A Reminder - There Are Dangers in Do-It-Yourself Estate Planning
by Don Drake, Connelly Law Offices, Ltd.
"I was recently reminded of the dangers in using online estate planning programs," stated professional fiduciary and certified elder law Attorney RJ Connelly III. "A couple came into our office with a problem that arose due to using an online estate planning program. The family had a trust, which they put together and funded appropriately, but they found out it was wrong for the situation they sought to protect themselves from. Unfortunately, they found the mistake after a family member needed long-term care and were told that the financial safeguards they thought they had in place did not exist. Thankfully, we were able to put together a plan to address the situation, but their sleepless nights and unnecessary anxiety could have been avoided."
"There are several trusts that can be developed, but the main two that we use in estate planning are revocable trusts, which can be amended at any time, and the irrevocable trust, which cannot be changed or amended," continued Attorney RJ Connelly. "Both of these trusts can keep estates out of probate court, but only the irrevocable trust works at shielding assets from the costs of long-term care fees. A revocable trust does not offer this protection. So, the family I met was funding the wrong trust for years, hoping to protect their assets. It is certainly distressing to see this happen to a family that thought they were doing the responsible thing."
"I understand the temptation of creating your estate plan with these online documents to save some money, especially in these tough economic times," said Attorney RJ Connelly. "But in the end, like the family I discussed earlier, doing so may cost more financially and in terms of a family's emotional well-being. The basic problem is that online resources do not always tailor the documents to the family's needs."
Essential Parts of an Estate Plan
A basic estate plan typically includes the following documents:
A Will – This document outlines who gets your property, names an executor to oversee your affairs, and designates guardians for your minor children. If you die without a will (intestate), the distribution of your assets will follow state intestacy laws and may not reflect your wishes.
Living Trusts – A living trust lets you keep your property out of probate, the court process of distributing your property after death. Probate can be time-consuming and expensive and becomes part of the public record. For these three reasons, estates with significant property often use a trust. Whether a trust is necessary for your situation can be determined with the help of an estate planning attorney.
Durable Financial Power of Attorney – A durable financial power of attorney names an individual to manage your finances if you are unavailable or become incapacitated.
Health Care Directives (Living Will and Health Care Power of Attorney) – A health care directive can name a representative to make health care decisions when you can’t and state your preferences for health care, end-of-life care, organ donations, and final arrangements.
Beneficiary Designations – Accounts such as IRAs, 401(k)s, bank accounts, mutual funds, annuities, and life insurance policies can transfer directly to heirs outside of probate by naming beneficiaries.
Many legal and financial strategies must be considered if the estate or family circumstances are complex.
What Can Go Wrong If I Do It Myself?
Creating your estate plan may be appropriate in limited circumstances. However, many things can go wrong. The money you believe you save upfront can create financial and emotional stress for your family after your death. People pay for professional expertise to prevent problems they aren’t aware of or haven’t considered. This advice leads to more successful outcomes.
A Simple Plan
If a surviving spouse’s assets consist of the value of their home and bank accounts that are nearly equal in value, a simple will may give the home to one adult child and the bank accounts to the other. When the will is created, it may seem like a straightforward way to divide assets.
"Circumstances may change if the will is tucked away without further review or update," said Attorney RJ Connelly. "Upon the parent’s death, the two inheritors could find one has a home that has grown in value. The other heir finds the deceased parent had to spend down cash assets to cover increasing medical bills and living expenses and inherits far less. This type of situation often leads to litigation and ruined relationships."
"Beyond the financial inequity of the inheritance, a rift exists between the two siblings, extending to younger generations, which can divide the family. Over time, the parents’ simple plan did not reflect their intentions for their children," Attorney RJ Connelly pointed out.
The Devil in the Details
Your will, trusts, and other estate planning documents must comply with ever-changing state law. For example, drafting your will without legal oversight creates a significant risk of error. Wills must clearly state your intent. In legal terms, failing to use words such as “testamentary intention” may void the will. Similarly, vague terms such as “I would like” may render your intentions unenforceable. Variations of legal terms are in all estate planning documents, not just a will.
Coordinating Probate and Non-Probate Assets
A will governs the distribution of assets held solely in your name. Assets owned jointly through a beneficiary designation, contract, or similar arrangements are non-probate assets. They may include 401(k)s, IRAs, joint bank accounts, insurance, real estate, and family homes. Structuring the ownership of assets to meet specific goals, like asset protection and avoiding probate, is best guided by an estate planning attorney familiar with the process.
Considering Major Life Events
"Many events can profoundly alter a person’s life and may change how you distribute assets in your estate," stated Attorney RJ Connelly. "For example, some states have adopted variations of the Uniform Probate Code, which automatically revokes anything left to a former spouse, and the court must determine who gets their share. Other states require specific estate document updates to remove a former spouse. A routine review of an estate plan is essential to handle significant life events and account for any changes in estate planning laws."
Other Challenges to Consider
Every person’s life and estate are unique. A template can’t accommodate all eventualities.
Same-sex and unmarried couples face different challenges as the law tries to catch up to less traditional marriage and living arrangements when making an estate plan. A partner could be left without an inheritance if estate documents aren’t carefully executed to comply with state laws.
Special needs planning for loved ones who are disabled requires targeted planning so they continue to receive financial assistance and maintain eligibility for government benefits.
Some estates require complex arrangements to reduce state and federal taxes or multi-state and international issues.
The challenges are so varied that you risk creating an unenforceable estate plan without the guidance of an estate planning attorney.
So, What to Do?
"An experienced estate planning attorney provides more than technical expertise in drafting complex documents," said Attorney RJ Connelly. "We can provide guidance and counseling for major decisions, helping you identify the best representatives to manage the required decisions and actions so your estate plan accomplishes what you want it to do. A do-it-yourself estate plan may be incomplete or incorrect. Any mistakes or oversights can lead to legal complications or disputes among the heirs, a problem which you were trying to avoid."
For most people, working with an experienced estate planning attorney is essential to ensure documents meet your specific needs, goals, and legal requirements. While saving money using a do-it-yourself approach may be highly tempting, the risks can far outweigh any potential cost savings when all is said and done.