” tontines for retirees and near-retirees in the decumulation phases of their lives.

The news raised a few eyebrows since tontines are illegal in most if not all of the U.S.

What is a tontine?
Tontines are a centuries-old idea with a ghastly mythology around them. Members buy into a pool of money for a fixed period of time and cannot exit. Traditionally, the last survivors take the entire pot. The macabre possibilities have given birth to countless murder mysteries and at least one movie in which members of a tontine kill each other off to be the last one standing and snag all the loot.

But scholars say these stories have nothing to do with actually history.

Centuries ago, tontines were used by governments as a kind of lottery. They’re named for a 17th century Italian financier named Lorenzo de Tonti, who promoted a tontine to French king Louis XIV to fund government activities. In the 18th century, Alexander Hamilton proposed a tontine to help pay for the Revolutionary War (it did not pass Congress). Later, tontines were used in various U.S. municipalities to finance infrastructure development. Then, around 1860, Henry B. Hyde and his rapidly growing insurance enterprise, now known as AXA Equitable Life Insurance Co., introduced a Tontine Dividend Life Assurance Policy, which became so wildly popular that more insurance companies followed suit. By the turn of the century, there were roughly 9 million tontine policies nationwide, representing some two-thirds of the U.S. insurance market at the time and holding, in total, 7.5% of the nation’s wealth.

“Tontines raised so much money for insurance companies that the industry attracted intense scrutiny,” the Washington Post reported in 2015. “In 1906, New York state launched a major investigation into the insurance market that resulted in the banning of tontines.” State after state followed New York’s example, all but wiping out tontines in this country.

Modern Tontines
But the new tontines work a little differently.

First of all, Guardian Capital’s offerings have a 20-year lifespan, so they don’t drag on till the bitter end. Second, the pooled money is professionally managed, just like a mutual fund, so there is greater growth potential. Finally, participants don’t have to invest the same amount as one another, though the more a member puts in the greater his or her share of the proceeds.

To date, Guardian Capital has released three products.

The GuardPath Modern Tontine 2042 Trust invests pooled funds in an actively managed mutual-fund-like account for 20 years. Investors, who have to have been born before 1962 but after 1956, cannot exit without relinquishing most of their investment and do not receive any income or other benefit until the term has passed. After that, the pool of money—which has had 20 years to grow—is distributed to survivors in accordance with the relative size of their initial investment. Those who died in the interim receive nothing.

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