By Libby Wildman
One night not too long ago, my 25-year-old son and his three roomies invited “the parents” for dinner. The parents were a wonderful reflection of our society in Toronto — different ethnicities and, true to stats, out of four couples, only one was in an original marriage. The meal was quite an impressive feast, with shucked oysters, pate and cheese, followed by marinated flank steak, potatoes, poached salmon and salad. I think I can speak for the group of us when I say we were all proud of our boys. We were even invited to take a quick trip to the second floor — they were quite keen to show us how they’d meticulously tidied up to impress us.
I felt full in my heart as the boys thanked all of us and we thanked them for the mutual love, honour and respect that we felt that evening. Truly the “deposits” we as parents had repeatedly made into the bank of these boys was paying off. I could picture the future when, in old age, we will be making withdrawals from this family bank of love.
For me, the most important role a parent can play in their child’s life is to allow their child to make mistakes, grow at their own pace, live by their decisions and have the courage to change their decisions when they no longer work. The hope is that this upbringing will lead to our kids turning into grown adults who give back to their community and can live an independent life. If you are so moved to also help your children financially, there is another bank you may wish to explore: The family bank of money.
I was fortunate to have a dad who had a vision to fill the family bank, not only with love and honour, but also with a cascading strategy of money. He wanted to make sure that each ensuing generation had a financial leg up. To this end, there is a secret account that has amazing tax advantages and is often overlooked. This account grows tax-free, has no management time and you maintain control until you feel the next generation can take over the reins.
Sounds too good to be true, right? It’s been around a long time. It’s called a Juvenile Life Insurance Policy. It is a unique asset class that ensures money and wealth transfer from one generation to the next. An example of how tax-free compounding and consistent contributions can return incredible results is highlighted by the policy on my partner, John. His father bought a policy on John when he was born in 1962. Typically, back then, the baby bonus was used to create these juvenile policies.
You will be astonished by the growth in these numbers today, 60 years later. John’s father deposited $7.65 a month into a $10,000 life insurance policy on John’s life and maintained ownership until his death. Today, the life insurance has grown tax-free to $78,000 and the cash value has also grown tax-free to $37,529. This year, his cash value grows tax-free by an astonishing $1,871! Imagine if $765 or $7,650 a month had been deposited into John’s policy.
The important aspect to this family bank plan is that each generation is insured. The parents, the kids, the grandkids and so on. Since our demise is a certainty, the life insurance payout of each of these policies will ensure that money is replenished for each rising generation. Life Insurance has other advantages like proceeds that are probate-free, as the death benefit falls outside of your estate. One note to be mindful of is that we encourage you to start this strategy early in life, so future health conditions do not complicate the availability of implementation.
My family bank was started by my grandfather, Alf, who bought a policy on my dad, Robbie, after his brother Chuck was killed. Robbie then bought a policy on me and my two brothers, and when my three kids were born, I too started policies on them.
If this intrigues you, reach out to me. It’s not complicated, and plans can be tailored to meet your financial goals. One final note is that money is not everything, but it sure makes life easier if not coveted.
I leave you with Warren Buffett’s sage comments, “A very rich person should leave his kids enough to do anything, but not enough to do nothing.”
Libby Wildman is Head of Wealth Advisory at the Toronto-based investment firm Davis Rea and the founder of Liminal Escapes creative curated retreats.