“We will all die someday.” Therefore, we should all have a Death Plan. Despite the fact that I plan to live forever I too have a death plan. Given medical and scientific advances with AI, stem cell research and the like I will probably live forever, or at least long enough to reach the singularity. But, there is a small chance, less than .1%, that I will die. As the ultimate planner that I am, who lives in his head, I’ve thought of every possible scenario at one point or another. The ultimate planner must plan for all outcomes. I have spent a few minutes here in this post to share with you how to draft a Death Plan. I further spend a few minutes thinking through what would happen if I died. Spoiler alert: If I die tomorrow one thing is clear – the world wouldn’t end, life would go on and it would go on just fine without me.
I’m sure I will be deeply missed by my family and friends, but in truth I am prepared financially to die. No, I am not mentally, spiritually, or emotionally prepared to die. In fact I fear death. But let’s play this out for the purposes of planning for this WORST case scenario – and I do mean worst case. If I were broke tomorrow I could easily rebuild that, but once life is taken it cannot be earned back (as far as I know).
The Death Plan Components:
- Think through your death scenario. Put yourself in the shoes of your stakeholders: your loved ones, in the shoes of your executor (who executes on your will and your wishes), your pets, your children etc. Think through how the stakeholders will cope and plan accordingly. Who will inherit your wealth and what should they do with it? Your children? Your Pets? Your Home? Your Clients? Your Business? Your obligations? Your debt? Your assets?
- Write a Will and Testament. Document the plan you’ve begun drafting in your head in the above step.
- DIY it using online software or free online templates. There are a ton of free resources that will you help you to draft your Will and worst case scenario if you come across an issue you aren’t sure how to deal with you can always consult Google.
- Hire someone to do a WILL for you. There are lots of options here from monthly fee type all-inclusive services to one-shot pay for service type agreements. Before you commit, do your research!
- Plan your funeral/end of life party and how you want your body stored/disposed of.
- Freeze yourself to be revived later when technology is more advanced. My personal favorite.
- Ashes in an urn.
- Ashes spread across the ocean or your favorite field.
- Typical burial in a casket.
- Floated down the river in a boat.
- Other strange ways of storing ones body after death (mummification etc.).
Now you might be expecting to see my Will & Testament here as an example, but sorry folks that’s classified information for my wife, executor, and family. I will however give you a few of the juicy financial details and a high-level overview of how life would go on without me (step 1 really).
Sidebar issue: life Insurance. A lot of folks worry about having life insurance in place if they die, but I don’t. I have no life insurance. None, zip, nada, zilch. My wife and I both carry no life insurance. Why? Because life would go on and my income would continue without my life as my army of minions continues to working tirelessly for my family.
All of my properties would cleanly transfer title to my wife upon death, triggering near 0 tax implications (my wife would just assume full title). ALL of my liabilities are tied to income producing assets, including the house we live (it’s a duplex, with a bonus tiny house rented on Airbnb) therefore the debts can be serviced with or without me being alive. In fact, our income would be the same if either of us died because we rely on assets to produce income for us, not on time to be traded for money. Further, all of our properties have healthy equity margins meaning the bank won’t call our mortgages and if they did we would comfortably have a nice healthy position left after paying the bank back. It’s about having flexibility and resiliency built into the plan.
Before we built this large portfolio that we now have, that will provide income for future generations well after we have died (assuming they follow the golden rule – no one ever touches the principle!), I used to rest calmly on the fact that we live very frugally. IF one of us passed away, we live on less than half of one person’s salary (my wife made barely $37,000 Canadian and we lived on half of that using house hacking & frugality). So, if I passed away my wife could still save for the future. She didn’t rely on my income to support our lifestyle. In the same way, I didn’t rely on her income to survive.
If we all learn to consume less and focus on value for money we will find that we are self-sufficient and don’t NEED insurance. Insurance slows you from reaching financial independence and has a negative expected value (the payout multiplied by probability of living – is much greater than the fees associated with these policies). That said, for many who are less aggressive in their savings rates or those that want their families taken care of if they pass on (the small less than 1% chance of this happening), feel justified in purchasing insurance. I think it’s not a bad decision, just one that requires careful calculation.
If I die, I expect my wife to keep any properties she likes to manage, manage those as we have (they are turn-key now). The properties that she doesn’t like or want to manage I expect her to sell or higher a manage for. If properties were sold I expect all non real-estate funds to invested in a passive ETF portfolio similar to the asset allocation I’ve recommended in my article on the model passive portolio.
We have plans in place for things to essentially carry on without me here, but in the event of both my wife and I passing we have contingency plans in place within our Will to care for our daughter. I do have a Will that I’ve drafted (using a free online template) that my wife can follow in the event of just my death that will ensure our assets continue in her name such that my family continues on comfortably without me for the rest of their days on passive income (assuming they DO NOT TOUCH THE PRINCIPLE and ONLY the INTEREST/GAINS).
DO NOT TOUCH THE PRINCIPLE and ONLY the INTEREST or GAINS.
This is short and sweet, but I like to think you get the point – an early retiree, financially independent or striving to be fire follower is better prepared to pass than pretty well anyone from a financial perspective and many of us don’t even need insurance. An early retiree likely doesn’t have a need for insurance, unless they are planning to use it to move funds from a corporation or plan for an estate benefit upon passing. In both those cases to determine viability, one must simply compare the fees associated with the policy compounded over the period at typical return rates to the tax savings. Both are easily quantifiable and the answer is clearly objective despite efforts by insurance companies to complicate the illustrations and policy options. The numbers don’t lie, but they can often be manipulated so make sure to check the inputs on the insurance illustrations!
What are your strategies upon death? Do you have a will? A specific instruction? Will your family be OK without you? You might consider this a stress-test to see if you are on track to financial independence. IF your family can’t survive without you, you may need to make some changes on the spending and saving fronts…or simply buy some insurance. I suspect most of my followers prefer to make radical lifestyle changes than simply cover up the spending problem with a term insurance policy – but the choice is theirs.