Occam's Razor

I recently wrote about my father’s death in February and my thoughts on what to do with his inheritance. On the latter, I opined I might just give it away. It didn’t seem like something I needed to worry about, as we saw a copy of his will. It left everything to my stepmother, provided she did not die within thirty days of his death. In that event we were to get five percent of the estate. My stepmother’s will was similar so providing she didn’t change it, it looked like it would be some time before we would receive any portion of the inheritance, if any at all.

So I filed away what to do with the money as an academic exercise. A couple of weeks after my father passed away I got a call from my sister. “We have a problem,” she said. Dad had made me and each of my siblings (there are eight of us) beneficiaries to the money in his Merrill-Lynch accounts. This consisted of a money market account and two Roth IRAs. And this trumped anything in his will.

The problem was: do we take the money and run? Or do we honor what appeared to be the intent of his will and give our share to our stepmother? Regardless we each would get an eighth of the amount, and it was a considerable sum. We’d all have to voluntarily agree to give our share to our stepmother. After much discussion we figured that this was likely not an oversight; our father probably intended us to get this money, possibly to respect our late mother’s wishes for his estate. There was still something like half a million dollars in other assets that our stepmother could draw on. It was strange though that Dad did not communicate these details with us before he died.

So now we are assembling forms to try to claim our share of these accounts. As you might expect it’s a hassle. All inheritances are tax-free. Dear old dad had at some point paid a bunch of taxes to put much of his money into Roth IRAs, which made his withdrawals tax-free. If we moved our share of these funds into our own inherited Roth IRAs, we could let these funds accumulate tax-free. It’s almost like having a tax shelter but not having to go to the Cayman Islands!

Thus my hypothetical thoughts on basically giving the money away now turned more concrete. First of all, the amount of money was more than I expected. My dad turned out to be a good investor, which meant that he found a financial adviser he trusted and he turned it into a pile of cash. (Much of the startup money came from his parents.) Second, it made me think of what I might actually want to spend the money on. It turned out that only two things mattered and there would still be money left over to give a lot away.

First, I wanted us to be debt free again. We would get there in a year or two but with a windfall it seemed like a sensible way to spend Dad’s money. There is about $18K on the new mortgage. We actually were debt free for a few months after we sold our last house and waited for the new one to be constructed. It was surreal. I wanted that feeling again.

Second, I wanted to reduce our carbon footprint even more. Basically, I wanted solar panels. Our house is new and super tight, so it’s energy footprint is already minimal. We already pay extra to get our electricity through renewable wind power. But if we went solar we would probably pay nothing for electricity, once we paid for the cost of getting a solar system installed. Besides, about a third of the houses in our subdivision have them already so we are feeling the social pressure to go green.

So I started dialing around. It was strange that our condo association cares about your doorknockers but not solar panels. No permission was needed. If you have the money, solar tax credits make going solar a no-brainer. Uncle Sam will give you a 30% tax credit and the state of Massachusetts (where we live) will give a $1000 tax credit. Moreover there are the SRECs (Solar Renewable Energy Certificates). Basically the power company will give us money for our solar system because they must show that they are getting an increasing amount of their power from renewable energy. The credits expire after ten years, but the first year we will earn $1635 from our SRECs, which will taper down to $545 by the tenth year. (SRECs are not available in all states. See if you qualify.)

The estimates were all pretty close pricewise. We ended up signing with Direct Energy Solar mainly because they seemed the best capitalized. It turns out that we don’t need to cover the entire southern facing side of our house with solar panels. Based on our usage we need them just over our garage, twenty altogether. It’s actually counterproductive to generate more solar energy than you use because you end up with a credit you never can fully spend.

Not every house is ideal for solar panels. Lower latitudes certainly help. You need a roof that faces south and if there are trees in your way it probably won’t make financial sense. You don’t necessarily have to buy a system to go green, like we are doing. There are companies that will let you lease solar panels they put on your roof. You still pay for electricity, but usually at about five cents a kilowatt-hour less than what you would otherwise pay. If you run the numbers it makes a lot of sense to own your own panels. You can in theory take them with you to your next house if you want. We figure that our system will pay for itself in about five years. And we’ll get a cool app that will show us in real time how much electricity we are generating. Direct Energy Solar will even guarantee that we will generate the energy we need and will pay us in the unlikely situation that we don’t.

Going solar is really a no-brainer and probably worth taking out a home equity loan to finance it if necessary. You will get tax credits if you buy your system, earn income from SRECs that you will sell (if your state allows it), reduce carbon pollution and minimize your carbon footprint. Since these systems tend to cost $20-$30K to install, the only question is why builders don’t offer solar panels as an option for every house where it is appropriate.

The only downside I can find to solar is that you can’t get it quickly. A whole lot of coordination has to happen between various parties. We expect to have ours installed and turned on in 90-120 days. There is likely much that could be done to hurry up this process but the power companies don’t make it a priority and worry about whether all this “net metering” will stress out their power grid. They would like to charge solar customers for costs to maintain the grid. There is a bill to this effect in front of the Massachusetts legislature at the moment.

I’ll let you know how it goes in future posts.