Sunday 30th January, 2005


How to create an estate

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Money Matters
with Raziah Ahmed

In the trade publications by author Stephen Covey, effective people are characterised by the ability to “begin with the end in mind.” Dr Wayne Dyer expounds the same philosophy in his publications; he calls it “end thinking”.

In our pursuit of financial independence, we took a simplistic view of the broad concept of savings last week; today we advance the concept into the arena called estate creation.

The creation of a savings plan is the genesis of the creation of an estate. Your plan will reflect your desires and will be a mirror of your personality. It will be testimony to the cares and concerns you feel for other human beings, as well as your own self-esteem. Conversely, your plan may reflect your self-interests, hang-ups, grievances or your grudging world-view.

As human beings, we have a right to enjoyment of the good things of this world and we have an obligation to earn that enjoyment by virtue of fair work. We also have an obligation to leave a decent estate for our heirs, since the family would not die off when we do. Survivors remain and we leave them better off or worse off; it's all about being proactive; it's about “end thinking”.

An estate is comprised of all the property you own. Property is divided into two broad headings: real property and personal property. Real property is land and anything on the land that is affixed to it, attached or growing. Personal property is everything else.

Personal property is divided into two sub-headings: tangible property and intangible property. Tangible property is that which has an intrinsic value; it is the thing itself, such as a car, furniture and jewelry.

Intangible property has no intrinsic value. Its value, however, is represented by physical objects, commonly pieces of paper, eg. a certificate of deposit (CD), a stock certificate or an insurance policy contract. The value that is represented can be very significant indeed and tally to millions of dollars.

The sequence in which you create the estate will vary but it does begin with some holding of cash. The acquisition of tangible property normally requires cash outlay as well as liabilities. The liabilities are twofold: first you may leverage your income by getting a loan, thus creating debt; and secondly you should be bound to maintain and/or develop the property, which also requires cash.

Saving after-tax dollars in bank accounts, acquiring property, and so on, normally equate to saving fair dollar value exchanges, that is you save a dollar and you exchange it for a dollar's worth of property.

Life insurance contracts offer a unique opportunity to create an estate without an exact dollar exchange. How is this possible? The main element of this contract is a promise to pay, upon the death of the insured, a predetermined sum in exchange for monthly premiums.

Assuming that a 25-year-old female has a premium of $200 per month, which purchases a policy with a death benefit of $200,000, should the insured die in the second month, the policy should pay $200,000. The estate thus created is $200,000 in cash value.

But young people do not buy insurance because they will die soon. They buy insurance typically because they want collateral to buy property for estate creation. It is about ambition.

As Dyer says in his 2004 publication, The Power Of Intention: “If you don't believe that you're worthy of fulfilling your intentions for health, wealth... then you're creating an obstacle that will inhibit the flow of creative energy into your daily life."

Continued next week

* Raziah Ahmed is a registered financial consultant



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