Serving as Executor

Over the last year I’ve had to serve as executor to two estates, my father-in-law’s estate and my wife’s estate.  But these were not my first experiences at this task.  I had to close out my parent’s estates both in 2003.  It’s challenging.  It’s frustrating.  It gives you no time to grieve for the one you lost.  Attorneys are constantly asking for this information or that information. In the meantime you have to sift through years of paperwork, discover accounts, locate documents, and try to figure out where everything was stored.  There is no time for anything. No time to relax.  No time to watch a little television.  Then if you have to sell off a house or other property, the workload increases dramatically with having to clean out a house filled with decades of accumulated things, trash the junk and the worthless, sell off the better stuff for pennies on the dollar, list the house for sale, deal with realtors who only really care about turning over the house as fast as possible, negotiate the final sale, file all the necessary paperwork and file final taxes.  Multiply the complexity of having to deal with estates from a different state than the one you live in with each state wanting a piece of your pie and it is at times enough to make you go crazy.

Even working with an attorney can be a massive drain on your energy and your well being. Then friends and relatives (if you still have any) begin to wonder why you have changed.  You never seem to have time for them.  You never have time to go out, to go to the movies, or to one of the parks.  And when you do go, they think that you are insensitive about the loss of your loved one.  It’s kind do mind numbing.  People may say ‘Can we help?’ But what can they really do? Trips to the courthouse, lunchtime meetings with banks and attorneys, going to the post office to send registered mail, and countless phone calls that you must take during work because these other people do not work evenings or weekends even though you boss is angry with you for taking personal calls while you are at work.  Dealing with insurance firms and investments who require a dozen different documents to prove the other person is really dead and you have the rights to handle the estate.  Paying expenses out of your own pocket until the estate can free up some accounts and give you access to them.  Balancing other peoples checkbooks.  The list goes on and on and sometimes you just wish that you had gone first and no one understands why you seem so worn out and down.  After all, it has been 3 months since the other person died.  But estates can take months if not years to completely resolve and close.  Perhaps for the dead, it is one final cruel joke to play on the living to account for all the things you should have done while they were alive but didn’t.

Eventually you get close to finishing everything and you just want to sit back or lay down, rest, and do nothing.  But others tasks have been pilling up.  You want to take time to grieve but it has been so long that the feelings of loss have dulled. maybe it is also from all the aggregation of closing the estate.  So while you feel an emptiness, maybe even a bit of loneliness, the pain of your loss is mostly gone.  You tend to remember more of the good times, not the bad times.  You begin to plan on how to move forward again.  How to find meaning in each day again. This is another time that relatives may call you cold and uncaring, and that hurts more than your loss because you have made peace with your loss. You have worked through your feelings while you struggled to close the estate. You want to move on but they don’t want to let you.  They keep trying to pull you back to a state of grief that you have already left behind. They don’t understand that it is over.  That it is time for a new chapter.

Sure executors get paid for handling the estate.  A whopping 2% which unless you are executor for a large estate ode an estate with many heirs is nothing.  Certainly not considering the stress and aggregation. And especially not if you are the only one to inherit the estate anyway.  Especially not if the work places your job/career in danger.  Did I tell you about the judge who almost wanted me to post a bond so I would not steal money from myself?

So another year is about to start.  I’m close to closing these two estates.  I don’t know for sure what the new year will bring.  There are some bright spots to focus on. My final recommendation to you the reader is that if anyone asks you to be their executor for their estate, try if at all possible to avoid it.  And if you must do it because there is no one else, find a good attorney who will guide you through the legal morass of estate law. Perhaps even consider some estate planning for yourself now like making sure all of your investments have beneficiaries or you could set up revocable trusts in your beneficiaries names while still retaining control.  Perhaps that could be a New Year’s resolution.

C’ya later.

Advertisements

Personally Identifiable Information – Beyond SSN

It seems that most people are now aware that collecting SSN information from people and storing it a computer system is a risk to that person’s identity protection.  However, the risk does not stop with SSN.  There are other types of information that you should carefully secure after it is collected and furthermore, you should only collect it if there is a real valid reason why it must be collected.  Collecting information just because you can or just because you might one day need to use it is not an excuse when doing so could result in that person suffering at some point from identity theft.

So what else should be protected?  What about email address.  It seems like everyone wants to collect email addresses these days.  You can hardly log into a site on the web without them asking for your email address.  Some people live their lives happily with only one or two email addresses and they use that email address for everything ranging from securing their phones or other mobile devices, accounts on-line, contact lists, etc.  Now even Windows 8 allows you to use a Hotmail (or Outlook) email address as your desktop login.  How can you protect your email address when you don’t know if the programmers are encrypting that information the same way they encrypt (or should encrypt) SSN values?  Simply go out and get a throwaway email address that you use for logging into web sites.  You can get extra email accounts from many places, but I recommend either Hotmail (Outlook) or Google because you get not only an email address from these two, but you also get a fair amount of online storage where you can store files and documents.  Furthermore, Hotmail (Outlook) also allows you to create alias accounts associated with the main account.  The real advantage of these alias accounts is that you can create rules to redirect all email to these accounts directly to the trash if you have the account only as an email address for sites that require one.  (It is a great way to avoid spam too!)

There are other things that should also be protected such as phone numbers and addresses.  Why do you need to include an address when you register with a web site?  It is not as if they are going to actually send you physical mail is it?  After all, that is one of the reasons why the post office will be stopping Saturday deliveries later this year.  Total mail volume is down.  (You thought not getting all of that junk mail was a good thing!) Junk mail paid for a major portion of the post office expenses.  But it is not just that.  People don’t send letters or cards anymore.  They use email message, instant messages, texting, and e-cards.  Many people don’t get physical magazines either because they read most magazines online and not have to guess what is missing from the torn pages of magazines that get shredded during the delivery process.  People also pay bills online rather than sending checks.  And the list goes on.  So why ask for an address that really isn’t needed, but could be used to locate where a person lives.   Imagine a fictitious criminal organization that buys customer information including email addresses from high-end online sales companies so they can target which communities and even homes are more likely to have valuable stuff that their contracted thugs can burglarize.

Phone numbers to some extent fall into that same category.  It is one thing perhaps for the company on whose site you registered to give you a call about their products or services.  However, it is quite another when they sell that information to information brokers to make a few extra bucks because you didn’t buy anything anyway (or even if you did).

Ok, so we are not going to solve all the privacy problems here.  However, I still would encourage those of you who develop databases or who manage databases to consider encrypting more than just the SSN and passwords of people from whom you collect personal information.  Also, please consider if you are collecting that information because it is something that you or your organization will actually act on or whether you are merely collecting it because you just threw it into the pot along with the kitchen sink.

By sharepointmike Posted in Finance

Do You Have A Goal For Your Excel Data?

As it gets closer to the holidays, I’m looking forward to some time off so I’m going to cover some quick Excel analysis tips I’ve run across during the past year during these last few weeks of the year.  When I come back in January, I will be starting a series on Project Crescent in SQL Server 2012.

Solving for a goal in Excel

A common thing that we have been looking at as we prepare for a new budget year is evaluating which of several projects should we take on.  One way to evaluate projects is to calculate the Net Present Value (NPV).  This technique looks at a future stream of expenses and revenues and adjusts them for time to determine what that stream would represent in today’s dollars.  To do this, you have to begin by calculating the expected expenditures and revenues over the next several years as shown in the following table for a simple 5 year project:

A

B

C

D

E

F

1

Project: Widget Upgrade

2 Year 1 Year 2 Year 3 Year 4 Year 5
3 Expenses

$275,000.00

$77,250.00

$79,567.50

$81,954.53

$84,413.16

4 Revenue

$120,000.00

$126,000.00

$132,300.00

$138,915.00

$145,860.75

5 Net

-$155,000.00

$48,750.00

$52,732.50

$56,960.48

$61,447.59

If you just sum each year’s net return, you would be saying that a dollar five years from now is the same as a dollar today.  However, that simply is not true.  Even if inflation were 0%, a future dollar is not worth a current dollar if for no other reason than you can invest a current dollar and have more than a dollar in 5 years (yes, even with the low interest rates banks are currently paying).   In fact, unless you can earn more from your project than the bean counters in finance can earn by investing that dollar somewhere else, your project doesn’t stand a chance.  How much more you must earn is a function of anticipated inflation and risk.  So if you could invest your dollar and earn 5% a year, but expect inflation to be 2% and the project is moderately risky, you may need to earn at least 9 or 10%.

Most projects, such as the one in the above table have fairly high expenses in the first year or two but have moderate operating expenses in subsequent years, at least compared to the expected revenues.  In this example, the first year of the project costs $155,000 more than it brings in.  But in subsequent years, revenue exceeds expenses by about $50,000 or more each year.

Suppose you just added the year net returns together.  You might think that by spending the $275,000 this year, you can cover all expenses and have an additional $64,890.56 in revenue.  That sounds like a good deal right?

The problem is that merely summing the net returns does not take into account the time value of money.  Let’s look at a simple example of the time value of money.  Suppose you could invest the $275,000 and earn 5% per year for each of the next five years?  In year 2 you would have $275,000 * 1.05 or $288,750.  In other words, you would earn $13,750 on your investment.  In year two you would have $288,750 * 1.05 or $303,187.50 earning another $14,437.50.  In fact, over the five years you would earn $59,264.22

So how do we take into account the time value of money in our example?  Well, in the first year, we have expenses of $275,000 but only revenue of $120,000 for a net loss of $155,000.  In the second year, we have expenses of $77,250.00 with revenues of $126,000 for a net gain of $48,750.  Can we simply take that $48,750 and credit it against the first year loss of $155,000?  No, that $48,750 is not worth that much in today’s dollars.  In fact, if you only consider the alternative investment rate of 5%, those second year dollars are only worth $48,750/1.05 or $46,428.57 today.  Why?  Because if you invest $46.428.57 today at 5%, you will have $48,750 a year from today.

Using similar logic, you would discount each of the future year net returns by 5% per year and then sum the results to get $39,016.19.   So you would still make about 39 thousand dollars more by doing this project.  Anything that returns a positive amount is potentially a good project.

NPV

$39,016.19

=B5+C5/B8+D5/B8^2+E5/B8^3+F5/B8^4
%

1.05

But wait a minute, we did not yet account for inflation or risk.  Suppose you said that you really need to discount future year net proceeds by 10% to account not only for alternative investment, but also for inflation and risk.  Performing these calculations and summing the results still yields us a positive $17,663.54.

NPV

$17,663.54

=B5+C5/B8+D5/B8^2+E5/B8^3+F5/B8^4
%

1.1

So at what interest rate would we become indifferent to this project?  By definition, that is the interest rate that make NPV equal to $0.00.  We could continue to guess at different interest rates, but there are some easier ways in Excel.

The first way is to use a feature called Goal Seek in Excel.  Goal Seek is great when you are trying to force a specific cell’s calculated value by changing one and only one other cell.  In this case, I set up the equation to calculate NPV in cell B7 and the discount interest rate in B8.  Then I opened the Tools menu in Excel 2011 (for the Mac)  and clicked on Goal Seek.  This opens the dialog shown below:

(Note: if you are using Excel 2010 for the PC, you can find Goal Seek by clicking on the Data –> Data Tools –> What-If Analysis.)

First you have to set the cell that you want to force to a specific value. This is the cell that holds the NPV calculation, B7.  In the second text box, I want to force the set cell to have a value of 0.00.  To do this, I want to change the contents of cell B8.

When you click OK, Excel does the hard work of trying different values in cell B8 until it gets a value of 0.00 in B7.  It does this by performing a series of iterations and projections to quickly narrow down to a correct result.  In this example, it gets a value of 1.148540228.  In other words, this project has a rate of return of just under 15%.  Another way to look at this result is that if the cost of money (opportunity cost, inflation, and risk) were greater than 15%, you would not do this project.

Of course, in this case Excel has another way to calculate this rate, known as the Internal Rate of Return (IRR) for the project by using the IRR() function found in the financial set of functions.

=IRR(B5:F5,1)

The IRR function has two parameters, the first is the range of cells containing the net returns for a project.  The second parameter is an initial guess at the rate of return which I usually start at 1.00 or 0%.  Upon pressing the Enter or Tab key, this function performs the same goal seek analysis to determine the rate of return that results in a value of zero when you sum the values in the referenced set of cells.

Note however that while the IRR() function may be a lot easier to use than setting up a Goal Seek, this function is only good for a specific financial calculation.  On the other hand, Goal Seek can be used for any set of calculations in which the final result must converge to a specific value.

What if your problem has more than one parameter that can vary?  There is another technique within What-If analysis using an add-in tool called Solver which I will cover next time.