What is your plan? Do you have one?

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Yesterday, I shared with the MAREI family why I had picked the topic of "What happens when you die?" for the June MAREI meeting. You see, on the way home from the April MAREI Meeting my husband Don and I were traveling on a country road a 60 and peeked the hill to find a stationary truck in our path and diverted to the ditch. We could have bought the farm that day . . which got me to thinking.

If you invest in real estate or have another complicated business, which most of us here at MAREI have, then you need to have a plan and we hope you join us at the June 12th MAREI meeting to take notes from our experts so you can either review your plan or create one. You might want to include your spouse or child.

A few items to think about in the meantime.

Taking Care of the Kids

Some folks put weird things into their will to make sure their kids get taken care of. Possibly saying that no property can be sold without the agreement of all children. Or to divide up the rental houses equally. Which could cost time and money in lawyer fees to get the houses sold or divided equally?

One investor I know specializes in this type of estate where the house was left to the kids equally and they all have to agree on what to do with it. He works with the kids that want to sell and buys their shares at a discount and then waits out the other kids. It is one thing to argue with your brothers and sisters on what to do with a house, but when you become part owner of a house with a total stranger, you get more interested in selling sooner rather than later.

Naming Beneficiaries 

You have taken the time to set up those retirement accounts and to work them so they grow. You have paid good money into the life insurance companies. But have you taken the time to name a Beneficiary, probably a spouse and contingent beneficiaries, probably your children? Have you reviewed those lately? Maybe you have had a divorce or had a spouse pass away?

I don't know how many times we have dealt with a motivated seller that was the ex-spouse. When they divorced, the house was not retitled or the spouse was not removed and he or she ended up unwinding the estate of someone they were no longer related to and often times had not had any dealings with in years. All because of a lack of update.

And do note when you are naming beneficiaries to some accounts, like a Roth IRA, that you might lose some of the great benefits that come with it if you name your trust as the beneficiary rather than a specific person or persons.

Leaving Assets to a Minor & Self Managed Rental property

I ran into this when I bought 23 houses from an estate. The real estate investor had passed leaving his 30 or so rental properties to his 16-year-old daughter in the care of his attorney. With no clear instructions or plan, the attorney decided at his $200 to $300 rate that he would save the estate money by managing the urban core rental properties himself instead of hiring a property manager. Many $1000s of dollars in fees later, after scaring off all the tenants and killing all the cash flow, the only real value of the properties at the time, he sold the properties to me for pennies on the dollar just to get rid of them. Pretty sure he got paid, but maybe not.

I also know of two people that were working hard to build a rental portfolio. Great when there were two of them to manage all the headaches of the rentals, the mortgages and the paperwork. But when one of them passed unexpectedly, there was just too much for the other in the business to handle alone. And many of the properties were given away just to get rid of a headache.

Not Planning for the Death of a Named Person or a Beneficiary

In our case with the assistance of our attorney we set up our estate planning trust and named an executor to preside over the estate and to see after our two young children. We did set up a secondary trustee and a third. Which was very good planning as our executor was struck by early onset Alzheimer's and passed away.

We had spent several years saying we need to review and revise the trust over and over because those minor children were no longer minors and one of them was helping us run the business. We put it off and put it off, luckily we did revisit and revise, just in case we buy the farm at 60 mph in a head-on collision.

The same goes for not planning for the death of a beneficiary. What happens then?

What if you are leaving everything to your two children and one of them passes. Will the entire empire go to the other child or be distributed to that child's children?

Not Having a Residuary Clause

This was a big one the estate planner made sure we knew about. He said it was standard in most estate plans. It basically says that if you forget to transfer any assets into your Trust that you might not own currently but might before your death. This will include them in the Trust.

For example, you buy a car a few years after setting up your trust and don't get it titled into your trust. Or you transfer all your LLCs and other corporations into your Trust, but you have one lone rental property out there in your own name that you forgot about.

Not Having a List

A few years back a guy called selling his mother's house. He wanted to get it under contract, but he needed time to go through the entire house, drawer by drawer and box by box. His mother had squirreled away assets everywhere. But nothing was written down as to what, where and how to access. He and his siblings were literally going through everything finding account statements stuck everywhere. They then had to figure out how to access the funds and get them where they needed to go.

If the mother had taken the time to list out all the accounts the account numbers and in this day and age, websites, usernames, passwords AND the security questions those kids in that house would have saved countless hours. And they were never sure if they had found everything.

I have heard stories from many other investors who have purchased houses with all the contents. Back in my early career, a friend had purchased what he thought was a two-story house with an attic. As they started clearing out the house they found a finished 3rd story with more bedrooms and several valuables that were worth more than what he had paid for the house. The out of state sellers just wanted to get rid of the house, never see it, never touch it and never deal with it.

Not Planning

Sure you can get to it tomorrow, but you never know what is going to happen. My husband and I were almost in a horrible crash last month. My son and his now wife rolled his car in a tangle with a drunk driver a year or so ago. My brother in law was diagnosed with early-onset Alzheimer's and passed shortly after that. Our good friend had a rare heart disease. In all of these examples, there was real estate in question. And in the cases that ended badly, the spouse was left holding a renal bag that they didn't particularly want to deal with.

So, please don't wait till someday. Sit down now and start talking this through with your family, your cpa, your attorney and get a plan in place soon. If you have a plan, take the time to review it regularly.

Resource: 10 Sometimes Surprising Estate Planning Mistakes from Kiplinger.com

Article Provided by Kim Tucker, real estate investor and founder of MAREI. Kim and her husband Don and son Scott have been buying, selling, fixing, flipping and renting properties and investing in notes since 2000. You can get on their buyer's list by visiting www.KCInvest.com To learn more about the June 12th, 2018 MAREI meeting, please visit www.MAREI.org