1970, my pastor’s grandmother died. She lived in a modest house
— a shack, he says — in Massachusetts. The house was worth
about $20,000. In 1970, the median price of a home in the United
States was $23,000. In the Northeast, it was a little under $26,000.
Today, it’s $164,000 nationally, and about the same in New England.
That’s what inflation and government-guaranteed mortgages have done
— but mostly inflation.
She died without leaving a will. It took twenty years to get her
estate through the probate court. The assets were divided three
ways. My pastor received one-third. In 1990, he received a check,
with deductions for legal fees. The check was for $4.50.
He was fortunate. The court-assigned lawyer never charged anything
after the estate had fallen to $13.50. He finally distributed the
In the meantime, the median price of a home in the United States
had climbed to $62,000. In New England, it was $61,000.
If the woman had put the house in a trust for the heirs in 1970,
they could have rented the house for 20 years, and had $20,000 each
in capital. Instead, they had $4.50.
We hear stories like these, but we think, “That won’t happen to
my heirs.” Maybe it won’t, but you won’t be around to know for sure.
The probate system was designed by lawyers for the benefit of lawyers.
The system is not benign.
My parents are in their mid-80′s. The clock is ticking. Something
in the range of 1,000 World War II vets die every day in the United
States. My father served in that war. His peers are dying off.
He knows about probate. Back in the mid-1960′s, his mother died.
She died before the estate of her sister had been settled. Her sister
had died, leaving about $100,000, which was a good estate back then.
She had a will. She also had a lawyer. The lawyer dawdled. He continued
to dawdle, collecting fees as he dawdled. Then my grandmother died.
She had the same lawyer. More dawdling.
My father inherited his share in 1967 because a friend of his sold
mutual funds. My father told him that as soon as the estate was
settled, he would use the money to buy shares in the guy’s mutual
fund. The guy bugged the lawyer, week after week. He kept calling.
Jesus described a similar situation.
in a city a judge, which feared not God, neither regarded man:
And there was a widow in that city; and she came unto him, saying,
Avenge me of mine adversary. And he would not for a while: but
afterward he said within himself, Though I fear not God, nor regard
man; Yet because this widow troubleth me, I will avenge her, lest
by her continual coming she weary me (Luke 18:2-5).
My father got the money and bought the fund. It started going down.
It continued to go down. I persuaded him to sell the shares and
put the money into $20 gold pieces. This was about a month before
the British devalued the pound, which sent the price of double eagles
higher. He got his losses back. The fund eventually sank so low
that it went out of business.
I told him that he should regard the losses as a kind of expediter’s
fee. If the fund salesman had not kept calling the lawyer, the estate
might not have been settled for years.
My parents and I plan to visit a lawyer in the near future. I want
to persuade my father to set up a trust in place of his will. A
trust does not go through probate. There would be no court-assigned
lawyer to examine the value of everything and extract his percentage,
year after year. The surviving heirs would not have to ask the lawyer
to have permission to write checks.
At the very least, my parents should consider an exchange of “durable
powers of attorney.” If my father ever becomes incapable of dealing
with financial affairs, my mother can take over.
People don’t think about these things, because they think they are
going to be in ship-shape condition until the day they die. They
never plan to die in less than five years, no matter how old they
are. They always have five years to go, minimum.
During the final 4.9 years of our lives, this assumption is incorrect.
There are front-end deals and back-end deals. The big money is in
the back end.
You can hire a lawyer to draw up a will for about $150. He will
become the executor, unless you say otherwise. If he does, this
is a back-end deal of deals. For him.
Before you decide which structure to set up, look at the alternatives
from a front-end/back-end perspective from the point of view of
your heirs. The smaller the back end, the more you should expect
to pay on the front end.
You can pay $1,500 to $2,500 to have him create a trust document.
I say “create.” I really mean “have his secretary enter the numbers,
the names, and the addresses, and then print it out.” Still, it’s
worth it. It’s a front-end deal. Setting it up takes some time.
More important, it takes some persuading to get it signed. It may
take considerable persuading.
You need professional help. You must pay for professional help.
Just be sure you know who is really being helped, and for how long.
Recently, I read a book by a lawyer, Loving
Trust: The Right Way to Provide for Yourself & Guarantee the Future
of Your Loved Ones. I was so impressed that I marked it
up and sent it to my parents. I called a lawyer in their city and
scheduled an appointment. The book is written in English. It describes
the bad things that can happen if you die without leaving a will.
It also describes bad things that can happen if you die, leaving
a will. One bad thing is expenses. The probate system will eat into
the estate by at least 6%.
But men don’t like to think about their deaths. That’s why insurance
salesmen make money. They sell “life insurance,” because nobody
wants to think about his own death. To get a prospect to sign on
the dotted line, there has to be a high-pressure salesman in the
room. This is why people buy life insurance policies other than
annual renewable term (when they are younger) or 10-year, level-
premium term when they are above age 50. This is why they pay so
much more than they would if they clicked on this
link and bought a replacement policy.
I say “they,” I mean their wives, who should pay the premiums with
their own exclusive checking accounts, to keep the pay-out money
out of their husbands’ estates. There will be no probate court,
no tax man, no lawyer. There will only be a tax-free check from
an insurance company made out to the widow. Make it a large one.
How large? If he is still working, at least eight times the husband’s
annual earned income. This may be too conservative. The younger
the husband, the larger the multiplier.
Because men don’t like to think about their deaths, they put off
writing a will or a trust. They think, in some perverse way, “If
I sign this document, I’m going to die sooner than if I didn’t sign
it.” If they have a document drawn up by a lawyer, they will have
to sign it. So they don’t have their lawyers draw it up, i.e., have
their secretaries print it out.
There is another factor: indecision regarding who deserves the money
or assets. Who should inherit? In the Old Testament, the rule was
If a man
have two wives, one beloved, and another hated, and they have
born him children, both the beloved and the hated; and if the
firstborn son be hers that was hated: Then it shall be, when he
maketh his sons to inherit that which he hath, that he may not
make the son of the beloved firstborn before the son of the hated,
which is indeed the firstborn: But he shall acknowledge the son
of the hated for the firstborn, by giving him a double portion
of all that he hath: for he is the beginning of his strength;
the right of the firstborn is his (Deuteronomy 21:15-17)
The male heirs divided up the estate into the same number of units
as there were sons, and added one unit. The oldest son got two units.
Daughters did not inherit unless there were no sons (Numbers 36).
Daughters were given dowries instead, and young men reimbursed fathers
for the dowries, which was called a bride price. The oldest son
was expected to care for the surviving parent. Daughters did not
normally have this responsibility. The system made economic sense.
In this society, we don’t talk specifically about our money, so
we don’t talk specifically about who should get what, so we don’t
talk specifically about who should bear what level of responsibility.
Wills and trusts require us to put down on paper the details of
what we want our assets to achieve: who gets what. We then face
the on-paper equivalent of a child who asks his parent, “Which of
us do you love the most?” The correct answer is, “The one who serves
God best, and in serving God, will agree in advance to take care
of your mother and me when we are aged.” But this sounds too crass
to Americans. It puts the burden into the lap of the questioner,
where it belongs. It also makes us choose between Absalom and Solomon,
and we don’t want to do this just yet.
Of course, you and your wife can annually give away up to $22,000
each to anyone and still avoid gift taxes. It would not take too
many of these events to deplete most people’s assets. If you aren’t
willing to give up control over your money yet, you should start
thinking about why not. What is going to change between now and
then? What should change?
Dribble out money now. Have the recipient set up an investment program.
See how well he does with the money. Or do some joint ventures,
with you as the silent participant (but not a partner; use a corporation
or limited liability company). Speak when spoken to. Offer advice
only when asked. Monitor the progress of the capital.
When you decide which child will take care of you in your old age,
buy a ten-year, level-term life insurance policy on his or her life.
That way, you will get paid in the case of the heir’s death. Even
insurance agents forget to mention this one. They should. In days
when sons supported aged parents, and there were no pensions or
Social Security, the death of an adult son was an economic disaster.
If life insurance had been invented, wise people would have bought
Today, aged parents don’t think about their sons as future income
streams, so they don’t take steps to insure these streams. An 80-year-old
parent can buy a 10-year level-term $350,000 policy for $466 a year
on a healthy 50-year-old son. (Old Line Life, a company I used for
two decades: http://www.termonly.com) If the mother is likely to
outlive her husband, she should own the policy. The money would
come, tax-free, directly to her. Her husband is named in the policy
as the back-up of the policy, in case she dies first.
What if the parents are too poor to afford the premium? Simple.
The son gives the premium money to the designated owner of the policy,
who then writes the premium check to the company. For very little
money, he has taken care of his parents in case he dies.
This is very simple estate planning. There is nothing legally revolutionary
or even complicated about it. Yet hardly anyone does it.
Genius is seeing the obvious. Courage is doing it.
DO NO HARM
A friend of mine three decades ago was economist Ben Rogge [ROWEguee].
It was a sad day when he died. He served as an advisor to a very
rich man, Pierre Goodrich. He told me once that he saw his job as
trying to get the old man to accept rules that would keep his money
from hurting anyone. To imagine that someone with that much money
could do a lot of good, Rogge regarded as naive beyond sanity. “Rich
men know how to make it. They don’t know how to give it away.” In
fact, Rogge’s advice was great. Goodrich died, leaving his millions
wrapped up tighter than the proverbial drum. The money has to be
used for reprinting classic libertarian books (beneficial) and holding
academic conferences (harmless). The books are magnificently produced
and inexpensive: Liberty Press. The conferences? I have never been
invited to one since he died, and the one I attended, I would cheerfully
pay several hundred dollars to avoid a second time. The only excitement
we had was when we got ptomaine poisoning late Saturday night. This
was almost as bad as the seminar sessions.
When you think about where your money should go, ask yourself: “Am
I subsidizing either immorality or stupidity?” You would not leave
your fortune to a retarded child. It would be worse to leave it
to a crooked child. Every crook is somebody’s child. Solomon observed:
is a man whose labour is in wisdom, and in knowledge, and in equity;
yet to a man that hath not laboured therein shall he leave it
for his portion. This also is vanity and a great evil (Ecclesiastes
You must make judgments about the effects of your money on the recipients.
That old TV show, “The Millionaire,” was about the effects, in 1950′s
prices, of a tax-free gift of a million dollars. The script writers
did not have to stretch their imaginations very far to come up with
stories about how much havoc that kind of money could cause. The
public also understood: the show ran from 1955 to 1960.
Most people don’t have enough money to ruin our children completely,
but that doesn’t stop some of them from trying.
When you meet with your lawyer, you should already have a clear
idea of where you want the money to go and why. He can help you
achieve this without the use of a will. Use some other instrument.
Don’t let your estate wind up in probate unless he can show you,
from the law books, that there will be no back-end expenses. If
a court-appointed lawyer must administer the back end, use another
Remember: there is nothing like a body at room temperature to warm
a probate lawyer’s heart.