How A Bank Error In My Favor Earned Me $100,000 and I Got to Keep it. Really.

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6 min read. Featured, Financial Independence, Personal.

This photo is of my mom and I white water rafting down the Chattooga River between Georgia and South Carolina. One of many adventures we had together!

I’ve been scared to write this post. It could paint me a bit of a negative light depending on your stance on the issue. This post also touches on a legal case I was involved in. If I seem slightly vague at times, that’s why. This is the 100% real story of how I ended up taking home $100,000 that – by all accounts – I should not have had.

On my about page, in The Minimal Investor course and in a number of other places I refer back to my personal story of how I inherited $100,000 when my mom passed. It happened 3 months after I graduated college at age 23 just as I was starting life on my own. That influx of money led me down the road to investing and to where I am today.

Without that money, it’s unclear when I would have started taking investing seriously – if at all. What I haven’t mentioned is that it only happened due to a clerical error made by a financial institute. This wasn’t an accidental deposit into my account that I kept, but something a lot more complex.

To understand exactly what happened, you need a little more background about how estates work here in the United States when someone dies.

How Estates Work

The death of a family member is a tremendously trying time. I remember sobbing on the floor of my apartment bathroom when I received the call my mom had passed away. Without a doubt that was the saddest moment of my life. After spending weeks coming to terms with what happened, spending time with family and celebrating her life, I moved on to learning about the legalities of what happens next. As a 23-year-old with only a bank account and a 2-month 401k to my name, this was all new to me.

My mom was divorced and my dad lived out of state. I was an only child too – leaving the bulk of the work in my hands. Luckily my mom was a lawyer, after going to law school in her 40s. We had some lawyer friends who were able to help me handle the details.

All estates will appoint an executor to manage the distribution of funds from it. This is the person who will be handling the details, and be the point of contact for the estate. You can pay an expert to do this role, or take it on yourself with the help of a lawyer. I took this role on myself but heavily leaned on a lawyer with a flood of questions.

It turns out a lot needs to happen when someone passes away. After getting a death certificate, I was able to access her safety deposit box to get her will. After getting the will, I was able to set myself up as her representative. After setting myself up as her representative I was able to create a new entity, “Estate of Adam’s Mom”, with an EIN number and everything. Each of these steps took days and more time on the phone than I’d like to remember.

At that point, I was able to start acting “as her” and working through her existing finances.

How Debt Works When Someone Passes

This is a subject I didn’t know much about before. I started writing down every account my mom had – credit cards, loans, mortgages, savings, retirement, checking – everything. By creating an estate, the idea is that every debt would be paid from the estate, then whatever is left over would be passed on to heirs (which was just me in this case).

Debt Isn’t Passed On

Heirs are not liable for the debt – which is an extremely important thing to remember. If a person passes away with more debt than their assets can pay off, then that debt is not passed to their heirs. However, if the estate is managed negligently, they may be able to come after the heirs by claiming that the estate was mismanaged. This is why it’s important to work very closely with a lawyer to make sure everything is legal.

Debt itself does not get passed on – it stops with the person who accumulated the debt. Unless your name is on the account, you won’t liable for it. None of my mom’s debt was in my name, so as long as I followed the law, and did everything through the estate there would be no way for these creditors to come after me – they could only go after her estate.

Estates Include All Assets and Debt

An “estate” is a combination of all of the assets and all of the liabilities owned before death. A primary house itself does not qualify for this, and my mom was smart enough to list me as a co-owner of the house on top of that – which made the process even easier. It would include her car, jewelry and anything else inside the house that could be liquidated though.

The total liquid assets of the estate ended up being about $130,000, with debts of around $130,000 (not including the mortgage). If every creditor was to be paid, it would mean selling her car and paying every cent of debt she had.

It was somewhat a unique and unusual position that she had this much cash and this much debt. After going to law school, she racked up a ton of liabilities. When my grandma passed away, my mom inherited a tidy sum. Rather than putting it all straight to the debt, she started going on more vacations and otherwise enjoying life. The weekend before she passed, she was on a beach staycation enjoying herself.

What Happens When Debt Exceeds Funds?

This wasn’t the case for me, but if debt exceeds funds available (after liquidation), then each debt would be paid back with a proportion of the assets.

For example, assume someone passes away with $100,000 in total assets. Somehow they managed to rack up two large debts – $900,000 and $100,000. Obviously, you would not be able to pay off a $900,000 debt given the $100k in assets.

Instead, you would proportionally pay off the two debts – the $900k debt would get $90k and the $100k debt would get $10k. Neither would get paid back in full, but each would get a proportion of the estate based on their debt.

Notice to Creditors

How do creditors know when someone dies though? Is it the responsibility of the estate to notify every creditor? Luckily no. That wouldn’t be the best system. There could be other creditors who have a stake in the estate who aren’t known by the executor, and they wouldn’t get anything.

Instead, there’s a public wire called the “notice to creditors”. This is a broadcast that a person has passed and their estate is currently being reconciled. All creditors have a set amount of days from that moment to file a claim with the estate or forever hold their peace. Investopedia defines a notice to creditors as follows:

A public notice to the creditors and debtors of an estate. The notice to creditors is usually posted in the public newspaper. The notice requests all interested parties to appear in court and either present their claim or make their payment.

When my moms notice to creditors went out, we anxiously awaited which of her debts would contact us. We had previously notified all of the known creditors in order to try to work with them to lower the amount they requested from the estate. Most of them got back to us, but the largest one didn’t. We started the clock and waited for them to get back to us. And waited. And waited. Then time was up, and they hadn’t gotten back to us.

Closing An Estate

After that date had passed, I called to talk with my lawyer about the situation. I was completely dumbfounded. Had they really not gotten back to us on a $100,000 loan? Does that mean what I think it means? They confirmed my highest hopes – they missed their chance (!). The estate could be closed now, paying off debts to all creditors who had dutifully filed their responses.

Anyone who didn’t file in that window had no legal recourse against me, or the estate. We paid off the debt that was on the estate, and eventually dissolved the estate with all proceeds coming back to me.

It felt a little like I’d accidentally robbed a bank and was trying to quietly get away before anyone noticed. This happened 12 years ago now and is long past any statute of limitations, which gives me the confidence to finally write about it.

Things worked out in the end. I didn’t have to sell her car (which was a bright red Mini Cooper S by the way), I got to keep the money, and I learned how to invest it. Without this single failure by a financial institute, I doubt I’d be pursuing FI, and there would be no Minafi.

What’s Not Included Here

This was without a doubt the hardest year of my life. In addition to all of this estate crap, I was dealing with a deadbeat tenant who was taking this opportunity to not pay his rent. I was also driving 90 minutes home every weekend to sort through every possession of my mom’s life and decide which I wanted to keep. All this while trying to get the house up to code to be able to sell it.

This was a rough year. It took about 8 months to close the estate before I ever saw a $1 from it. During those 8 months, at age 24, I was paying my rent, my moms house, a lawyer and supporting a deadbeat tenant. I’m just lucky I had a decent paying job out of college.

So What Was the $100,000 Loan?

I’m going to skip writing about that one – except to say it would make a great Dee-1 song. I like to think my mom would’ve been happy with the way things worked out. 😉

All photos in this post (and many many more of my mom) were scanned in using my handy new scanner.

Comments (29)

  1. I’m sorry for your loss.

    What a crazy story. You would think that financial companies would have the systems in place to avoid this situation. I’m so glad it worked out for you though. In the 12 years since, have you heard from the creditors at all once they realized their mistake?

    1. Thanks Jason. I really wondered about that too – why that big a company didn’t have better processes. They did call me up a few months later about it. I mentioned we sent them a death certificate, notified them personally and sent a notice to creditors — and the voice on the phone just said “well, ok” and that was the last I heard about it.

  2. That is an incredible amount of responsibility for a 24-year-old to deal with while going through the grief of losing a parent. Clerical error or not, ultimately that’s an amazing gift to have your mom’s estate be the catalyst for so much positive direction in your financial life!

    1. Thanks man. It is interesting to think how much positive influence on my life came out of such a crazy time. It’s funny too because my mom didn’t care at all about finances, investing, planning for retirement, etc. Maybe that lack preparation on it made me more aware.

  3. That is a jaw dropping incredible story Adam. I am impressed at the strength and poise you showed at such young age to not only be able to handle the loss of such an important figure in your life but also to handle the situation as expertly as possible. Truly impressive and an amazing story. Thank you so much for sharing!

  4. Oh wow, that’s crazy. It’s good that you got to keep the $100,000, but sorry for your loss as well. It sounded like a really tough year.
    We need to get a good estate lawyer to prepare for this now that we have a kid. I’ve been putting it off too long.

    1. Having a lawyer to go to that knows all this would’ve saved me a ton of time and stress. Having that central repository of information saves weeks of phone calls and research. Definitely recommend that. (and I should figure out if I need one myself!).

  5. I suspect that debt was a federally guaranteed loan through the FFEL (student loan) program. The lender had no incentive to collect because once the loan was defaulted, the federal government paid off the balance. Why collect only part of the balance when the government will pay off the full balance. This and myriad other reasons that were bad for taxpayers and loan holders were behind the dissolution of the FFEL program. I have lots of issues with the Direct Loan program, but at least now taxpayers aren’t assuming almost all risk for loans given by private/public companies under the FFEL program.

    1. That’s interesting! I wonder how it works when the loan doesn’t default – but the lender makes a mistake. Be interesting to see if they were still able to recoup their losses (hope not) or if they were left holding the bag for this loan. I guess it depends on how they entered it into their system (honest or dishonestly) and what type of loan it was.

  6. I feel for you, Adam. I lost my Mom a few years out of college and it was a tough time. Of course the estate issues just exacerbate an already touchy event. In our case, we were lucky that my Mom had transferred the majority of her assets to a living trust. But, there were still straggling assets that had to be reclaimed, managed, etc. In fact, I still just found another misc chunk of stock (14 years later!). Anyhow, I’m glad to hear things worked out in your favor. Better that a corporation has to absorb the loss vs. an individual. Thanks for sharing.

    1. Ah man, yeah sounds like a similar experience. I’d be interested to hear how the living trust worked out? Was there someone familiar who was able to be the executor for it? Or did someone from the family need to step in for that role?

      1. My sister and I stepped in as the trustees for the trust. So, we were able to manage the assets that were titled to that no problem. The other scattered assets that we found later required some additional hoops to jump through, but eventually we were able to move it to the trust as well. (I will mention that process took over a year to complete! Lots of paperwork and lots of people who were unfamiliar with estate transfer of assets, etc.)

  7. My condolences for your early loss. My mom died fairly early as well, though I made it to 28 before she passed. I never would have thought her not having any assets (or remaining debts that I knew of) was an upside but it meant I didn’t have to deal with any of this stuff that you had to.
    I’m not looking forward to handling the estates of dear elderly friends who may ask us to take that on.

    For our kid, since we do have a semi complicated list of assets (properties, oodles of investment and banking accounts) and simple debt (one mortgage) we’ve created a living trust and transferred everything possible into it. I’m also working up a comprehensive list of assets for a binder to make it easier for anyone who handles our estate whether it’s one of us spouses or one of our executors. I know it’s hard enough grieving a parent without having to jump through fifty thousand hurdles to close their estate. Thanks for sharing your experience, I hope it inspires people out there to get their paperwork in order for their loved ones.

    1. It sounds like you’re doing things right after learning from that hardship. Having that support structure in addition to organized knowledge is a great step.

  8. It is my understanding that both federal student loans and Sallie Mae student loans are discharged on death. This may not have been a mistake at all.

    My condolences to you for loses your mother so early in your life. Thank you for your excellent story and writing.

    1. Hmm this is interesting. Does look like it depends who the loan was with – the ones you mentioned are discharged, while privately held loans (not backed by the government) are not discharged. That’s a huge difference that I know I’d never considered when thinking about student loans.

  9. Adam, thanks for sharing this incredible story. On the one hand, I’m sad for your loss so early in your life. It makes me think about my own son, and my hope that I can live until he is at least 25 years old so he can get his feet on the ground and be mature enough to be his own man. He’s one this year. You just never know. And your post makes me want to simplify my finances because they are way too complicated.

    On the other hand, hooray for someone not doing their job! You know that someone dropped the ball somewhere. It happens all the time and I’m always left wondering, what if everybody just does their job well. It would be so much less stress. But in this case, what a nice windfall!

    It sounds like you made the most of it!

    One question: given that is not transferred to someone else when you pass, would it not therefore be best to borrow as much as possible before you die?

    Best,

    Sam

    1. Thanks Sam (and welcome! I’m a long time reader!).

      On the debt side, if you’re already in the negative then yes, there’s no real negative to it from a financial side. If you rack up debt, then any assets you have (any non-house possessions) will be on the block to sell to pay those debts. If your heirs mismanage things, and don’t go through the right legal channels, they could end up on the line for things too, which is worst case.

      The less you have, the better the idea of racking up debt would be.

  10. Difficult time, and you did a hero’s job. Congratulations. And you learned so much. Wouldn’t wish the experience on anyone, but it does happen, it is called life, and sooner or later mortality sneaks up on us all.

    My dad’s estate took five or six years. That was way too long. Loooong story.

    @FinancialSamurai: Interesting idea… since debts don’t pass to another person, why not go into massive debt just before you die? But debts come out of the estate, so if you owe as much as or more than the estate, wouldn’t it wipe out the estate?

    1. Of, 5 or 6 years? That’s a long stretch. I’m sorry you went through that. I know for me it felt like a weight lifted off my chest when it was finally closed. After 6 years it’d probably feel more like an anvil removed!

  11. I, too, am sorry for your loss so early in life.

    I have young children and I have so many conversations that I want to have with them as they grow up and have so many experiences (Similar to Sam above). No one can ever know.

    That said, this was a really interesting read. I knew some of the details about settling estates but I really appreciated your level of detail and clarity. I learned a couple things here and it was a fun read. Looking forward to more.

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