Friday, August 05, 2005


Oh my goodness! Last summer, an old friend died.

Two week before he died, he called me and entrusted me
with caring for his son. Now, since his son was middle-
aged, you wouldn't think that would be such an issue.
But Dad had sheltered him so well from financial matters
that his son didn't even have any of his own credit.

And Dad left debt - but substantial equity in his home.

It's been a year now. It's almost the anniversary of Dad's
death. And Son just called me with the latest update on
his financial situation.

He has a job interview next week.

Some History

During the past year, Son has sorted out all of Dad's
financial issues. He's become adept at working with
his attorney to have the credit card companies settle
some of Dad's debt. He's paid the rest. He's established
credit of his own, to the point where he is getting those
solicitions from the credit cardcompanies inviting him
to 'sign here'.

I promised his dad that I would find a way for Son to
stay in the home, even though the mortgage payments
would eat up all of his annual earnings. We tossed
around some ideas to make it possible for him to stay
for at least 7 years, to get him on his feet, and to buy
time to build up additional equity in the home.

Since he couldn't afford the payments on the residence,
I advised him to get a roommate. Then, once his finances
were stablized, we'd sit down and talk about using some
of the money left over to get an education and to learn a
more marketable skill, and/or start his own business.

The plan was that he would use a negatively amortized
mortgage to keep his payments low. He knowingly would
eat into the home's equity for five-to-seven years, until
he could raise his income. (This is not advice I normally
give. TaxMama usually discourages negative loans.)

In his case, he knows the equity will increase dramatically
because of an adjacent development of $10 million homes.
He and his neighbors are already getting offers to buy their
homes for over 5 times what Dad had paid for it. So, it isn't
a gamble.

Son followed my advice and got a roommate. What a disaster!

He literally kicked that guy out the day after he moved in.

Yet, the day Son kicked him out, another tenant called
wanting to move in. He did.

It Changed His Life

Talk about serendipity! Because he got the roommate,
Son is being invited to apply for a position at one of the
top companies in the world, with a recommendation -
from his roommate. When Son gets the job next week,
even if he starts in the most menial of positions at this
company, his financial future will be set on a secure,
healthy path, with full benefits and growing income.

He will never have to start a business and run the risk
of failure, or of losing his inheritance. (This worried me
greatly, due to his previous lack of experience with
finances and managing a business. Though, he's learning
so quickly!)

Of course, he will probably still get educated, but the
cost is likely to get picked up by his employer - and
he'll have a specific focus on what he ought to study.

And the Point is?

Where is all this going? Is this just some TaxMama brag?


This is about doing something that so many people don't
do after a death or divorce.

It's about being patient - and making plans.

Too often, when we experience something tragic, like the
Big Ds, we just want to push everything and everyone away.
We want to clean house, literally and figuratively.

You just want to end the pain, and just brush away all
the things that bring you painful memories.

You want to end the pain, so you want to settle all
the issues too quickly, taking the shortest, fastest route.

Or you've been numbed by the pain and just don't do
anything...hoping it will all take care of itself.

Or you're trapped in the pain. It becomes a comfort.
It becomes a safe, familiar friend, so you don't le tgo
of anything, you don't resolve or finish anything, because,
somehow, it gives you a connection to the person who died,
or to the good part of the marriage you once had.

So, here are TaxMama's Tips for Tragedies

1) Don't throw anything away for at least one year.
Anything you think should be discarded, put into a
separate place to review when you're sanity returns.

2) Don't give anything away for at least one year.
If it wasn't a bequest in the will or a promise made,
set aside the things you want to give away until you
can evaluate if you're giving it away out of painor out
of love and generosity. If it was out of pain, hold on to
it a little longer. You may decide you do want it after all.

3) Don't just throw money away because things are
too complicated for you. If you can't deal with things,
get help - ask for help from family or friends whom
you trust. If there's no one, find a good, reliable tax
and financial professional to help you. Remember, after
a death, I've seen many people arrange for a substantial
part of the deceased's debts to be discharged or charged
off by lenders. Your finances can become more manageable.

4) Don't dump your home because you can't afford it.
Pause. Think. If you're willing to reduce your standard
of living anyway, is there a way to keep the home by
getting a roommmate, or turning it into a bed and
breakfast, or...come on, think. Use your imagination.
How can you keep your home, so you don't kick yourself
later. (If I had bought my ex out of our house and kept
that home - today, I'd have no mortgage debt; my payments
over the years would have been closer to $400/month
instead of $1,500 - $2,000/month; I'd have been able to
collect a healthy stream of rental income from it for
decades; and I'd have over half a million dollars in
equity today. What would you have if you hand't just
rushed through your divorce or post-death trauma?)

5) If you only have a limited amount of money, and
not too many skills, or not much education, don't just
invest the money in securities. Invest it in yourself.
Sit and think about what you want to do. Use that
money to get an education or training to learn a new
career, or to start abusiness, or to hire help who can
ensure that your existing business starts to prosper.

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