So, I Have This Friend…

If you don’t have an estate plan, you are wrong.

╦śMy wife and I had breakfast with a friend the other day. She’s a really smart lady who’s getting a little older like us. No, I’m not calling her old and I won’t venture to guess her weight. But she’s been on earth for a while, and like us, she knows no one lives for ever. She’s also aware that planning for that certainty is often overwhelming for some. Her included. Maybe I should say she has lots of experiences and not mention age. Yea, she’s seen some things in the multi decades of living.

They mostly talk about their jobs, family, and other friends. I generally don’t contribute much to these conversations and enjoy listening to them talk about the latest happenings. On this particular morning, a topic came up that sparked me to participate more than usual.

The topic started with something like “I need to get a will done”. Oh, that caught my attention! Believe it or not, wills are very important. There’s not one person reading this that will not leave this earth some day. That’s a 100% guarantee. We leave everything behind in this imperfect world. As you know, you leave this world like you came into it. You leave with no earthly possessions like money, houses, investments etc. Also, I would bet that every single one reading this does not know when it will happen to them or their loved ones. They are sure it will happen, but unsure of when.

Oh, I’ve heard this statement many times or one very similar. For some reason, frequently it’s when people are getting a little older and feel somehow that it’s “time”. If you know when you are going to leave this earth, just schedule doing your will and other financial documents before you go. For the other 100% who don’t know you’re departure time, you owe it to the ones you leave behind to do your part. The time of passing is beyond your control. Getting the documentation in order for that time is definitely within your control. A will is only one document you need to have in place. There’s more, much more.

A properly executed will leaves directions for your executor to carry out your wishes with the things you leave behind. The things you left behind are called your estate. This is your chance to tell the executor of your estate how to carry out your wishes. The executor is the one charged with legally and properly dispersing things of title, such as houses, cars, boats etc. The executor is also the one who ensures any outstanding bills such as phone bill, medical, credit cards, etc. Access to bank accounts, investments, and other financial accounts will also need to be accessed to ensure payments and distributions are done promptly and properly. Just because you are gone doesn’t mean your affairs can go untended. Properly setting up the executor will ensure this part goes as smoothly as possible. Make sure the person you chose to be your executor is trustworthy, responsible, and stern. MawMawFI always says marriage and funerals always bring the crazy out in a family. So, despite best intentions, the executor may very well find himself in the middle of a heated family fued over how your family thinks your estate should be handled. It’s going too fast, slow, etc. Johnny wanted that and so does Jenny. Simple things are compounded by the heightened emotions of your recent death.

Every state has its own laws about how to handle an estate in a person’s death. So, when you set up a will, make sure you are meeting the states requirements. If you feel uncertain about how to make your will, seek a competent estate lawyer who specializes in this area. You’ll be surprised how many decent local law firms really do care about helping you do this important document correctly. On the other hand, there are scammers out there. So, ask around, check references, etc. A will is a very important document that must be given the proper amount of attention.

If you don’t have a will in place, most states will ensure your estate is distributed in accordance with their laws. That would likely include hiring a lawyer to act as an executor. The executor will act in accordance with the law. Without a will, the state appointed executor will not have clear direction from you on how to proceed. Not only will the executor not know your wishes, they don’t do that for free. So, while they are doing a good deed, they are expensive. So, take the time to ensure everything you worked for, saved, and want to go to whoever, actually goes there. Take the time to get your will done, filed and be prepared.

There’s other things you can do beyond just a will to help. On many bank accounts, there’s an option for a payable upon death (POD). The POD allows someone access to your money as soon as you die. This is important so things like bills get paid. Maybe just long enough to sell a house, pay for your funeral services, or whatever. But having been through this with a close family member, there will be unanticipated expenses that will come up. Having access to at least some of your money to pay bills is very important.

Investment accounts will have a beneficiary. Make sure you take the time to ensure your beneficiaries are updated. Life happens and things do change. For example, maybe your spouse passed before you and the spouse was the beneficiary. Now you have a problem during your death because your beneficiary has predeceased you. That will tie up assets way longer than if the beneficiary was just updated properly.

Life insurance also has beneficiaries. Frequently older parents have very old life insurance policies that they haven’t updated in decades. Don’t be that guy. Ensure that if you have a life insurance policy, the beneficiary is current. If the policy’s beneficiary is deceased, that will bring on it own set of problems by involving possibly two estates and even more people having a legal claim to it. So, just keep your life insurance policy beneficiaries current.

Things that have beneficiaries are not included in the estate. Passage goes directly from you to the person identified. This is an important distinction, so make sure you consider that for how your estate is ultimately distributed.

All of the documents mentioned here need to be updated periodically. Major events like marriage, divorce, death, births, and even family disownment do happen. So, ensure that maybe annually or whenever a major family event happens, crack open these documents to ensure they still match your current wishes. It’s great to have these in place, but you must also periodically update them.

Once you have the above Big Rocks in place, also consider if there are special circumstances you’d like to take into account. These things may not have title, but special things can cause strife in a family if not identified before you pass. This can usually be accomplished with a letter to the executor. Things to consider here are items that are particularly special to you or a family member. Maybe it’s your mother’s wedding rings. Maybe it’s grandad’s old shotgun. Maybe it’s a stamps collection, a special chair, jewelry, or tools. Whatever it is that is special to you for someone to receive, write it in the letter.

You should also have a few medical documents drafted at the same time as your will. These are important to relieve your family members of difficult decisions. When you are in the middle of a family emergency like a life threatening car accident, surgery, or terminal illness, that not the time to be unorganized. The minimal documents you should have are as follows:

Medical power of attorney. This is a document that tells the medical community who will speak for you and make decisions for you when you are unable. It’s also important to make sure that these are done while you are still medically able and in sound mind. This will come into play if you are in the middle of a surgery and the doctors need to maybe do something different. It’s not prudent to wake you up from surgery and ask. So, the medical power of attorney lays out this important decision before the surgery starts. This also will carry on if you become unable to act for your self due to dementia, a coma, or brain injury.

Directive to Physicians. This document lists the things you do or do not want done to you while you are receiving medical care. If you are in a terminal situation, do you want to be kept on life support indefinitely? Do you want them to “pull the plug” early? Are there religious reasons you would refuse something like a blood or organ transplant? Are you against artificial feeding tubes, kidney machines etc.? As much as you don’t want to think about this now, you should. To leave this up to a loved one in a time of need would be worse. I’d bet every one of your loved ones will be stressed out enough during this time. They don’t deserve to have to try to guess your desires in such serious matters. Please get this done as well.

If you have a complicated family structure or complicated estate, you may want to consider a living trust. This is a way to put your assets “in” a trust to separate it from your personal estate. It will cost a little more up front to set up and execute a trust, but it eliminates the probate process. Basically you can put bank accounts, titled vehicles, investments, etc in the trust’s name instead of your name. You can still use these for every day things, but upon your death, the instructions to distribute the trust’s assets are already defined. It’s a little more complicated, so please ensure you find a competent estate lawyer to explain this to you before you set this up. You’ll also want to talk to your tax professional to make sure that the tax consequences are understood as well.

So, as you can see setting up a proper estate plan is a fairly complex undertaking. Ensure you do your part while your are able. To set up your estate plan is your responsibility. If you do it for nothing else, do it to prevent complicating your loved ones during what will already be a stressful time. You owe it to them.

023 The End of a Good Ride

One of my children who’s been making some sound progress in his finances was faced with an urgent decision that could a significant impact on his finances. He had been engaging in financial discussions, among various other topics. He’s sucked up plenty of of Choose FI podcasts and other resources. For the blog, I’ll mostly focus on the financial aspects of the decision he faced and a couple of paths that he could have chosen.

About two years ago, he started getting interested in deer hunting. Since some of the best bonding times with friends and family was during my hunting, I fully supported and encouraged him to pursue this worthwhile endeavor. There’s really something magical about engaging with nature. Watching the woods wake up in the morning or the second awakening before dark is awe inspiring. This environment helps put perspective on things. Whether a bug among the leaves, the bird that eats the bug, or the bobcat that eats the bird. Everything on the earth is temporary, including us human beings. Everything will eventually return to the earth from where it came. There’s no escaping that inevitable eventuality. As humans, in most instances, we have the power to choose. That’s what makes us human.

My son had been making solid choices in many areas of his life for quite some time. One of those decisions was hunting. While hunting isn’t necessarily something you can put a dollar sign on to get a return on investment, It’s definitely a valuable part of our American culture. It not only provides food for your family and friends, but it provides money for wildlife and conservation of natural resources like wildlife management and general access to nature through the Pittman and Robertson Act. This act is a tax on hunting and shooting products. That money goes back to support wildlife and their habitat for all to enjoy. Whether bird watching, hiking, camping or just about any other interaction you have with wildlife, this act has a positive financial contribution to ensuring all can enjoy for many years to come.

He’s hunted with me for the last two years. While we spent lot’s of time in the woods, our successes have been minimal. But his success at his job had taken him to Florence Alabama to live. He worked about 30 minutes out of town way out of town in the middle of nowhere. On his drive to work, he sees deer almost every day. On one of those days, he didn’t see a deer…until it was too late. The deer jumped in front of his car at the last possible second. The deer jumped right in front of his paid of Chrysler 300. The unavoidable happened. He hit the deer at a pretty good speed. The deer totaled his long ago paid off car that Friday morning.

He called me that night to discuss his potential plan of action to get a car before Monday morning. Time was of the essence, because he needed to work on Monday. The option he was considering was the “easy button” plan. He had a friend in the car sales business who was offering him a good deal on a gas sipping highly reliable Honda. He had a good deal on a good car all lined up. But he also remembered how much he hated having a car payment. The feeling of being strapped with a car payment wasn’t too far in the past for him. He still remembered all too well that he didn’t like that feeling. While it was a good deal on a good car, it wasn’t a good deal for his situation. He didn’t have the $16,000 sitting around. So the only way he could do this deal was to put his emergency fund towards a down payment and finance the rest. That was the plan he was leaning to because it was easy.

When he explained his plan to me, of course I didn’t like it. He assured me that he scoured the internet, Craig’s List, and some local car dealers. Being a remote place in Alabama, there were not many little gas sipping cars like the one he needed for the long haul to work that he could afford. So, we searched together. He was right. There were no good deals on a car he could afford with his limited budget in his area. Lots of trucks were available, but not any small gas sipping cars. So we racked our brains for another option. Neither of us wanted him to get in $16,000 of debt.

So I had an idea. I live in the Dallas area and there are many small gas sipping cars all the time for sale. That’s the ticket! We could search my local area. We searched the area and found almost 40 used Hondas in the Dallas area. So we just needed to come up with a plan to buy one and get it to him in Alabama. She searched some more and agreed on the top three in his $5,000 price range. My great wife and I agreed that we’d go look at them the next morning, Saturday. The clock stops for no one.

Since my son’s finances were in good order and ours was too, my wife and I would go look at the cars and purchase a good one for about $5,000. We found one that Saturday morning and purchased it. We weren’t just buying it for him as a gift, he was to pay us back immediately. By him and us having solid financial footing, we had other options than being “stuck” with that easy button solution of signing up to a $16,000 loan! We worked together and came up with a financially smart car that he could afford. The car was paid for, in his name, and in my possession!

It was Saturday afternoon and the clock was still ticking towards his Monday morning show time for work. So we continued to work out details of getting him his car. He could fly to Dallas, but that was expensive. So, I offered up another solution. I would drive the 8.5 hours to deliver it the next day to save some time for him before he had to work on Monday morning. So that’s what I did. But since I had to work Monday morning as well, I’d have to figure out how to do that. Luckily, I work remotely, so it was easy. I would just work remotely until I can get back home. Having the flexibility to do that is one of those job benefits that isn’t wrapped up in a salary. But it is very valuable. At least to me it is very valuable.

Rather that just drop the car off and head straight back home, I decided on something different. I would stay in Florence and work remotely until Wednesday when I fly home. The plane ride would be of minimal cost because I had plenty of airline miles since I’ve been using credit card hacking to stock up on points. He was able to get to work on Monday without incident.

Instead of this turning into a stressful situation of me buying a car, driving 8.5 hours, and rushing home, it was fun. I even got in an unsuccessful deer hunt on one of those early cold mornings before I started work! This event turned into a win-win situation for us. He replaced his old almost worn out car with a newer more reliable car. Since he didn’t have an expensive long term car payment, he was able to quickly replace his emergency fund cash with what would have been going to the banks as interest payments. I was able to help my son make a sound decision. I also got to spend a couple of days visiting with him and his girlfriend. Time like that is very valuable to me.

So, what’s the nitty gritty of the financials of this deal. The $16,000 finance a almost new car option would cost him $316 per month for the next four years. Grand total of this would be that $16,000 car would cost him $17,173. The $5,000 used purchase we did cost him less than $5,000. I did put a little towards this option to keep him with at least a little emergency fund. So, he avoided over $12,000 of car expenses by going the route he did. That doesn’t even take into account that his insurance would have also increased costing him more than just the $316 per month car payment putting it closer to $350 per month obligation that he avoided.

So, while this is an end of a good ride for his old Chrysler 300 that had served him well. It was a good car with low maintenance costs. He followed that good decision with an even better decision by not going in debt again. He bought a car that will cost him less in maintenance and he’s not strapped for the next 4 years with a car payment. He has flexibility to save more money and freedom to spend more of his money that will give him the most value. I’m proud of his progress as a young adult and know he’ll continue to make good decisions.