BiggerPockets Real Estate Podcast - 5: Dealing with Death – A Financial Discussion with CFP Neal Frankle

Episode Date: February 14, 2013

Planning for death is not a topic a lot of people want to talk about. However, the discussion shouldn’t be avoided because it’s important that we prepare for the sake of our spouses, our children, our relatives, and our close friends. Today on the BiggerPockets Podcast we are talking with Neal Frankle, a Certified Financial Planner with unique insight into the financial side of death. This fascinating discussion will help you look at your death (and near-death) in a different way and give you the tools you need to move forward with the planning of your finances. This interview, like all of our BiggerPockets Podcasts, is full of real-world, actionable content without all the hype. As of today, we are up to 85 Five Star Reviews for the show! If you haven’t yet left us a review and want to help us build our audience, please click here to leave a review in your iTunes player. It also helps us out when you “subscribe” to the podcast in either your iTunes player or on your iPhone. Read the transcript of Episode 5 with Neal Frankle here. In This Week’s Podcast We’ll Explore: How Neal lost both parents before 18 years old and how that experience helped make him smarter financially. A unique technique for helping your spouse carry on your business after you die. How to plan for the sale of your business or your properties after you bite the dust. The benefit of real estate over retail businesses for succession planning. Why a trust is a terrific tool for every real estate investor. What a “Probate” is and how to avoid it with your future estate. Why you DON’T want a typical “Will” – and the one type of will you do need. The true purpose of life insurance… and which one is “evil.” How much insurance you really need. The best advice for investors looking to take control of their financial future. Links from the Show Neal’s Website: WealthPilgrim.com Neal’s BiggerPockets Profile Probate – A Primer on Probate Tweetable Topics “When it comes to your personal finances — put your big boy pants on, grow up, and do what’s required.” Tweet This! “Most people don’t “get” that one day – they are going to be gone.” Tweet This! “If you can make your business run without you, it becomes becomes all the more powerful and profitable.” Tweet This! “Everyone dies prematurely.” Tweet This! “The two types of life insurance: good and evil.” Tweet This! “Always have a mentor or accountability partner to bounce ideas off of.” Tweet This! “There is no such thing as impossible – just ‘I don’t wanna do it.'” Tweet This! Books Mentioned in the Podcast Money Academy for Couples by Neal Frankle The Total Money Makeover by Dave Ramsey E-Myth by Michael Gerber About Neal Neal Frankle is a Certified Financial Planner in Los Angeles with over 25 years experience. Neal teaches others how to plan for their financial future at WealthPilgrim.com. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show five, and today we're going to talk about death. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online. Hey, everyone. This is Josh Dorkin, founder of BiggerPockets.com, here with my co-host, Brandon Turner. Hey, Brandon. Hello, Josh.

How are you today? I'm doing great. Yourself? Oh, I can't complain. Excellent. Excellent. Well, like you, I'm very excited about today's guest, but before we get there, this is show five of the BiggerPockets podcast, and you can review your show notes at biggerpockets.com slash show

five. Today, we're going to talk about something that a lot of people don't really like to talk about. Death. It seems dark and depressing, but this might be the most important lesson that we've covered yet on the podcast. Why? Well, sometimes this podcast is going to be about flipping subject to lease options, might be about commercial real estate, might be about how to be a good landlord. Each of these topics are important, but they actually don't apply to everybody who's listening.

However, the one thing that we do all have in common is death. The show is not about you and me. This is about our spouses, our kids, and our family. I mean, it's such an important topic. Don't you agree, Brandon? I do. And it's something that, you know, as a young guy, I don't actually pay that much attention to because, yeah, I'm going to live forever, right?

I mean, yeah, yeah, yeah, nothing can happen to me. And that's definitely the way, like, I mean, I might not outwardly say that, except for here on a podcast in front of thousands of people. I mean, that's how I live my life is that, you know, I wrote a post the other day about I don't want to grow old. And I was making fun of people who drive 15 miles an hour under the speed limit. But the fact that, I mean, I drive too fast because, you know, I'm invincible. And that, you know, that will catch up to me someday. Yeah.

So I think this is going to be a great, a great podcast because of that. Absolutely. Well, you know, it's funny. I actually, the way I live my life comes from the discussion of death. one of my best friends back in high school, he used to tell me, he had his big piece of profound advice, which is probably one of the most important things I've ever heard, was you want to live your life like you're on your deathbed. And what does that mean?

Well, to me it means I want to live my life like, I want to live for those people who are going to be around me and surrounding me when I'm dying. So, you know, I'm old. I'm sick. hopefully, you know, that's when I go and not just from some car accident or some angry bigger pockets fan or something. But, you know, when you're, when you're dying, you're on your deathbed and you're surrounded by people. And who are those people that you're surrounded by, Brennan, typically? Your wife or your husband, if you're a lady, your kids, even of those

kind of things, I assume. So it's going to be the people who are closest to you. Correct. Right. So you know the way the way that he explained it to me and and the way I I really see it is you want to live your life for those people um you want to live it for your closest friends you want to live it for your family you want to live it for uh those people who are going to really be there in the end and you want to be able to say hey listen I did I did well by myself I did well for you um and you know I lived a really good life and and uh you know so that's the philosophy I take And that's behind everything I do with my business, with bigger pockets, and with my life in general. That's why, you know, I can't go and rip people off.

That's why I'm not, you know, it's not bigger pockets isn't, you know, this upselly destination. It's because I couldn't look at my family while I'm about to kick the bucket and say, hey, I did good by you. I hoard myself out. I did really good by you. And so, you know, that's the philosophy I had. I'm sure everybody's got their own. Anyway, the bottom line is, you know, death is one of these things that, you know, it's a topic we don't talk about. It's a topic we're afraid of.

But it's a topic that anyone in business has to, absolutely has to plan for. And that's why this show is just so important. You know one of my biggest fears in life? This is just kind of unrelated maybe. But my biggest fear in life above almost everything is being buried alive. I mean, when I was a kid, that freaked me out more than anything. else. You know, they used to put, I once heard a story that they once tied a rope to people's legs in their coffins that were buried, you know, six feet down. And the rope went up to the ground

to a bell that was above the graveyard. So that way, if a person was accidentally buried alive, they would, you know, the bell would start ringing in the middle of the cemetery. So that's, that would be nuts. That would be nuts. Not just a time, but, you know, imagine one day you're working at the cemetery and all of a sudden, one of the bell. time to run. Yeah, that would freak me out. So, yeah, a huge fear of mine. But as I get older and have a little bit more assets and things to my name,

you know, one of my newer fears is, you know, what happens if I go to my wife? Like, how is she going to go on? And not just emotionally, but how is she going to go on with the rest of her life, with the business? Will everything fall apart? And again, when you talk to me about this podcast about having our guest on today, I thought the terrific idea, just because I'm,

yeah, I don't know what to do about that. I have never covered that. And, you know, this is going to be an actionable podcast. That's what Bigger Pockets is all about. And so I'm looking forward to it. Absolutely, absolutely. So I'll make sure next time you and I go to the beach that we won't bury you up to your head.

Yes, thank you. Yeah, I'll start to shake and get scared. And yeah, you don't want to see that. You don't want to see me in a bathing suit anyway. So we'll avoid the beach. Yes. Yes. A squash in a bathing suit.

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All right, man. Well, let's get to this. All right. Well, why don't you introduce us to our guests today, Josh? With us to talk about death is our good friend, Neil Frankel. Neil is a certified financial planner with 25 plus years of experience. And Neil's actually got a really, really just amazing story. It's somewhat tragic, but he's really overcome that. And it's fantastic. He's a great guy.

Neil teaches people how to plan for their financial future, and he blogs at WealthPilgram.com. He's one of the top guys in the financial blogging space. He's incredible. He's got great advice. He's very responsive. So if you hit him up at Wealth Pilgrim, he'll be there to take your answers. But without further suspense or anything else, welcome, Neil. Thanks a lot.

Great to be here. I appreciate the opportunity. We're very happy to have you, man. Very, very happy. So as I mentioned in your intro there, you've got somewhat of a story here. You overcame huge diversity. Maybe you could tell us about your upbringing and how that led you to become who you are today.

Okay. Well, unfortunately, by the time I was out of high school, both of my parents had passed away. my mom died when I was 17, and then my dad was in an airplane crash two years later. So they were in their 40s. We were four children. They didn't do any planning whatsoever, no trusts, no will. My dad, by accident, by accident, in fact, he was doing a real estate deal.

So we had to have a little bit of life insurance to make sure that he could perform. And he made one premium payment on life insurance. The deal didn't go through, but the life insurance did. And because of that, we were able to go to college. But the family was basically decimated because neither parent did anything to plan for the unexpected. Yeah. Wow. Well, you know, unfortunately, that is something that I probably say, and I'm sure you probably know some statistics on a good number of people do not plan.

Do you have any data on that by chance? Yeah, actually, I do. Something to the tune of, I have a chart here on my site, something to the tune of about 80% of the people don't do any planning, at least 80%. It's just eye-boiling. It could be higher than that. No, you know, no trusts.

They might have, you know, they might have a little life insurance here or there, but a comprehensive plan, very few people do it. Wow. Well, what does that tell us about our education system, right? Financial education is not a priority, is it? I don't know if it's a function of education. It might be a part of that, but I think more of it is a willingness to just, you know, put the big boy pants on, grow up, do what's required. Yeah.

People just want to do it. Yeah. They know what you got to do. Absolutely. No, I got you. I got you. Well, we'll get into some of that stuff later on. You know, the big thing, the reason I wanted to have Neil on the show, Neil and I attended a conference.

It was a bloggers conference of financial bloggers. And we had this incredible, incredible discussion with a bunch of really, really sharp guys about death. And it sounds morbid, but the conversation just really got me excited because I realized that I had not done any planning for my own death. You know, sitting and thinking about it, it gets me a little freaked out. In fact, it gets me a lot freaked out. I've got, you know, wife, I've got kids and, you know, to think, oh, gosh, someday something's going to happen to me. But, you know, the folks listening to this show, they're business people.

And, you know, whether or not they're business people or they just work for somebody else, you know, I thought it'd be really important that we get into planning for death. So, Neil, let's talk a little bit about that discussion. One of the things that really sparked my interest was planning your business for your death. So what happens, you know, are you ready today? Is your business ready today in the event that you kick the bucket? That is a phenomenal question. And it's actually, in my view, really powerful, even if you think you're never going to die.

Because let's face it, most people really don't get that someday they're going to be gone. They know it intellectually. They don't really get it in their heart. But the reason that I think that's a great question is because if you can make your business run without you, then your business becomes all the more powerful and profitable. No, absolutely. Absolutely. And so one of the things that we really delved into was having a plan.

And I know for me, we had talked because a lot of. us run web companies and you know we do want this to apply for those folks who've got a real estate business and other businesses but what what i realized was you know god forbids you know something happened to me there's um you know does my wife know how to um how to run my business you know does she have the plans does she you know does she know where the important paperwork is you know let's let's get into that a little bit you know maybe you can you can talk about you know what does somebody need to do? What kind of things do they need to have prepared, particularly for their business, for some kind of transition?

Okay. So I think there's two or three parts of it. And it's funny because after we're done, I'm going to be talking to my lawyer specifically about my transition plan. So it's timely. The first thing is to ask yourself, okay, what happens if I can't come in tomorrow if I'm gone? How does the business run? Your spouse has to have all the documents. So what I've done, Josh, is I've actually recorded myself on video showing my wife where on the C drive of our computer where all the documents are. So I just got like a video, like a screen recorder. Yeah.

And it shows her exactly where the files are. And then I also tell her what these files do and what to do. So it's, I've written out a plan, but I've also got an audio plan for her. That's a great idea. That's a great idea. So you've got this thing. I mean, I hate to be morbid, but is it literally like, hey, honey, if you're watching this, I'm dead. This is what you need to do. I mean, is that kind of how it goes? Well, I don't say that, but it's pretty obvious that that's the, you know, I just say here's what you do. I don't go into that part of it. But, you know, it's been wonderful. Thank you. No, no, none of that. It's very factual stuff. If you're listening to this and watching this video, you're probably smiling because you're the reason I'm dead. Right. Hey, so, okay, so you put together these videos.

You've got the written documents. And what's included in those written documents? You know, is that, and again, I'm talking specifically about for your business. Okay, well, in my particular business, you have to have licenses and I have arrangements with, in my case, a custodian, which is TD Meritrade, and then I've got the state of California. So there's like three or four different legal requirements that have to be met to continue the business. And then also to, I've also appointed a broker to sell the business in case. So I've already set that all up. but there's got to be things that she does to actually execute the plan.

So I explained to her what should happen and who's going to do what and what she needs to do to make that legally possible. So, you know, in every business it's different. You've got to just really take, you know, maybe interview a lawyer for your own business and say, okay, what's required to keep this thing going? Okay, okay. And we'll bring this thing back to real estate for everybody in a bit, but I think a lot of these issues are relevant to anybody who might be listening. So before we do that, let's kind of keep digging into this thing. You know, I look at my business, for example, and I say, okay, well, you know, on the day-to-day, there are certain things that need to be done. So for me, I know that I would need to plot some kind of chart of, here's what you do every day.

this, again, would apply for real estate or non-real estate. You know, here's the day-to-day stuff. Here's the week-to-week. Maybe here's the month-to-month. Here's where the paperwork is. Here's how to find stuff. But you had talked about planning for selling the business. And I think that's a really, really good point.

What, how do you do that? I mean, you know, how do you prepare? Presumably a lot of people don't really. think what happens if I die, you know, to the business. Do I sell the business? Do I keep running it? Right. Well, I can't write. I'm dead. You know, does my spouse run it? So, you know, finding that next person, get into that a little bit. Okay. Well, first of all, you know, again, specific to your own business, you know, my wife is not a financial planner. So my clients are not going to hire her. They're going to go. So that's number one.

So what I've done is, number one, contractor with a company that specializes in succession planning for financial advisors. And the second thing I do, which is more applicable for your listeners, is to network with people, local business people and say, look, you know, if I go, you know, I have a dry cleaning business. You're a dry cleaner. You know, let's set up a reciprocal arrangement where if something happens to you, I'll buy your practice or your business and so forth. So you've got to look around. No, that's a really good idea. I wonder if you could do that, you know, the same thing with real estate. You know, if I go, you know, I've got a good friend who invest.

He has about the same amount of properties as I do. And we've kind of talked about that. You know, if one of us dies, you know, we hope the other person will come in and at least settle the problems. You know, so our wives who are grieving won't have to because we have that kind of inside information already on how real estate works. And so, yeah, that makes a lot of sense. to me. Well, the nice thing about real estate, in my opinion, is that it's not as time-sensitive as an ongoing retail business, you know, that needs daily attention. Real estate does need, you know, you can get a manager to do it, but you don't need to make buy-sell decisions on an hourly

basis. So, get a little bit more time. Yeah, that's great. All right. So very cool, Neil. So what would you say then, you know, what other things should I be doing, you know, as a real state investor to plan for my kind of, you know, eventual retirement followed by death, hopefully, much later. So what should I be doing, you know, from your opinion, besides talking to my friend? Well, in my opinion, the first thing you've got to do is look at your estate plan because if at the time of your death you have a taxable estate, by setting up proper trusts, you could take a huge chunk out of the estate tax and the transition, or you could create a world

of problems for yourself. So the first step would be setting up the appropriate trusts. And then if you have multi-million dollars worth of real estate, then you might want to do a family limited partnership. And it gets complicated. But the first step is getting your trust and limited partnerships in place. Can you talk a little bit about that, Neil? You know, as somebody who, admittedly, I know very little, and I've been reading this stuff and studying a lot of it, you know, real estate. I know very little about trusts.

I know very little about, you know, inheritance and airs and, you know, all this stuff. I know nothing. Okay. So school us. You know, we're the listeners and we're here. You know, I want to learn. What does it trust? How does it work?

How does it protect you? How does it protect your family? The first thing is to name me as your beneficiary. That's the first rule that's the first rule that was a given. All right. So, so there's really two elements of a trust. Number one is you need a mechanism by which stuff that you own gets transferred to someone else when you're dead. Okay.

So if you do nothing, there's a mechanism for. that. It's called probate, and it's a very bad concept. We could, we could, you know, I could talk about, I could do a lecture on that, but okay. The second way is joint tenants. And joint tenants is good because the stuff automatically, depending on the state you're in, and I, also I want to, you know, just disclaimer, I'm not a lawyer, and I don't want to give anyone legal advice, but I'm just going to give general concepts. Joint tenants has, has some nice benefits because when you die, all your assets that are in joint tendency go to your survivor. There's problems because if you die and then your spouse gets everything and assuming

you're, you know, so then what happens when she dies? So or gets sick or something. So that's why the trust could be helpful. The trust is a mechanism by which assets are transferred, okay? So are both you and your spouse in the trust and your kids? or how does that exactly work? My spouse and I are, we're owners of the trust and we're also beneficiaries of the trust, and we're also trustees of the trust.

Now, if something happens to one of us, then we could name someone else as a trustee, but they're not an owner. So they get control or they help control for our benefit, but they don't have ownership rights. And that's the big difference between a joint tenant and a trust. So the first part of it is it's a mechanism. by which assets are transferred. But the second element is that it, depending on the size of your estate and the state taxes at the time of your death, the trust could potentially help you save hundreds of thousands of dollars in estate taxes. Do you have a like a minimum for

what, you know, if a guy owns one single house, you know, one rental house, you know, should he be looking at getting a trust or is that something for, you know, the millionaires only. Well, because I'm a pessimist and a conservative and my experience is, you know, all kidding, aside, my experience is that you never know when you're going to die. And unfortunately, I was a recipient of that. My parents had they had a trust, even though they didn't have very much money, would have saved a lot of grief. So the trust also does a lot of things even if you have no money. It has health powers of attorney. It names, if you, for example, Brandon, have children and you want to name a guardian for your kids, the trust can help you do that.

It doesn't hermetically do it, but it does a lot of other things. So I wouldn't wait to be a rich guy before I got a trust. Can you talk about the difference between, for example, you know, guy has one rental property and he's got, say, you know, 50,000 in the bank. Say the property is worth 50 grand, 100 grand. So, you know, it's a hundred thousand dollar property, 50,000 in the bank. he kicks the bucket versus his friend who has the exact same finances but puts that money puts that in a trust how does what what's the difference and how does that work okay on the

first of all on the let's say you know the the guy dies without a trust assuming that he had the property in joint tenants with his spouse and and the money in joint tenants then it goes to his spouse. If he's single and it's just in his name, then the lawyers have got to get involved. It's probated and then the lawyers are going to eat it all up. Okay. Versus the other guy or woman who, because we all know women are smarter than men. 100%. I agree. So if the woman has the trust set up, she passes away.

Her trustee would basically just divvy it up. It would probably take two or three weeks, maybe a month, it's all done. It's very simple, very easy. Is there a tax implication on that? So you've got the property. Are you now paying cap gains on death tax or any of that weird stuff? The estate taxes, there are some benefits of having, it's going to get a lot more complicated than you probably want, but let's put it this way.

depending on the size of someone's estate, it could save a lot of money in estate taxes, but for most of us, it won't right now because we have an estate tax exclusion of $5 million. Ah, very nice, very nice. Drops back to a million. See, basically the trust can allow you to double your estate tax benefit, okay? So if you have been a state worth $10 million, then the trust would basically, help you avoid 10 million, you know, shield $10 million of assets. But if the estate tax drops to a million dollars, then the estate, then the trust could help you shield $2 million of tax-free

assets. Complicated. I would definitely recommend at this point that your people not take, you know, not make a decision based on what we're talking about, but make a decision to talk to a lawyer about this if it sounds of interest. I was going to say that. I was going to say, you know, this is a pretty heavy conversation. There's a lot of really important and very detailed concepts. So definitely talk to your lawyer, definitely talk to a CFP. Don't go out there and try and figure this stuff out on your own. That's kind of my disclaimer to your disclaimer. I know Brandon wanted to jump in with some stuff here. Yeah, I'm just curious, Neil, I know this is a really general question, but if I wanted to set up a trust, what am I looking at?

to have a, I mean, does a lawyer do that or does a financial planner do it? And then also, what is a general range that is going to cost? I mean, is this a $5,000 thing or $100,000 thing or $20? Oh. Well, good question, Brandon. I would not recommend that anyone do this with a CFP. Okay? I would recommend one of two things. A lawyer, if your situation is complicated or you just have more peace of mind that way. And okay, really important, make sure that the lawyer specializes in estate taxes, estate trust. Quick story, I went, I was friendly with a lawyer who knew nothing about estate taxes, and he would take people and charge double. He would take money, charge him $5,000. He would pay another lawyer $2,500 to do the trust, and he would pocket $2,500.

So it's a great way to waste a lot of money if you don't go directly to a trust attorney. Now, the other way to do it is you can use a service like legalzoom.com. And I've done some reviews on places like that before. And I think that Josh probably has to or may in the future. Self-service companies could be good as well depending on the, you know, how complicated your situation is. But that could, you know, a company like LegalZoom, I don't know what they charge, maybe $100 or $200 or $300 and a lawyer could charge between $500 and $3,000 or $5,000 or $10,000 depending on if it's very complicated. And if you have a lot of real estate and or lots of beneficiaries and a second marriage and this and that, you really should talk to a lawyer in my view. No, that's good advice.

There are two kinds of real estate investors. those who have reviewed their insurance and those who think that they have. Most don't realize their coverage wasn't built for how they actually invest. Vacancy periods, rehabs, short-term rentals, or LLC-held properties. These gaps surface only when filing claims. That's why investors work with NREG. They specialize exclusively in real estate investors, understanding portfolios, risk at scale, and cash flow protection.

One claim can erase years of returns. If you own a rental property, don't assume you're covered. Have NREG review your insurance with someone who gets investing at NREG.com slash BPPod. That's N-R-E-I-G.com slash BP pod. People love to call real estate passive income, which is interesting because most of the investors I know are very busy. Busy finding deals, busy managing teams,

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Find out how much at Airbnb.com slash host. So we covered costs. We covered kind of vaguely what it does. And it sounds to me like a trust is something that probably everybody wants to put together. You had mentioned earlier probate. And, you know, maybe we could talk a little bit about probate, what it is, how it works, and from the perspective of protecting yourself from your estate going into probate. And then I think we should actually tackle it from the other side as an investor.

You know, there are lots of families and there are lots of people who, unfortunately, have to deal with probate. And, you know, how can you come in as an investor and how can you come in as an investor and how help those families to dispose of the assets that they probably want to get rid of so they can get some cash on hand. So let's take it from both sides. Let's start with what is probate? Okay, 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, yeah, don't worry about that.

It means that the court will take your will and interpret it, and that's going to take time and money and lawyers. If you die without a will, it's called you've died into state, meaning you have no will, so the court will use the state laws and decide, you know, where your assets go. So basically, it's a lengthy process. The 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.

And it's open to, it allows a lot of people to fight over your money. So, 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? U.S. government? Lawyers. Lawyers and courts, right. So, you know, when John Wayne died, no one knew what the size of the state was.

because he had a he had a he had a trust so so so it's it's private it's quick it's cheap probate is exactly the opposite of that hey so so trust and wills let's let you know how do they work hand in hand because I think there might be a little bit of confusion you want to have a will obviously oh you don't you don't oh you don't well you'd right you should here's what you should have it well again depending on the state and your situation I'm not a lawyer. He's not a lawyer.

Talk to your lawyer. Good one again. Okay. So a trust sort of does the same job as a will. So you're better off to have a trust all things being equal than a will. However, what people generally have is a will in case you forgot to put something into the trust. then you have what's called a poor over will, which is if you forgot,

then everything that's left out of the trust goes into the trust via the will. So would that be the ultimate setup that you would think people, our listeners would want to have, is to have a trust and then have that poor over will? Is that the optimum?

Yes. Okay, okay. I've never heard of a poor over will. This is fantastic. A great, info. All right, so let's get back to probate then. So we know how probate is. It's public. It's open.

What does that mean? You know, what does that mean to somebody who, you know, is an investor? I know a lot of investors market to the probate market. They send mailers out, you know, it's kind of a grim thing, but unfortunately,

you know, people who passed away oftentimes leave assets and they don't know what to do. So how can somebody who is an investor come in and help out? Well, you know, A, I don't know a ton about this, but B, this proves the point. There's the reason that investors, some investors aggressively market to probate attorneys is because they know that the people who mistakenly went through probate are screwed.

and they're going to take advantage of that. That's where they're going to get a deal. So let's say an asset gets probated. Well, the family wants the money quick. They need to pay for legal fees, estate taxes possibly. They're in a tough situation. How you would pursue that specifically, I don't know exactly, but I can tell you, again, unfortunately, probates are public record.

So you could find out about probate and contact the lawyers and the families and make yourself available as a, you know, investor. Yeah, well, and there have been a bunch of articles. If you go to the BiggerPockets blog at BiggerPockets.com slash R-E news blog, you will, you know, you could look up some articles on it. We'll actually put probably, we'll put some links into the show notes at biggerpockets.com slash show five. All right. So probate is, is, it sounds like we don't want to.

end up in probate, that's for sure. Absolutely not. We also don't want to end up passing on without being prepared in other ways. And I think one of the things you and I've talked about, Neil, is on life insurance. So maybe we can kind of cover that a little bit now. What is it, how does it work and why do we need it? Oh, well, life insurance basically pays off a big lump. case you die prematurely and note to self everybody dies prematurely. Yeah, what is prematurely? Yeah, I just say that to make everybody feel good. But 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. So if so you need it, Josh, if people depend on your income.

Right. Okay. And there's various kinds of life insurance, correct? I know there's term and then there's whole life. What's the difference? One is good and one is evil. Which means the evil? The evil is whole life, in my opinion. For most people, not always, but 99% of the time. Now, if you're a life insurance agent, whole life is wonderful because you make a ton of commissions on it. but so keep it real neal i love it okay night no most people term insurance is far better far better it's a whole lot cheaper uh gives you a lot more coverage for the same dollar um yeah and and it's it's amazingly cheap you know it's much cheaper than you think the term insurance is the way to go absolutely i'm a big fan and i'm a big believer in it all right so we we've got

term insurance. We're not going to get the whole life because we don't want to make the insurance sales guys rich. We want to take care of our families and do that. So how much term insurance should somebody get? So say I'm a real estate investor. He's got 10, 20 properties bringing in an income. I also, maybe I work a nine to five on top of that. I guess we could come up with a million scenarios, but ultimately what are people kind of looking for in terms of how much they should purchase? This is a really good question. So the way to do it is to really break it down, Josh. Let's say you wanted to die.

Excuse me, you don't want to die. But if it happens, you want to pay off all your real estate. I'm just saying, it depends on what you want to do. Let's say you want to pay up or just pay off your house or whatever. So let's say you own a mortgage of $300,000. So that's a base amount. then you want to provide $100,000 of income for your family, let's just say, all right? So rule of thumb, 5% return on your investment.

You would need $2 million invested to generate $100,000 in income, and that's pre-tax. So you would need $2 million life insurance. It's really rough. It's really broad, but you just work backwards on your income. Okay, okay. So working backwards is absolutely, you know, it's something that you do as an investor regardless when you're kind of planning. I know Brandon and I, we've talked about that in terms of building up your portfolio and plotting. But it sounds like that's a great idea for this as well. Yeah, one thing that I, what I did for my life insurance, and Neil, I'd actually

like to get your opinion on this. I got a policy a couple years ago. And, uh, I, the policy, it was a term life insurance, but then they gave me the ability to, I think every year I can up the amount that I have because as I buy more and more properties, I need more and more money. So kind of my theory was I would always have enough life insurance to cover paying off all the mortgages that I have. So if I were to die, at least my wife, and she knows that she's to pay off everything that we own, and then just hand it all over to property management or over to my, you know, my other investor friends. Is that your...

Conceptually, it's, you're in the right neighborhood, but there's a, so there's a, I want you to think, Brandon, of your life insurance needs sort of as a bell curve. So, on the one hand, you will need more as your family grows and as your exposure grows, agreed, okay? Yep. But as your net worth grows and you pay, off properties and you have more equity and you have less, you have more passive income and your family, your kids get older, blah, blah, blah, you actually need less life insurance, right?

Yeah, that makes sense. Okay, so you have to first plot out what your life insurance needs are over the next 20, 30 years, and of course that's going to change. You have to make assumptions, and you have to be able to build to buy more insurance and sometimes and then taper it down. So what I've done rather than do what you did is I bought more policy. in the beginning, but I bought them for different periods of time. So when I was 30, I bought a 30-year policy.

So it expires when I'm 60. And then I would buy different policies that would extend for different periods of time to, you know, to tailor my life insurance needs, you know, or plan to my needs. So you could buy multiple policies, is what you're saying, you know? Not only can you, I recommend it. Okay, so you could have one expire, like when your kid is graduating from college, then one of them could expire because you no longer care about that extra, that money. Right.

Okay. Right. That's great. That's great. So, Neil, let's get into really quickly and then we're going to have to get out of here. Some overall ideas. You're a CFP. You're talking to an audience of, you know, actual investors and would-be investors.

Give us some big broad kind of sweeping advice that you can provide to. us, whether you know, whether you're somebody just starting or somebody who's been around for a while, you know, what are your best tips for, you know, CYA, covering your backside, making sure your family's ready to go financially? What do we need to do? The first thing is to have enough liquidity and to be tracking your spending. Very important because people spend about 30% more than they think they spend. And if you just simply track it by virtue of tracking your spending, you'll see where your money is going.

You'll be much more conscious of how you spend money and you'll be able to catapult your financial future, your success. So track your spending. Number two, make sure you have a good emergency fund and enough life insurance because you don't know. And guess what? You really don't know. and if people are depending on you, do the responsible thing, get enough life insurance. Then, from there on, I actually like Brandon's post. He wrote a post for me, gosh, a month or two ago.

And it was wonderful because it talks about, you know, looking at your life, building a plan, going backwards, what do you want it to look like, when do you want it to look like that, and then, you know, investing accordingly. and not getting caught up in this year or what President Obama is saying now or what's going on in Congress, you know, have a plan and execute it and understand that it's a 20, 30-year plan and execute it. And execute it, you know. And then the fourth thing, which I'm not sure that Brandon mentions, but I always do, is to always have an accountability partner and a mentor, you know, to run your ideas.

off somebody else who has what you want. That's a great idea. That's a great idea. And how often should somebody be reviewing these plans? At least once a year. Okay. At least once a year. And talking to your accountability partner once a month.

Interesting. Really quick, the post that Neil talked about will have in the show notes at biggerpockets.com slash show five. And you know, one thing you said, Neil, that I just wanted to point out a real-up example of is you said, track your expenses and what you're spending. And about, I don't know, probably three or four years ago, I sat down with my wife and we decided to kind of take our finances more seriously. And we looked and we figured out we were spending an extra, I think we were over $1,000 a month that we had no idea where it was going. And yeah, so we sat down, we plopped, you know, plotted it all out, we created a budget and nothing changed in our life after that. but all of a sudden we had an extra $1,000 a month.

Exactly right. Yeah, it was like magic. I mean, after that, I told every one of my friends. I mean, you've got to do this. Like, I was spending $1,000 a month more than I thought I was. And, yeah, it's so great advice. We got them off the Starbucks. Oh, no.

Not that. Hey, all right. So we're running out of time here. So let's knock out a couple really quick questions. Neil, what is your favorite personal finance book? My very favorite personal finance book is Money Academy for Couples written by Neil Frankel. How about your favorite personal finance book not written by Neil Frankel? Oh.

All right. Well, that's a tough one. You know, Dave Ramsey wrote a book about, I forgot the name of it, but. The total money makeover? Total money makeover. That's what the book that did it for me. Yeah, okay, so that's great also. But the most important business book I ever read was the e-mith by Gerber.

I forgot his first name, but Michael Gerber, I think, phenomenal. That changed my whole business life. I think that's the fourth time on this podcast that we've had somebody say the same book, and I haven't read that one. Well, Brandon, what do you conclude from that, buddy? Yeah, I'll pick that up this week. There you go. Thank you.

There you go. All right, Neil, let's talk about what's your favorite hobby? What do you do for fun? Besides, give me grief. Well, believe it or not, I play drums and I've played in a few bands and I've even toured a little bit all over the country once in a while. So I still, even though I'm pre-death, I still play rock. That's awesome. So are the rolling bones, man. Yeah. That's cool. I play drums too. I'm pretty terrible, but I enjoy it quite a bit. And I'm a former terrible drummer as well. Wow. Okay, so we got a lot in common here. Yeah, shocking. Yeah, sometimes. John.

All right, so the last question I have, Neil, this is what I ask everybody, and I'm going to tailor it a little bit specifically for you. But the question I have is, you know, in this industry, just financial in general, I guess, you know, a lot of people, do really, really well, and a lot of people make a lot of money, and they end up retiring with a huge portfolio, and other people end up with nothing and end up going, just kind of living off family and friends and the government until they die. So what's the one thing, or, you know, one or two things? What sets people apart, the top performers from those who are just scraping by? The three things that come to my mind are, number one, commitment, number two, a plan, and number three, execution.

There's a saying in the Israeli army that goes, there is no such thing is impossible. There's only, I don't want to do it. It sounds better in Hebrew, but the reality is, when I talk to people and they're successful, it's because not only did they have a plan, and they were committed to it, but they actually took action. Other people, they have excuses.

Yeah. Look at yourself, Brandon. I mean, you've executed your plan and you're continuing to do. So same thing with you, Josh. Look at what you've done. You know, bigger pockets didn't fall into your lap. You had to work tirelessly and you continue to do so. It's called commitment, it's execution.

So that's what it's about. In America, I honestly believe you can do anything. You just got to do the work. It ain't going to fall in your pocket. Yeah. Even if you have bigger pockets. Yeah. That's great.

That's great, Neil. Thank you. It's really my pleasure. Thank you for having me on the show, Josh and Brandon. No problem. No problem. Great having you. And that was our show today, everybody.

I hope you enjoyed our discussion on death and near death with certified financial planner, Neil Frankel. If you haven't yet left us a review, please, please do so. As of now, we're up to 65, 65 five-star reviews on iTunes. These reviews really help us rank better on iTunes, help us get more people to see us. Also, subscribing to the show on iTunes is really, really important. So please jump on iTunes and make sure you click the subscribe button so that you can subscribe to the show. Again, another way that we can help get the word out about what we're doing here. You guys are really, really awesome.

We appreciate the support. The listenership for the show is just growing by leaps and bounds. So it's really exciting. and we're going to continue to bring you some really great shows ahead. Finally, just remember all the information talked about on today's podcast can be found in the show notes at www.biggerpockets.com slash show 5. This is Joshua Dorkin, signing off. You're listening to Bigger Pockets Radio,

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