7 Lessons Learned from Sorting Out My Father’s Estate

Many of us don’t consider estate planning when we’re young and healthy, nor do we discuss it with our family before it becomes urgent. This is a mistake, and I learned that the hard way.

Although I knew what properties my father owned because I grew up helping him with his rentals, I knew little else about his finances. I was 40 when he died, and as the oldest sibling of 12, I took on the responsibility of sorting out his estate.

It is a heartbreaking time when a loved one passes, but I also learned so much throughout the process and in the time since. It inspired me to have those necessary conversations with other family members, as well as to further develop my own estate planning strategies.

Whether you’re sorting out a family member’s estate unexpectedly, or if you would like to be more proactive and develop your own estate plans, hopefully the lessons I learned can help you along the way.

1. Have discussions early.

When it comes to estate planning, I think the most important thing is to have the important conversations early, when everyone is healthy.

Looking back, I would have loved to talk it out with my dad ahead of time, instead of trying to sort it out when everyone is emotional, which only causes more frustration. This was a lesson learned for all my siblings, so later when my mom passes, we will be more prepared. We recorded a video of her explaining what she wanted to do beforehand and will share it with all her kids and have better documentation in place.

Unfortunately, that lesson was learned through experience. When I stepped in to sort out my dad’s estate, there were many unknowns, including the fact that my dad died land rich and cash poor.

2. Keep good records.

My first step was to figure out what my father’s estate included. As mentioned, I knew most of the properties he owned, but I didn’t know where to find monthly bills, expenses, tenant leases, property taxes, loans, deeds, tax returns, life insurance policy, etc.

My dad had about thirty to forty years’ worth of documents in boxes that I started sorting through, and these weren’t organized by property but rather by year.

I found everything I could, but I also needed to be wary of deadlines, and some had passed. For example, I received a call from an attorney one day that a lien on one of my dad’s properties was in default, and it was going to foreclosure. I ran down to the courthouse that day to save it from being auctioned off. When I was at the courthouse I found out some property taxes were also delinquent.

3. Provide access to those who need it.

Put your executor or child’s name on the bank account. If they aren’t on there, they won’t be able to get any information until they are verified by the bank after providing a death certificate.

If you have most of your documents stored digitally, make sure to provide access to that as well. I know they tell you to never write your passwords down, but I would say at least find a way to share them in a protected or encrypted way with those who need it.

To keep everything organized, I now utilize software for my own estate planning purposes. It houses everything, including tax returns, safe deposit box locations and keys, life insurance policies, health advocate document, will, property insurance declarations, trusts, bank accounts, IRAs, 401ks, mortgages, LLCs operating agreements, automobile titles/leases, bank accounts, passwords, and last but not least, directions to my children.

4. Understand the Account Types.

Even if you do have access to everything, you still need to understand what it all means. Or if you’re thinking about your own estate, you need to know how the different accounts work.

For example, a common mistake is to think that the trust or will takes priority over all documents. However, the IRAs and 401ks beneficiary forms take precedence over other documents, so make sure any discrepancies are resolved and everything is consistent.

Also, many people believe that if they have a will, their estate won’t end up in court. But to avoid probate and make sure the judge isn’t the one to make decisions on your behalf, it’s better to own everything within a trust. If done properly, the trust can be administered by the executor, who would be authorized to carry out all the decisions outlined in your trust as well as your will.

Put everything in one place for your executor to find it, and make sure all your assets and liabilities are clearly defined. Assets include bank accounts, IRA accounts, 401ks, life insurance, real estate, automobiles, deeds, property insurance, etc. Liabilities could be anything from liens to credit cards, auto leases, or interest free TV purchases.

5. Meet the Team.

Let your executor meet with the Estate Planning Attorney and Financial Advisor or CPA ahead of time. Make sure they’re all on board and that you understand the plan in addition to your parents. Not only can they die, but they can also lose mobility, become incapacitated, lose their memory, etc. If you already know their team and understand their plan, you can assist them when necessary.

There’s also a case for making the executor a professional as opposed to a family member. I’ve seen people do this because they believe decisions will be carried out with less flexibility outside of the family. Personally, I don’t believe that either way is necessarily better than the other. Choosing an executor (family or professional) is a decision best made by each family and family member amongst themselves.

6. Learn the tax requirements.

Federal and state tax returns must be filed normally within 9 months after death. The federal tax exemption is $11.5M at the time of this article. However, that number seems to go up and down dependent on politicians in Washington, DC. In my lifetime, I’ve seen the exemption amount as low as $600K and as high as “no tax” on any inheritance. Rules change based on the amount and types of assets and accounts you die with, if you have a spouse, what you bought the property for, its value when you die, and if it is a Roth or traditional IRA. All of these are factors when determining what your heirs get to keep. Not all states have inheritance tax so make sure you understand the laws in your residence state. Hopefully the contingencies have all been covered, and your estate attorney and CPA have it covered to minimize taxes.

7. Review your estate plan annually.

Life events like getting married, getting divorced, having another child, or gaining a grandchild may cause you to re-evaluate your estate planning.

Plus, the tax code changes annually too.

For example, one of my favorite estate planning strategies is to utilize the Roth IRA because it would build and maintain wealth for a century. I would be able to ideally pass down “tax free” money that could stay in the family longer than my other accounts. However, the transfer of wealth was limited to 10 years on inherited Roth IRAs, which has me now looking for alternatives, such as single premium life insurance on myself, spouse, children, etc. In addition to tax law changes, my estate plan has been modified as each grandchild arrives and as any wealth is transferred while I am still living, including for education and scholarships.

Life events also sometimes cause us to learn things we never would have expected. For example, when I found a private loan for my dad’s property that was going to foreclosure, the lender was using his self-directed IRA to invest. It was the first time I had heard of anyone doing that, and since then self-directed investing has opened up a whole new world for me. You never know what you’re going to learn and how you will be able to use that information down the line.

If you’re dealing with the estate of a loved one, or if you’re working on your own estate plan, how did you cope and what lessons have you learned throughout the process?