RPF0603-Friday_QA
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00:00:30.920 | It's Friday and today that means live Q&A. Finally, live Q&A.
00:00:52.440 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge,
00:00:55.320 | skills, insight, and encouragement you need to live a rich and meaningful life now, while
00:00:59.520 | building a plan for financial freedom in 10 years or less. My name is Joshua and today
00:01:03.360 | is Friday and we have the open phone lines. I finally was able to find a working internet
00:01:07.160 | connection. You would not believe how tough it has been to actually find and use an internet
00:01:13.780 | connection but today I've got it done. One of my personal pet peeves is people who complain
00:01:26.920 | and always make excuses for things and so I try not to always make excuses for things
00:01:32.040 | and that's kind of how it feels when I do these Friday Q&A shows is I feel like I'm
00:01:35.600 | always making an excuse for the fact that it's been a long time since I've gotten one
00:01:39.200 | done. It's just been surprising. I can find pretty reliably good solid internet to be
00:01:45.480 | able to upload my shows because that doesn't require a simultaneous open communication
00:01:52.920 | thread between me and the callers. But to actually record and get good audio quality
00:01:56.760 | for live Q&A has been challenging. But I've got new strategies, keep solving my problems,
00:02:01.620 | so let's see if these new strategies can pay off over the next few weeks. But today we
00:02:04.880 | begin with Kevin in Colorado. Kevin, welcome to the show. How can I serve you today, sir?
00:02:09.080 | Yeah, thank you, Joshua. I appreciate you taking my call. So I have two questions about
00:02:15.520 | having to do with health share ministry instead of insurance. First one is, is a health share
00:02:27.120 | account compatible or excuse me, is like an HSA account compatible with the health share
00:02:36.920 | insurance program or not insurance program? Is that such a funny and kind of a frustrating
00:02:42.640 | thing to constantly emphasize this is not health insurance, but you know, but it is
00:02:48.480 | functioning like health insurance. Short answer, my understanding is no. Legally, technically,
00:02:55.720 | my understanding is no, probably not. Now, I think if I'm up to date enough on this,
00:03:02.760 | number one, this is something that the leaders of the health sharing organizations have been
00:03:07.360 | lobbying to get approved because there doesn't seem to be any reason why it shouldn't be
00:03:11.760 | approved except for the fact that health care sharing ministries are not insurance policies.
00:03:19.880 | And so therefore it doesn't technically work. So they've been trying to get the law changed.
00:03:23.600 | If my information is correct, I think they haven't gotten it done yet. I would also say
00:03:28.000 | that this is probably one of those areas where it's worth testing. You know, if you had administrative
00:03:35.960 | access to, so there are certain areas, back up just a moment. If something is not approved,
00:03:44.900 | but it is not, but it is also, there's reason why it should be approved. It's one of those
00:03:52.160 | things where you sometimes wonder if it's not worth just trying because you're right
00:03:58.360 | within the intent of the law. And if you can make it happen, you know, you wonder if it's
00:04:03.960 | not worth going ahead and trying it. So if you can participate in and make your HSA contributions,
00:04:11.120 | it's not like you couldn't do that and then also say, but look, I have what is in many
00:04:16.480 | ways equivalent to a high deductible health insurance policy, so I should qualify. Now
00:04:21.040 | you're asking me on the spur of the moment. I don't know that this has been tested in
00:04:23.720 | tax court, but sometimes on some of these things, it has to actually be tested on to
00:04:27.760 | in tax court. And I wouldn't mind, you know, of course, I don't know who you are or where
00:04:32.760 | you're from, but I wouldn't mind hearing about your being the kind of person to actually
00:04:36.400 | test this because I don't see any reason why you shouldn't be able to participate in it.
00:04:41.560 | And if you went to the ring with the IRS and they say, no, you can't make these HSA contributions
00:04:49.920 | because of the fact that you have a healthcare sharing policy, I don't think that's too
00:04:58.360 | big of a deal. I would take it to tax court if you have the stomach for that kind of thing
00:05:02.520 | and see if you can get a ruling one way or the other. If you lose, so what? You know,
00:05:06.880 | you don't lose anything, maybe some penalties and fees, which aren't going to be that big
00:05:10.280 | of a deal compared to what you would have lost otherwise. So I guess the answer is no,
00:05:16.240 | I don't think it's technically allowed, but I'm not aware of a revenue ruling or a tax,
00:05:21.120 | you know, court decision or something that we could look at and say it's absolutely forbidden.
00:05:25.760 | And if my information is current and the audience will correct me if I'm wrong, it's not current.
00:05:31.960 | It's something that is kind of a gray area of the law. Make sense?
00:05:35.480 | Yeah, that does. And if I have Joshua Sheets's encouragement to push the IRS, I think I'm
00:05:43.360 | going to go for it.
00:05:44.360 | Well, it's one of those things where here's how I look at it. So IRS gets a lot of bad
00:05:52.480 | raps, right? And I'm certainly prone to dumping on the IRS and I know some revenue agents
00:05:59.200 | that listen to the show and I've talked with them. I've had I actually had some clients
00:06:02.560 | that were formerly, I formerly had some clients that worked for the IRS and they're often
00:06:07.920 | caught in a bad spot. So here's how I look at it. Number one, if you think you're right
00:06:13.240 | about something, you shouldn't be so cowed by government organizations like the IRS and
00:06:21.560 | you shouldn't be so cowed as to as to not, you know, to just didn't to do nothing. You're
00:06:28.320 | the one who's you're the citizen. You're a citizen, United States of America. You have
00:06:31.840 | every bit of a right as anyone else to do what you think is right. Now, if the IRS has
00:06:37.000 | ruled on a decision and that's where you're getting getting me on the off the fly, haven't
00:06:40.800 | gone and searched, maybe they have issued a revenue ruling on it or an advisory of some
00:06:45.240 | kind. If so, then you know, they've issued something. But even still, that stuff has
00:06:49.360 | to be settled in court. And so, you know, ultimately can be tested in court. So most
00:06:54.560 | of the much of the law that we rely on to say, yes, we can do this relies on somebody
00:07:01.840 | having taken having taken it to court. Let me give you just a simple example in in, you
00:07:07.920 | know, in estate planning or tax planning will often refer to something that that is we use
00:07:14.600 | a name because it's based upon something that's in court. So this morning I was working on
00:07:18.920 | a segment and I was talking about a trust with crummy provisions. They're called crummy
00:07:24.200 | provisions. And basically what that refers to is that refers to a case involving a man
00:07:29.760 | named Crummy who is trying to give a present interest contribution to a trust. And and
00:07:36.480 | it's that case that that now is standard fare for how estate planners regulate the gift
00:07:42.600 | of a of a present interest to a trust versus a future interest of a trust. And basically,
00:07:46.080 | when you if you want to get a gift of a present interest, you have to allow the beneficiary
00:07:49.240 | of a trust a right of withdrawal. And that was laid out in the court case. So without
00:07:54.280 | teaching on crummy provisions, the point is, how did that get created? How did that get
00:07:58.880 | established? Well, it got established through through a law, through a court case that then
00:08:04.520 | becomes because of our common law system, then becomes part of how we operate. And so
00:08:10.040 | if you think that this follows the spirit of the law, but if you can't find a contrary
00:08:15.760 | letter of the law ruling, then I think that you should go for it. You should try it. Now,
00:08:21.680 | let's understand what the risk is. The risk is that, number one, you might get audited.
00:08:25.560 | Well, there's a very low chance of getting audited depending on on who you are and what
00:08:31.360 | the actual where you live and what your risk profile is, etc. I have a much higher risk
00:08:35.720 | of getting audited than you do because of what I do and and and how I do it. So most
00:08:41.400 | people have a very low risk of being audited. Now, if you do get audited, then you you may
00:08:47.840 | be audited or not audited for this. So if it comes this comes up in your audit, you
00:08:51.720 | may test it. And if the IRS says, no, we're not going to allow this, what's the worst
00:08:56.360 | that happens? You say, OK, and you amend the return and you file and you pay them the money
00:09:02.520 | that you took a deduction for and you reverse the withdrawal. Like it just doesn't it's
00:09:06.520 | not that big of a deal. The only thing where you actually wind up risking jail time on
00:09:11.400 | some of this stuff is if you don't report income. So you should report all the income
00:09:15.360 | that you make that keeps you out of jail. And then the other stuff go with your make
00:09:20.240 | a make a good faith attempt. Now, research to see if there's a revenue ruling or something
00:09:24.160 | else. I'm not aware of it. But if I were in your shoes, if I had an HSA open, if I had
00:09:29.600 | a health care sharing account, if I could make those contributions, that's the kind
00:09:33.600 | of thing that I would do. And I would be willing to fight for it. I'd be happy to take it to
00:09:38.720 | tax court and let the judge rule on it. And if I lost, I would be ready and willing to
00:09:43.280 | pay. If I lost, I would be ready and willing to say, OK, I lost. But I think this this
00:09:47.520 | is this is right. I don't think that's reckless. I think that's an appropriate way to handle
00:09:51.840 | it. OK, well, I'll look more into it and I will I'll report back to you with what I find
00:09:58.400 | or what I do. Please do. And I have a lot of smart accountants that listen. So if I
00:10:01.600 | if I if I've missed something, let me know. I'm just aware that in the political season,
00:10:05.360 | I think a year ago, this was one of the things that many of the leaders of the health care
00:10:10.480 | sharing ministries were trying to get pushed forward. And I don't think they got it done.
00:10:15.040 | Did you have a question, number two? Yeah, one more question also related related to
00:10:20.560 | health sharing ministry is how do you how do you deal with the the risk of a large medical
00:10:30.240 | expense that exceeds the health share, what they will cover? So with the organization
00:10:38.240 | that my wife and I are with, I think it's about a quarter of a million that they'll
00:10:42.720 | cover. And after that, they they're they don't say they won't cover any, but they don't say
00:10:47.040 | they will. And so from a risk mitigation perspective, I'm just kind of wondering
00:10:52.720 | the best way to go about just avoiding catastrophe if there is a really large medical emergency.
00:11:00.560 | So there are three. Let me give you three things to consider. Number one,
00:11:04.800 | many of the health care sharing ministries offer different tiers of coverage. And so much like
00:11:12.240 | when you review insurance policies, as your wealth changes and as your situation changes,
00:11:17.200 | you should review the tier of coverage that you have. You should do the same thing with what
00:11:22.080 | tier of participation you have. And different organizations are different, but some of them
00:11:27.760 | have lower tiers. For example, the one you're with may be two hundred and fifty thousand dollars,
00:11:31.280 | but they might also offer an additional program, which is a higher program as well. Some of the
00:11:36.000 | health care sharing ministries will cover you up to a million dollars. We've this is hard. This is
00:11:40.560 | a hard decision because many of us have gotten comfortable with the idea that a health insurance
00:11:46.640 | policy will cover an unlimited amount. And we think immediately of the worst case, catastrophic,
00:11:53.440 | you know, stage four cancer with three years of intense medical bills. Now that's possible,
00:11:58.560 | but it's not necessarily the most probable. In other areas of life, we also have significant
00:12:06.160 | risk that's not fully covered by our by our insurance policies. But because we're not used to
00:12:14.080 | insurance coverage being unlimited, we don't think as much about it. So, example,
00:12:18.320 | you have on your car insurance policy, you have limits that you've chosen with your insurance
00:12:23.600 | agent for your liability coverage and your property damage coverage. Those coverages are
00:12:29.280 | not unlimited. Now, you might set them low or you might set them high, but they're not unlimited.
00:12:35.840 | You might also have an umbrella liability insurance policy that coordinates with those
00:12:40.560 | contracts. But that umbrella policy is not unlimited. So it is possible that you could
00:12:46.240 | get in a situation where you get drunk and you drive into a school bus and you kill 15 children
00:12:52.080 | in the school bus and you lose 15 lawsuits, each of which costs you 15 million dollars and you wind
00:12:58.320 | up bankrupt. So that's possible with your car insurance and your car insurance isn't going to
00:13:03.520 | cover it and your umbrella policy is going to run out and you're going to lose your lawsuits. So the
00:13:07.360 | same thing applies with health, that it is possible if you are choosing a health care sharing agreement
00:13:15.680 | that only covers you for a certain amount, it is possible that you could have coverages in excess
00:13:21.440 | of that. So what do we do? Well, number one, you try to think about your situation and you try to
00:13:26.160 | do an honest assessment of risk. And we've lost the ability to do this very frequently. You can't
00:13:32.080 | protect against all risks all the time. You just can't do it. It's not possible. So you start by
00:13:38.560 | saying, what could I actually do? And you're better off. Most medical things are not going
00:13:42.640 | to be more than $250,000. They're not. Now, of course, there are plenty of horror stories where
00:13:46.960 | there could be more, but they're not going to be generally. Now, then what do you do if you do have
00:13:52.480 | more than that? You look into additional coverage with the company and then you think about what
00:13:57.920 | would actually happen if you were in the midst of it. Now, if you had one catastrophic point of
00:14:03.120 | coverage, where you had one system where you had a terrible accident and $5 million of medical bills,
00:14:10.160 | you're just going to be dealing with that, which I'll get to in a moment. But what if it were more
00:14:14.320 | slow? Well, if I were facing some kind of ongoing disease, then I would just simply go on over to
00:14:21.520 | a commercial insurance policy if it looked like it was going to be on an ongoing basis.
00:14:26.320 | And with the fact that I've had coverage, which qualifies, and with the fact that
00:14:30.160 | health insurance companies under the Affordable Care Act can't deny you for preexisting conditions
00:14:36.800 | anymore, then why shouldn't I just go and move on to a commercial insurance contract if I've
00:14:41.760 | got a long-term ailment? I don't see any reason not to do that. The insurance companies, that was
00:14:47.920 | what they bargained, that was what they set up. So fine, I'll deal with that. And I'll just move
00:14:50.960 | over onto a commercial policy that does have an unlimited amount. Now, let's say that I can't do
00:14:56.240 | something like that. And let's say I'm left owing a big bill. Well, the healthcare sharing organization
00:15:03.040 | will participate in a certain amount of my costs. But then if I run out of that, then I'll go and
00:15:08.560 | deal directly with the hospital. And I'll try to settle that just like any other debt. So I'll try
00:15:14.480 | to work out a payment plan. I'll try to work out discounts as a cash customer. I'll work with them
00:15:19.520 | as much as I possibly can. And at the end of the day, I'm going to make sure that I always do good
00:15:23.920 | asset protection planning and good bankruptcy planning. So if I'm all of a sudden faced with
00:15:28.080 | $3 million of medical bills that I can't negotiate down, I can't set up on an affordable payment plan
00:15:33.520 | and aren't covered by the healthcare sharing ministry, well, that's what good asset protection
00:15:38.800 | planning is for, which is why I'm doing a whole series on asset protection planning. That's what
00:15:42.240 | good bankruptcy planning is for. So I declare bankruptcy. I default on those medical bills,
00:15:48.320 | and I start again. And that's the ultimate solution. And that's what many people do.
00:15:55.680 | So those are my answers to your questions. That's how you approach it, or that's how I think you
00:16:00.880 | should approach it. Well, that's helpful. Yeah, I appreciate that. Just recognize this. It's not
00:16:08.960 | possible that any of us can perfectly ensure and protect against everything. And the medical stuff
00:16:16.560 | gets under our emotional skin. Now, I'm all for planning, but this idea that...
00:16:22.720 | Man, I don't need to repeat anything. You had a question number three, Kevin?
00:16:26.880 | Nope, that was it.
00:16:29.360 | Good. Well, thank you for calling in, and I hope that it works out for you. I do love the healthcare
00:16:33.680 | sharing ministries, and I hope that it continues to work out well for you and your family.
00:16:40.000 | We go now to Tom in Salt Lake City. Tom, welcome. How can I serve you today, sir?
00:16:44.960 | Thanks for taking my call, Joshua. I really appreciate it.
00:16:47.360 | My pleasure.
00:16:47.860 | I've got a friend whose last parent just passed away recently, and she's asked me a little bit
00:16:58.800 | about how I'd go about dealing with the inheritance. The only thing she'll be inheriting is a duplex,
00:17:08.800 | which her mother lived in a lower portion of, and she's been living in a, excuse me,
00:17:13.440 | upper portion for many years. She will need some money for repairs that have been from deferred
00:17:22.880 | maintenance on the property, has a little bit of debt in her mother's estate that the house will
00:17:28.480 | need to stand for. But this friend is also a single mother of four, fairly low income job,
00:17:37.520 | maybe $35,000 a year, has very little cash on hand, about $55,000 in student loans,
00:17:44.320 | and another $30,000 in credit card debt. So she's in a tough spot. And with talking to the
00:17:53.680 | mortgage company, they're really pushing her to do a cash out refi, essentially, on the property
00:18:04.000 | to clear some of her other debt. My concern with that is that as the mortgage currently stands,
00:18:10.400 | if she just is able to assume that, payment's very, very low, $240 a month. If she refied how
00:18:18.720 | they want her to, it's going to push the payment up to over $1,000 a month, which is about half
00:18:24.080 | of her take-home pay. What's the current market value on the duplex? Probably about $300,000.
00:18:31.440 | And how much debt does her mother's estate have?
00:18:34.080 | A couple thousand dollars. The remaining balance on the mortgage is $48,000.
00:18:40.240 | So there should be here, if we could settle this estate, she should clear about $250,000.
00:18:47.600 | Is that right?
00:18:48.960 | Yeah, that's accurate.
00:18:51.360 | And about how much is the guess of how much money is required for the necessary repairs to get it
00:18:57.120 | in a saleable condition?
00:19:00.240 | I haven't walked through her mother's portion, but I would guess it's probably going to be
00:19:05.040 | between $5,000 and $10,000.
00:19:06.000 | What's the student loan debt that she has? What is that from? Obviously, it's from student loans,
00:19:15.600 | but did she finish a degree? She's only earning $35,000 a year. It doesn't seem like that's paid
00:19:21.280 | off for her. So tell me a little bit about the story of the student loan debt.
00:19:26.400 | Yeah, she went to school, did an online program, and then came out of school in a poor economy,
00:19:33.200 | wasn't able to get hired, and ended up working a string of minimum wage jobs. She's gone back and
00:19:40.320 | got some technical certificates and is working in a field completely unrelated to her degree field.
00:19:46.800 | But the career prospects in her degree field wouldn't move the needle much on her salary.
00:19:54.080 | All the entry level stuff is pretty low because it's a lot of public service.
00:19:58.640 | What's the credit card debt from?
00:19:59.840 | Overspending, general life. Two of her children, one of her children is a single mom now,
00:20:11.520 | and the other's on full disability through SSDI. So she's had that. Poor spending habits,
00:20:19.440 | not good with money in general. So a lot of my concern is that if she did do a cash out refi on
00:20:26.480 | the house to clear a lot of these debts, it's going to take away the security by moving all
00:20:31.760 | those unsecured debts onto a secure asset. And then she loses the security of having that really
00:20:38.880 | low monthly mortgage. Right. How old is her youngest child?
00:20:45.680 | Nine. No, sorry. Sorry, 12.
00:20:48.400 | Okay. So two younger. So 12. What are the ages of all the children?
00:20:52.960 | She's got two younger, two older. The two younger are still in middle and high school. The two
00:21:00.080 | older are out of the house. But one of the older ones, the single mother, she's helping out the
00:21:04.400 | other one is the disabled child that she helps out a lot. Is she receiving any alimony or child
00:21:09.440 | support payments? No. Got it. And isn't likely to get any. Okay.
00:21:15.520 | Has she made any improvements in her finances in the past, recent history? Is she taking control
00:21:28.160 | of her budget, taking control of her expenditures, making any positive changes?
00:21:34.800 | In that regard, maybe slightly, but not much. She has made some good positive improvement in her
00:21:42.320 | salary over the last couple of years. And has been listening to a little bit of advice there.
00:21:47.280 | So that's positive. But this part of me has seen her track record and doesn't see it getting
00:21:59.200 | significantly better to be your common listener. But at the same time, she's come to me in tears
00:22:06.400 | saying that her mom's passing and this current state of affairs has been a real wake up call.
00:22:12.240 | And she wants to do better and set herself up financially in the future because she's done
00:22:17.840 | such a poor job with money. Right. Right.
00:22:19.600 | Yeah. These are some of the toughest circumstances to deal with because you're trying to
00:22:25.440 | discern somebody's behavior and behavior change. And you want to always believe the best and
00:22:31.600 | believe that people can change because time and time again, people have proven that they can change
00:22:36.640 | and that things can get better. But on the other hand, you need to have evidence of that. And so
00:22:41.600 | figuring out how to create those two things is hard. So I would say first, given the fact that
00:22:50.240 | this is a new thing, she's in a place where she wants to change, but she hasn't yet shown that
00:22:57.280 | she can change or that she's willing to change or she's willing to do the hard work. Then I would
00:23:02.320 | say probably the best course of action is to believe the best, but be very slow to commit to
00:23:10.400 | any changes. Try to be maximally defensive, but not make any big changes. So let's talk,
00:23:18.560 | the most obvious is the credit card debt. Obviously, any person who is involved with a
00:23:24.880 | single mom of four children, one of her children being also a single mom, another child being
00:23:31.120 | disabled, low income dealing with that and without receiving child support and alimony,
00:23:36.400 | which is also reflective of a lack of other forms of support from ex-spouses and fathers of children.
00:23:44.720 | Obviously, our hearts go out to that kind of person. And I think we would all be very
00:23:50.400 | charitable in terms of the creation of credit card debt and understanding of why that happens.
00:23:55.440 | The problem is if that continues to happen, everyone has a point of where they're comfortable.
00:24:02.720 | If she's comfortable with $35,000 of credit card debt, right?
00:24:09.600 | Yeah, $30,000.
00:24:11.920 | So if she's comfortable with $30,000 of credit card debt on a $35,000 salary,
00:24:18.400 | that is an insane amount of credit card debt for that salary. And so that's not just a little bit,
00:24:27.360 | like that's a long track record of either a few huge decisions or a long track record of
00:24:33.840 | significant overspending. And so there's not going to be any easy way to solve that. And if she,
00:24:39.920 | over time, if that just accumulated a little by little over time, then it's a real problem.
00:24:45.600 | Now, if we look back and we could do a forensic accounting analysis of where did that come from,
00:24:51.840 | maybe her daughter, her disabled child had an especially difficult time and she couldn't work.
00:24:57.120 | Maybe it all came from a couple of months. Okay, well, that's different than if it's just an
00:25:00.960 | ongoing period of time. But I think you really got to dig into that because that's a huge amount of
00:25:04.560 | credit card debt and it's a major danger zone because people who are comfortable with $30,000
00:25:10.400 | of credit card debt on a $35,000 salary are likely to jump right back into it. And I think we've all
00:25:16.400 | seen again and again and again where inheritances and money just gets squandered so quickly and you
00:25:22.400 | fast forward three years and the money will be gone just as quickly as anything else.
00:25:27.040 | So I would try to work with her and try to say, "What are some small steps we can make that are
00:25:35.840 | going to show that you're paying attention and being careful and diligent and help her to get
00:25:40.320 | some wins?" Not big stuff, not you're going to go from $30,000 to $10,000 of credit card debt,
00:25:45.120 | but can you track your finances? Can we just keep track of what you're spending and then look at it?
00:25:49.440 | Can you cut one area of expenditures or can we track how you're doing with your income?
00:25:55.440 | But I would try to keep this money separate because she is certainly, under the current profile,
00:26:00.400 | she is certainly heading for default. To have $85,000 of debt on a $35,000 income is significant.
00:26:09.040 | So my thought is probably what would be the best, ultimately what would probably be the best would
00:26:15.920 | be to sell the house and then use the money to enhance her own situation. And it might be possible
00:26:25.520 | to do that in a way that allows her to continue to exercise her money muscles and clean up the mess
00:26:33.200 | while also enjoying the benefit of the inheritance. So for example, do you think it's possible that
00:26:40.240 | the house could be sold and then she could find a reasonable place to live for about the amount of
00:26:45.120 | cash, say $250,000 and pay cash for an apartment or a condo or a house that would be appropriate
00:26:51.280 | for her and her family to live in? Yeah, that could be a potential. Yeah,
00:27:00.960 | if she just cleared the estate and used the cash not towards her debt, but to get some
00:27:08.320 | security back in her life. Because if she did something like that, then,
00:27:13.520 | and I'm not opposed to paying off the debt. I'm just opposed to paying off the debt unless she's
00:27:17.760 | committed that she's never going to go into debt again. Because obviously her circumstances are
00:27:23.920 | understandable, but they're not going to help her to win. To have $55,000 of student loans
00:27:29.840 | for a worthless degree that you're making $35,000, she can make $35,000 without any degree ever
00:27:36.240 | at any number of jobs. And so this was a bad decision. And then to have the credit card debt
00:27:42.640 | on top of that is just probably a portion of unfortunate circumstances and bad decisions,
00:27:49.520 | which again, understandable, but she's got to be tougher and right the ship.
00:27:53.760 | So would it be possible in terms of with the needs of her daughter, other children,
00:27:58.880 | do you think could reasonable housing be obtained, condo, duplex, single family house,
00:28:06.080 | could reasonable housing be obtained in the neighborhood, in your market for between $150,000
00:28:11.440 | to $200,000? They'd have to move out of the area at that point. This property is in a desirable
00:28:23.600 | location, but just due to the age of the home and its current condition, the normal properties in
00:28:31.040 | the area are probably between four and $700,000. So they would have to move half an hour, hour away.
00:28:42.480 | Could she and her children move into one unit of the duplex and live there comfortably?
00:28:47.520 | They have been. They have been for years and years and years.
00:28:52.720 | Oh, okay.
00:28:53.760 | So that was one consideration.
00:28:54.320 | I didn't understand that.
00:28:55.360 | Yeah. So they've been living in part of the duplex rent-free for years and years and years.
00:29:00.960 | So part of my general thought process was to see if she could find a way to settle the estate,
00:29:10.400 | keep the existing mortgage and rent one of the units and use that. I mean, that would be a 50%.
00:29:17.040 | Right.
00:29:17.760 | It'd be a huge cashflow and it'd be a huge bump in her income to be able to start addressing
00:29:24.240 | her other debts and other previous things or to keep the unit,
00:29:28.960 | refi it, clear it, and then use the rental income from the other unit to help break the ship.
00:29:34.400 | Right. Do you know anything about her credit score?
00:29:36.800 | It's bad. I couldn't give you a number, but-
00:29:42.320 | But a bad credit.
00:29:43.120 | I mean, the credit cards and student loans have been in default for years.
00:29:47.520 | Ah, so is she paying any of those loans?
00:29:53.680 | Not the student loans. I'm sure she's paying some of the credit cards, but I don't know how
00:29:58.560 | much of them we've gotten in that much detail. It's mostly just all been brief right now.
00:30:03.760 | Is she in the state of Utah?
00:30:05.040 | No.
00:30:07.360 | What state is she in?
00:30:08.400 | Washington.
00:30:10.560 | Okay. Washington State. So just a moment. Okay. With the magic of podcasting,
00:30:19.040 | I have pulled up the Washington bankruptcy exemptions. Let's go through this.
00:30:24.000 | Now, I'm no expert in Washington law, but at least I can read the Washington bankruptcy
00:30:27.760 | exemption. So the first thing, the most important thing with a homestead,
00:30:29.920 | real property or a mobile home up to $40,000 of equity is protected under Washington bankruptcy
00:30:37.680 | exemptions. And the reason that I'm doing this is when we get to, if she's behind on credit cards,
00:30:43.280 | and if she's not paying student loans, then we want to be cautious about all of a sudden
00:30:48.480 | having a bunch of unprotected money show up. Because at the very least,
00:30:51.760 | we want to settle this intelligently. At the very least, you want to go through
00:30:58.640 | and individually negotiate with each of the creditors and try to get them to settle as
00:31:03.360 | inexpensively as possible and do this reasonably. But we also want to understand what the legal
00:31:09.120 | protection is here. So if she has been previously living rent-free and let's assume she doesn't
00:31:16.080 | have any money in a bank account or anything like that, then she was a relatively judgment-proof
00:31:20.640 | borrower. But now if all of a sudden she comes into several hundred thousand dollars of property,
00:31:27.280 | then it's questionable of... We have to think about how to protect her from all of a sudden
00:31:35.440 | facing six lawsuits and dealing with that. So first, has the estate been settled yet? Or where
00:31:41.120 | is the estate in the process of settlement? I would assume nothing's happened. I mean,
00:31:47.360 | her mother passed away days ago. Okay. So good. So you got a little bit of time to do this
00:31:51.600 | intelligently. So first, let's real quick look at the Homestead Exemption Laws. So here's what's
00:31:55.680 | exempt in bankruptcy for Washington. $40,000 of real property or mobile home ownership.
00:32:02.160 | Appliances, furniture, household goods, and home yard equipment up to $2,700 total. Books up to
00:32:08.480 | $1,500. Burial plot, clothing, no more than $1,000. Food and fuel for comfortable maintenance.
00:32:14.320 | Keepsakes and pictures. One motor vehicle for each individual up to $2,500 total.
00:32:19.440 | Professionally prescribed health aids, annuity contract proceeds to $250 per month. Disability
00:32:27.200 | proceeds, blah, blah, blah. Group life insurance proceeds, blah, blah, blah. ERISA benefits, IRAs.
00:32:33.520 | Looks like that's about it. Child support, farm trucks. Okay. So that's... And then wages.
00:32:41.680 | So it looks like she'd be okay. Up to $2,000 of any personal property. So relatively low
00:32:46.480 | homestead exemption limits in the state of Washington, but worth paying attention to.
00:32:50.000 | Here's what I think might work out to be the best. First, I wouldn't hurry to settle the estate.
00:32:59.840 | What I would hurry to do is to start to help her to say, "You've got an opportunity." She's got a
00:33:08.000 | couple of opportunities happening in her life. First, her younger children are getting older,
00:33:11.520 | nine and 12. They can be increasingly autonomous, which frees her up to fix her career problems and
00:33:18.000 | move into a higher paying job. She has probably diminished her career prospects because of caring
00:33:22.880 | for young children. Now that her children are getting older, she can substantially improve
00:33:26.880 | her earning by... And apply the degree and improve her career. Number two, she can start to show,
00:33:34.800 | put in place some good habits of financial management, like tracking how much she's
00:33:39.360 | spending, like being aware of how much money she has, just simply starting to manage certain things.
00:33:46.160 | Number three, she can get a full picture of where things are. She can pull her credit reports,
00:33:52.320 | find out how much is owed, make a complete listing of the creditors, and start to challenge that
00:33:57.280 | process and try to get an idea of what is owed. She will need to become an expert or get counseling
00:34:03.520 | on how to deal with the creditors. You'll need to get an understanding of who owns the debt
00:34:07.280 | currently, make them prove that they have legal title to the debt, so when you start paying it,
00:34:11.280 | you don't double pay, and then start the process of figuring out what letters is she already
00:34:15.600 | receiving, what settlement offers is she getting from them as things are right now, and start to
00:34:20.880 | get an idea of how much debt we're talking about here. I would move slowly in settling the estate
00:34:26.400 | so that she doesn't immediately come into the money and then have to figure out what to do.
00:34:32.080 | So she doesn't immediately come into the asset where all of a sudden the creditors can force her,
00:34:39.120 | can force the foreclosure on the sale of the house. So my guess is what would work out best
00:34:45.840 | is for her, because the house can't be protected fully by Homestead exemption laws,
00:34:53.280 | it probably will work out well for her to refinance the house. And if she can refinance the
00:34:59.760 | house and then use some of that refinance to settle the debts inexpensively and to pay off
00:35:06.480 | the things that are there, I think that would probably be a good move. That would probably
00:35:11.760 | be the best situation. I would try to refinance it just a little bit and get a little bit of
00:35:15.840 | money out of it so that she could only wind up with not a bunch of money to blow on some kind
00:35:24.640 | of consumption thing, but that it could actually be set aside for her future. I would think about
00:35:30.800 | selling half the duplex if it's divisible or already divided, or if not, then yes. I think
00:35:36.400 | if she's already living in one, the most sensible solution is just to keep it, rent out the other
00:35:40.640 | unit and use it as a rental income. That would help her to avoid having a lot of income or all
00:35:45.600 | of a sudden money that she would spend and she could continue to have a good place for her and
00:35:51.280 | her family to live. And that would probably be the direction I would go. It took us a long time
00:35:56.960 | to get there, but I think that's where I would move. But try to help her educate herself, get
00:36:02.320 | her total money makeover and put her on Dave Ramsey's plan, something like that to really
00:36:06.000 | help her start to exercise and build those money muscles that haven't existed.
00:36:13.440 | Two follow-up questions. During the refi process and pulling some money out, would you pull out
00:36:22.640 | enough to settle out all the consumer debt or to try and take care of student loans as well?
00:36:27.600 | Well, I think you'd have to look at them independently. So the student loans are
00:36:33.600 | probably unlikely to settle. So if she's paying them or she can just pick them up and renegotiate
00:36:38.880 | them and just pick them up, then I wouldn't mind her still having those and then just,
00:36:44.160 | but getting them current. The credit cards, if she hasn't been paying the credit cards,
00:36:48.240 | then she could probably go through the settlement process with those. And so in such a process,
00:36:54.560 | she should have enough money to make them settlement offers.
00:36:58.640 | I would just try to do this very carefully so that they don't become aware of the money. And
00:37:04.640 | here's the problem. If her mom didn't have a trust, now it's going to be easily searchable
00:37:08.720 | that her estate, her mom's estate is going to be searchable. Everything's going to be a matter of
00:37:13.200 | public probate record. And that puts her into some legal jeopardy. But I would start to negotiate
00:37:19.920 | with the credit card companies and find out what they'll take as settlements on the debt,
00:37:23.920 | and then just refi just a little bit and then use the proceeds from the refi to pay those off.
00:37:31.200 | I guess the key is I want to keep as much money invested for her benefit as possible,
00:37:35.600 | keep as little money out of her hands immediately until she's six months from now when she's shown,
00:37:40.400 | "Hey, I've gotten better at managing money." In that case, let her have it all. It doesn't matter.
00:37:44.720 | You can deal with that then. But she needs to have some time to show that she is learning how
00:37:49.920 | to manage money. And that's a skill that's not acquired overnight.
00:37:55.600 | Second follow-up on the current mortgage while the estate's still in probate and everything.
00:38:02.720 | She continues to just pay that low mortgage every month.
00:38:06.960 | What's the, I guess this is all going to be specific, it's just completely my first rodeo
00:38:15.520 | here. What's a typical timeframe for probate? I don't know. You'll need to check the law in
00:38:23.680 | Washington and to see how this stuff is settled. Different states have, some states have a
00:38:30.480 | simplified process, especially for relatively insignificant estates. Some states are more
00:38:37.200 | complicated, some states it costs more, some states it costs less. So she's going to need to
00:38:42.800 | study the Washington process and start to follow it. I would start with a good NOLO book,
00:38:50.880 | NOLO, the legal publishers. They I'm sure have a good book on being the
00:38:57.600 | executor of an estate. So I would start with that and read that to get an idea of
00:39:04.320 | what she can do. And then I would, there's a lot of moving parts here. So I would stretch,
00:39:12.160 | if I were in her shoes, I would stretch it out as long as I could so that I could get everything
00:39:16.560 | else lined up with what am I going to do when the money becomes legally mine? And I think that
00:39:22.880 | there are a number of ways, just by following the dates, you should be able to stretch that out for
00:39:27.200 | a while. Any tactical practical you can think of to minimize the amount of time between probate
00:39:40.240 | finishing and actually being able to do the refi and get the cash to settle the offers,
00:39:46.960 | the period in between where she'll have some cash and then all these outstanding
00:39:51.920 | debts and potentially judgment is the most nerve-wracking part of the process that I can think
00:40:01.840 | of. Yeah. I don't know exactly how to do it because you've got, and this is not an easy
00:40:10.000 | situation that she's in, the stuff that I'm talking about, where we're trying to make sure
00:40:14.400 | that we don't unnecessarily expose money to the claims of creditors. We're trying to make sure
00:40:18.160 | that we settle the debts at discounts if possible. And there's a lot of moving parts here. So this
00:40:24.240 | is not finance 101. I don't know how to answer that question other than to say, starts by
00:40:29.680 | gathering information, see what offers she has, start to study the Washington law a little bit.
00:40:34.480 | I have no clue about the Washington bankruptcy exemptions. I mean, depending on how hardcore
00:40:39.840 | you want to be, I mean, there could be some things. If looking at the Washington bankruptcy
00:40:45.920 | exemption limit, they ignore annuity proceeds. So it might be worth it to put money into an
00:40:53.520 | annuity that should be protected from her creditors while also being useful to her in the
00:40:58.080 | future. There are a number of different strategies and I couldn't go any further than that in a live
00:41:04.080 | format like this without all the details. >> Sure. What would be an appropriate
00:41:12.880 | local resource if we were going to get some professional advice?
00:41:19.200 | >> Look into a, start with maybe someone in the local consumer credit counseling advisor. That
00:41:25.760 | would be good. I would talk with an attorney and in her case, I would talk, I guess a bankruptcy
00:41:33.360 | attorney would be reasonable and or would that be the best? I guess maybe a bankruptcy attorney
00:41:40.960 | would be a good place to start just because the area we're dealing in here is largely
00:41:49.200 | kind of facing creditors and there's a little bit of protection stuff. It might also be worth
00:41:53.840 | talking to an estate attorney. I mean, the situation is simple, but an hour or two of
00:41:58.080 | local advice from a Washington expert would be well worth the few hundred bucks for her,
00:42:03.840 | in my opinion, to show how things could be done. That would be where I would start. If I were
00:42:11.040 | there, I would start with speaking to a bankruptcy attorney to get an idea of how to protect her
00:42:17.840 | and understand a little bit of the asset protection laws of Washington state and then also
00:42:22.560 | possibly an estate attorney or a tax attorney who would be familiar with the estate settlement
00:42:27.040 | process and would be able to work with her on understanding that. I doubt she needs to hire one.
00:42:32.000 | Well, she might need to, but if you're working with her, it's probably not necessary to hire one
00:42:37.360 | for more than just a little bit of consultation, but that's where I would go for professional advice.
00:42:42.000 | Your input and guidance is greatly appreciated. Hopefully it works out. Keep in touch and let
00:42:49.360 | me know. And thank you for working to help her. I appreciate that you're getting involved and
00:42:55.600 | working with her. Obviously she's had many financial challenges and I hope that this can
00:43:02.480 | be a turning point in her life. A lot of times with single moms, when their children get older
00:43:06.080 | and they can make a turning point, she can have a very bright future and I hope that you can help
00:43:10.400 | her with that. So a couple of takeaways from some of these things for the rest of us. Number one,
00:43:16.640 | if you have an estate, do estate planning. Think in advance because with what I understand from
00:43:22.720 | what Tom's description here, this lady's mom is just leaving her the money, just simply left her
00:43:29.920 | the estate. And who knows if she was in testate or what, but she's just inheriting a piece of
00:43:35.280 | property. The problem with doing that is now you subject your piece of property to the claims of
00:43:41.440 | your beneficiaries creditors. And so that's a problem. So let's pretend that could be a problem
00:43:46.160 | on multiple levels. This is, we're talking about a single mom. Let's say that she were in a fight
00:43:49.840 | with a divorce battle. Well, now all of a sudden, if the mom dies and passes the property along to
00:43:55.680 | her daughter, now that comes into the divorce proceedings. And now she might be fighting an
00:43:59.680 | ex-husband for this money. It's also a problem, which is the obvious situation here with exposing
00:44:05.760 | the asset, the house to the daughter's creditors. And so this could be very, have been easily
00:44:11.360 | changed by the mother. If she had sat down, transferred the asset into an estate that,
00:44:16.080 | sorry, transferred the house into a trust, even if it was a testamentary trust that the transfer
00:44:23.840 | happens on her death and that testamentary trust could have spendthrift provision to protect it
00:44:29.440 | from the claims of her daughter's creditors. So then she could continue to have that asset,
00:44:34.480 | but that asset wouldn't be exposed to the claims of creditors. That would have been the best
00:44:38.880 | solution. And that would have been the easiest solution for her mom to do. And it would have
00:44:43.440 | cost, I don't know, a thousand, a couple of thousand bucks just to retain an attorney,
00:44:48.400 | to write up a simple trust for that. That would have been very simple and easy to do,
00:44:53.040 | but it would have been a lot easier than what the daughter is going into right now.
00:44:57.600 | So that would be just probably the biggest piece of advice for you and me is don't let parents die
00:45:05.840 | with property, leaving that property directly to their children, especially if their children have
00:45:10.000 | creditors. That's a bad move. Also, then you have to think about what's the best disposition of the
00:45:16.160 | property and then try to keep it in the safest position. But I don't need to go on and on.
00:45:21.760 | Obviously, it's a tough situation. I guess the obvious other example, don't go to school for
00:45:26.640 | stupid degrees that don't earn you money and wind up deeply in debt. This is stupid. Don't spend
00:45:34.240 | $5,000 plus on a degree that you wind up coming out the other end earning $35,000.
00:45:40.240 | You can earn $35,000 without even a high school diploma. So don't let people do stupid stuff like
00:45:47.120 | that because it just makes it more and more difficult down the road. Enough yelling. Thank
00:45:51.680 | you all so much for listening. I appreciate it. Remember, if you'd like to join a Friday Q&A show
00:45:56.720 | like this, best way to do it is to become a patron of the show. You can do that at
00:45:59.520 | radicalpersonalfinance.com/patron. And if you're interested in more information on making sure that
00:46:06.160 | you protect yourself and things like this, number one, keep listening to the asset protection series
00:46:09.680 | that we're doing. And then also think about taking a look at my credit card course,
00:46:14.720 | radicalpersonalfinance.com/creditcardcourse. Be back with you very soon.
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