They’re popping up more and more. Web sites that, for fifty bucks and fifteen
minutes of your time, will crank out an estate plan in the blink of an eye. It seems like the perfect solution. After all, folks can save hundreds, even
thousands of dollars, over using an attorney. And folks only have to contemplate their mortality (a topic most people
like to avoid) for only a few minutes.
But despite these perks, more and more advisors have become
so alarmed at the risks involved, they are cautioning consumers to avoid
do-it-yourself estate planning entirely. Forbes
, for example, called DIY
estate planning "A Uniquely Bad Idea." Even after testing three will-writing products, Consumer Reports
concluded that “all were inadequate unless a very simple plan was required,
such as one that leaves everything to a spouse, with no other provisions.” My personal favorite is this quote from
Indiana lawyer, Timothy Kalamaros, who said that using a DIY will is like
“pulling your own tooth with a pair of pliers instead of going to the dentist.”
So why is DIY estate planning such a bad idea?
What You Don’t Know
Can Hurt You (And The People You Love)
When it comes to estate planning, many consumers simply don’t
know enough about what documents they really need and how to draft them
properly. Parents of minor children, for example, often think they need a
“simple will” that leaves all their assets to the surviving spouse and then to
the children. While this is an
oft-implemented estate planning strategy, parents of minor children don’t
realize that this approach can have several unintended consequences.
For example, if a minor child inherits thousands of dollars,
the court will need to appoint a custodian to manage those funds. However, the custodian will have no
direction, and is under no obligation, to spend the assets in a way the parents
would have desired. Additionally, when
the child turns 21 he/she will inherit those assets entirely. I have a young adult daughter, and I am quite
sure that if she received her inheritance in one lump sum at age 21, it would
be blown on shoes, clothes and Chinese take-out in a matter of months.
A better solution for this scenario is a revocable living
trust or testamentary trust. These
estate planning instruments give parents the ability to dictate how the money
is to be used (for example, on food, clothing, and education), and can disperse
the assets to children in stages, for example at age 25, 30 and 35. In short, consumers may be familiar with the
concept of a will or a trust—but they are largely unaware of the myriad estate
planning tools and how they can be best structured to meet their individual
Greater Risks of
Years ago, my husband and I built a deck on the back of our
house. It was a safe DIY project—there
weren’t too many things we could screw up. Years later, we still sip lemonade from the comfort of the deck we built
all by ourselves. Doing your own estate
planning is nothing like building a deck. So many things can go wrong. And
what’s worse, years later you won’t be around to fix it.
For example, some jurisdictions require two witnesses-- some
require three. Some jurisdictions
require a self-proving affidavit--some do not. Some states require disinterested witnesses—others don’t. You’re far more likely to avoid mistakes and
get things right by using an attorney who specializes in estate planning.
I think my husband and I did a pretty swell job building our
deck. And if we made any mistakes, the
consequences weren’t terribly costly. If
I cut a board too short it didn’t cost much to buy another one. But making mistakes in your estate plan is
much different. They can be VERY costly.
Take, for example, the wealthy man from Texas who, using
some DIY estate planning forms, wound up forfeiting $3.5 million dollars of his
federal estate tax exemption. His
self-made will left all his assets, $7 million to be exact, to his wife. At the time of his death, no estate taxes
were due, since assets left to a spouse generally aren’t subject to the federal
estate tax. However, it didn’t take
long for the wife to realize that anything she
left when she died, less her own exemption amount, would be taxable as part of
her estate. In short, because of her
husband’s short-sighted estate plan $3.5 million of the assets he had passed on
to her would be taxed. To avoid the tax,
she ultimately had to disclaim (or turn down) the entire $3.5 million exemption
amount, allowing it to pass under state law and estate-tax free to the couple’s
three adult sons.
Often, the cost of fixing problems created by a DIY estate
plan is far more costly than paying a professional to do it right from the
DIY rarely accomplishes
what you want
Because of the intricacies and details of estate planning,
it is common for a do-it-yourself estate plan to NOT accomplish what you
Consider, for example, the father who was estranged from one
of his children and wanted to disinherit him. Using some DIY estate planning software, the dad plugged in his
information and printed off his will. But he forgot one tiny detail. In
listing his assets, he neglected to include the shares of several different
phone company stocks he had acquired years before. While these shares had probably seemed
inconsequential when he purchased them, after many mergers, acquisitions and
splits, the stocks had actually grown in value to exceed $1.5 million.
Sadly, the DIY will did not include what is known as a
“residuary clause”—which distributes the “left over” property after expenses,
creditors and taxes have been paid and specific assets have been
distributed. The end result?. . . the
stocks passed under the state's intestacy laws, and the son, who the father
wished to disinherit, walked away with $400,000. Sadly, the son had a substance abuse problem
and blew through the money in less than a year.
It’s not a piece of
paper. It’s a plan.
Sometimes people think of estate planning as merely writing
a “will.” They often don’t realize that
effective estate planning involves much more than one document—it involves a plan. For example, some assets, like insurance proceeds and retirement
benefits, pass to beneficiaries outside a will. An estate plan looks at the whole picture, planning for assets that will
pass via any number of methods.
Additionally, estate planning prepares folks not just for distribution
of assets at death, but also for how to manage assets and health during times
of incompetence. Powers of attorney,
health care proxies, and living wills are essential to an effective estate plan
since they intervene in the event a health crisis or accident leaves you unable
to make decisions on your own.
In short, while the thought of creating an estate plan in a
little time and for a few bucks may seem appealing, it is not realistic and is
fraught with risk. Nothing can take the place of having a meaningful dialog
with an experienced attorney who can help you create an estate plan perfectly
tailored to your needs.