The Four Steps In Wealth Management

The way to wealth depends in just two words, industry and frugality. – Benjamin Franklin

There are four steps in wealth management

1. Create wealth
2. Grow wealth
3. Preserve wealth
4. Transfer wealth

Simple to say but hard to do. Reducing taxes and reducing risk helps in each step.

Create Wealth

Ability is a poor man's wealth. — John Wooden

To create wealth, you develop, apply and improve your unique skills by getting through what Seth Godin calls the dip. Easier to say but certainly doable. And well-worth doing.

What if your opportunity to create wealth gets stolen by

• premature death
• disability
• a critical illness like a heart attack, cancer or stroke

Insurance maximizes your potential wealth in several ways.

Life insurance immunizes your heirs from your premature death by providing cash to repay debt such as a mortgage, cover living expenses for your family. Your business partners can use insurance on you to buy your shares so your heirs get cash and the partners get ownership of the company.

Disability insurance replaces income lost through disability. Some universal life (UL) insurance policies have a disability benefit which can pay out the cash value of your policy tax-free. You can also use the savings in permanent insurance as collateral for tax-free loans.

You can offset the financial losses from a severe illness with a critical illness insurance (see The Basics). This can take the form of a separate policy or an add-on your universal life.

Grow Wealth

The way to become rich is to put all your eggs in one basket and then watch that basket. – Andrew Carnegie

You invest your wealth to multiply your wealth. Compound returns do wonders, especially when tax-sheltered, yet most investors have

• nonregistered investments with taxable growth
• registered investments with temporary tax deferral until accessed
  

To improve results, you can reallocate a portion of your nonregistered investments into universal life. Why? For permanent or temporary tax deferral. Investment growth is tax sheltered as with an RRSP or the Tax-Free Savings Account (TFSA). But you're not limited by government-mandated maximum contributions, which are inadequate for the wealthy.

Preserve Wealth

It requires a great deal of boldness and a great deal of caution to make a great fortune, and when you have it, it requires ten times as much skill to keep it. – Ralph Waldo Emerson

To preserve your wealth, you want protection from taxes and creditors. With universal life insurance, your investment growth is tax-sheltered until withdrawn. You get permanent deferral if the growth is paid out as part of the tax-free death benefit.

You can get protection against your creditors by proper structuring (see the companion Riscario wiki).

Transfer Wealth

Never forget: the secret of creating riches for oneself is to create them for others. – Sir John Templeton

You can't take your wealth with you when you die. When you transfer your legacy, why not bypass taxes, creditors and public scrutiny. Your life insurance death benefit goes directly to your beneficiaries without passing through your estate or Will. This means

• escape from the probate fees on your estate
• protection from the claims of creditors, if properly structured
• privacy, since your Will becomes a public document

The tax-free insurance proceeds can be used to offset the taxes and costs at death without burdening survivors or requiring the sale of assets like a family cottage. This leaves more of your wealth intact.

Wealth is not in making money, but in making the man while he is making the money. – John Wicker

There's more to wealth than financial rewards, but the financial rewards are nice too. All the best with your voyage.

Links

• Thoughts on The Dip by Seth Godin
  
• Are You Entrepreneur Material?  (Thicken My Wallet)
• How To Be A Better Employee (Thicken My Wallet)
• Losing Your Livelihood: Insuring Against The Risk
• Why Critical Illness Remains Unsuccessful
• The Overlooked Advantages of Universal Life
• The Original and Overlooked Tax-Free Savings Account