Six Steps to Financial Freedom, Step Six
Congratulations, you’ve arrived at the end of the road. Welcome! Thanks for sticking with me for the past six weeks.
For every big and exciting goal people set in their lives there are two essential questions that we must ask, how and why? So far throughout these six steps I’ve shown you a lot of “how” and a few small “whys”.
Get out of debt so that you can relax and build wealth; regulate risk so that you don’t have to worry about the unexpected, etc. But when you get to the end of the process, step six is the biggest “why” of all. Steps one through five ultimately lead us here; leave a legacy.
Because you can’t take it with you. If you’re not careful, everything you worked for will be lost the moment you take your final breath. Proper legacy planning allows you to reach out from the grave and direct how your hard earned assets will be spent long after you’re gone.
There are only three things you can do with your wealth. You can; save it, spend it, or leave it. The problem is you can only save it for so long and if you don’t spend it or leave it effectively there is a fourth option that comes into play, the government will take it.
In the world of legacy planning it’s that forth option that we want to avoid at all costs so we work backwards from there. If you follow the first five steps effectively you will die with money left over, that’s a fact. There is an interesting little wrinkle in the tax law called a “deemed disposition”, is means that when you die all of your assets are deemed to have been sold 5 minutes before you pass, all of your assets are then counted in your income on your final tax return. If you have even a modest amount of savings all of your assets calculated as income in one year automatically place you in the highest tax bracket in the country. Depending on the province you live in that will be about 45%, so the government will take almost half! We can usually avoid that with a well structured Life Insurance contract, see step five, but what about making a lasting contribution to society as a whole?
Here are 3 other ideas for leaving a lasting legacy.
1 – Name a charity as the beneficiary of your Life Insurance, RRSP/RRIF or Annuity. This will provide a lump sum donation and create a nice tax deduction on your final return.
2 – Set up a charitable family trust to administer your investment accounts after you are gone and dole out money to your favourite causes in smaller, more sustainable and longer term amounts over time. If managed well, with a decent endowment to begin with a family trust could last for generations.
3 – Start now by collaterally assigning Life Insurance and other income sources and allowing the named charitable organizations to take control of the asset while you are still living. In this case you can exert influence over how the money is spent directly and see the results of your philanthropy with your own eyes.
Of course none of this should prevent you from continuing to support a worthy cause with cash while you are living. Philanthropy is all about stewardship and there is no greater joy than knowing that the work you have done to build wealth will benefit those who are less fortunate.
From everyone who has been given much, much will be demanded; and from the one who has been entrusted with much, much more will be asked. [Luke 12:48]
For more information on Legacy Planning and effective philanthropy write to: email@example.com