Top 10 Takeaways - Podcast 5 with Neal Frankle

Hosts @Joshua Dorkin and @Brandon Turner and Guest @Neal Frankle

1. Live your life like you’re on your deathbed. Live for those people that are going to be around me, surrounding me when I’m dying. I’m old and sick. You want to live it for your closest friends, you want to live it for your family, you want to live it for those people who are really going to be there in the end.

2. Anyone in business absolutely has to plan for death. And that’s why this show is so important.

 3. If you can make your business run without you then your business becomes all the more powerful and profitable. @Neal Frankle’s plan includes recording a video showing my wife where on the C drive on our computer all our documents are. I just say here’s what you do. It’s very factual stuff. I have arrangements with a custodian, which is TD Ameritrade. I’ve got the State of California. There are three or four legal requirements that have to be met to continue the business. I’ve also appointed a broker to sell the business. I explain to her what should happen and who’s going to do what and what she needs to do to make that legally possible. Every business it’s different. Consider interviewing a lawyer for your own business and say what’s required to keep this thing going? The nice thing about real estate, in my opinion, is it’s not as time sensitive as an ongoing retail business that needs daily attention. For real estate you can get a manager to do it. You don’t need to make buy/sell decisions on an hourly basis. So you have a little more time.

4. The first step would be setting up appropriate trusts. If you have multimillion dollars worth of real estate then you might want a family limited partnership. If at the time of your death you have a taxable estate by setting up proper trusts you could significantly reduce the estate tax.

5. There’s really two elements of a trust. Number one is a mechanism by which stuff you own gets transferred to someone else when you’re dead. The second element is joint tenants. Joint tenants has some nice benefits because when you die all your assets that are in joint tenancy go to your survivor. The first part of it is it’s a mechanism by which assets are transferred. The second element is that depending on the size of your estate and the estate taxes at the time of your death the trust could potentially help you to save hundreds of thousands of dollars in estate taxes and avoid probate. Probate is the mechanism by which the state, the courts decide where your assets are going. If you have a will you die testate, meaning the court will take your will and interpret it. That’s going to take time and money and lawyers. If you die without a will you died intestate, meaning you have no will. So the court will use the state laws and decide where your assets go. It’s a lengthy process, courts are involved, the court makes decisions for you, lawyers are involved, it takes a lot of time, a lot of money and it’s completely public. It allows a lot of people to fight over your money. For example Elvis, when he died his estate was worth $10 million and his heirs got £3 million. Guess where the other $7 million went? Lawyers and courts. When John Wayne no one knew what the size of the estate was because he had a trust. So it’s private, it’s quick, it’s cheap. Probate is exactly the opposite of that.

6. A trust also does a lot of things even if you have no money. It has power of attorney, if you have children and you want to name a guardian for your kids the trust can help you do that, it does a lot of other things. So I wouldn’t wait to be a rich guy before I got a trust.

7. Make sure the lawyer specializes in estate trusts, or you can use a service like Legal Zoom. If you have lots of real estate and/or lots of beneficiaries, and a second marriage and this or that you really should talk to a lawyer in my view.

8. The ultimate set up is a trust and a pour over will. A trust sort of does the same job as a will. You’re better off having a trust, all things being equal, than a will. You should also have a pour over will, which is everything you forgot to put in the trust goes into the trust via the will.

9. You can find out about probate and contact the lawyers and the families and make yourself available as an investor.

10. You need term life insurance if people depend on your income. If you die you get a lump sum and then the family should use that lump sum to invest it, to generate the income to replace the income that you’re no longer here to provide. For most people term insurance is far better than whole life. However, insurance agents love whole life because the commissions are high. Term life insurance is a whole lot cheaper, gives you a lot more coverage for the same dollar and it’s amazingly cheap; much cheaper than you think. So term insurance is the way to go, absolutely. I’m a big fan and I’m a big believer in it. To figure out how much insurance you need, just work backwards on your income. You would need $2 million invested for each $100,000 per year in income – and that’s pretax. Think of your life insurance needs as a bell curve. On the one hand you will need more as your family grows and as your exposure grows. But as your net worth grows and you pay off properties and you have more equity, more passive income and your kids get older you actually need less life insurance. So you first have to plot out what your life insurance needs are over the next twenty/thirty years. Of course it’s going to change and you have to make assumptions and you have to be able to build to buy more insurance and then taper it down. So what I’ve done, rather than do what you did, is I bought more policies at the beginning but I bought them for different periods of time. So when I was thirty I bought a thirty year policy – it expires when I’m sixty. And then I would buy different policies that would extend for different periods of time to tailor my life insurance needs or plan to my needs. So you can have one expire when your kid has graduated for college, and one of them could expire because you no longer care about that extra money.

* BONUS Takeaway - In America I honestly believe you can do anything, you’ve just got to do the work. It’s not going to fall into your pocket – even if you have BiggerPockets!