My Estate Plan Experience

Written September 28 by James M. Esler

As of today, my father\’s estate is settled. This was a very long process that was both draining and rewarding in many ways. This article sums up the entire process from a firsthand perspective. You can trust the content – I barely survived myself!

When my father was 63, we started working on his retirement goals. He didn\’t have a will set up, and he was planning on surviving on social security and rental income from one property in South Carolina. My father was very frugal – to the point that his health and his diet were never important enough for him to spend money on. We couldn\’t figure out a way for him to spend his time, since he didn\’t have a life outside of work. Unfortunately, we never reached a retirement plan for him because he was too afraid of not working to finish it. We did get the will done, and I was designated the personal representative of the estate. We chose not to do a trust because of simplicity, a small amount of assets, and a higher potential cost of the trust.

The next year, he was diagnosed with lung and spinal cancer, and after 8 months of fighting, he died a week after he turned 65. A few days after the funeral, I went to visit the probate court and list out the assets. This is a simple, arbitrary process to show that any debts that my father had built up would be paid back. Our attorney (Kim) could have handled the process, but it would have been even more labor intensive on me and would have been costly. Probate on the will lasted 9 months. This is to allow creditors the chance to collect on debts. With a trust, some creditors cannot get paid back. This is a huge advantage of trusts in all states. Because of this, trusts payout as soon as assets are sold; there isn\’t a 9 month waiting period. This can be good since the liquid assets aren\’t stagnating until the 9 months is over, but it can tempt a family to sell assets too quickly (esp houses needing remodels), which is bad. Most everything else is the same with wills and trusts, from what I researched. The 9 months of having probate opened was emotionally hard for me, since I was constantly reminded of death and that I had such an awesome fiduciary responsibility to my 2 sisters and brother. This was the biggest cost to me, and looking back, I would have gladly paid the cost of a trust to avoid those feelings. Many people that serve as personal representatives or executors charge 2% (on par with pros), though I didn\’t since I loved my father so much and I felt he would have done the same thing for me. At times, my family tested my mettle and made me regret the decision, though you must know this will happen going into the role of representative.

Cash came into the account and it sat until the probate period ended. We had the houses prepared for sale, which took over 2 months of work by crews, but we got the right price for them because of the timing. This was a strength in the probate process, though I was ultimately the project manager for the houses. My duties included staying on top of work crews, understanding the remodels, verifying costs, and paying for materials/utilities. We had a tenant in one of the houses also, generating taxable earnings for the estate. Yes, the estate has its own Tax ID # and is obligated to pay taxes on income generated after the person dies. All assets get a stepped-up basis at death, however. This means that a $1 million house bought for $100 will not have any taxes on gains. At large numbers, the estate will be taxed (estate tax), but that isn\’t an issue for many families, including mine.

I traveled twice during the probate period to monitor the progress and see family, which turned out to be mistakes, attributable to the strangeness of the inheritance process: a family member dies and the family receives money. To any human being, this is incomprehensible. This causes irrational behavior and such behavior often splits families. We were lucky that my father didn\’t care about the money very much. Many of my clients have an even harder time coming to terms with the irony while they are alive.

I tried very hard to keep my siblings together for the sake of my father, though I know with absolute certainty that a non-financial professional would have cracked under the immense pressure. Because of the ironic \’reward for death\’, it\’s impossible to blame someone for acting irrationally. Know going in that inheritances are rarely easy and they can cause permanent damage to a family if not handled professionally.

Why should a family be rewarded for the death of a loved one? This has been a question for decades, leading to the famous 99% club. Bill Gates, founder of Microsoft, is going to give away 99% of his estate to charities when he passes. He started the club, saying that his wealth could have a better return on investment outside of his family at his death. This was a watershed moment for openminded tycoons – you can still generate [social] ROI after you die.

Thus, before someone dies, the person should consider their posthumous wealth even more carefully, since there could be 1) higher ROI outside of traditional distributions to family and 2) tax benefits allowing higher investment. When I say higher investment, I refer to the fact that the person might transfer an asset with very large gains specifically for charities only at death rather than liquidating it while alive. This is a very common idea covered in Lead and Remainder trusts. The point is that you can easily ensure control of your wealth at death with some planning. Warren Buffett famously likened inheritances as a form of entitlement and welfare.

This leads me to the final point. The future of estate planning – is it possible to have an entirely different strategy for estate planning? In Ancient Egypt, the Pharaoh\’s son was automatically king. We have come from that and now mostly the king\’s son will get the assets that the king accumulated. What if there was a way that the king could easily choose who they could give money to? The most affluent people have expedient lawyers making great sums of money ensuring that the estate creates the highest ROI. THere should be a way to bring that ability to the middle class and even further down. Not many families in America can easily gift money to strangers (i.e. charities) right now.

In the end, I am grateful to have honored my father in settling his estate. However, knowing what I know now, I wish we had created more of a plan around charitable giving and that we had formed a trust.

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