Last month’s Tax Planning Newsletter outlined the 10 primary non-tax reasons why everyone needs to take the topic of estate planning seriously. This month’s article focuses on the need for proper advice and counsel in order to create a proper estate plan. Hopefully after reading this article, you will see why estate planning is not a “do-it-yourself” project.
Prior to the advent of the Internet, most people would not have even considered having an estate plan prepared without their attorney’s assistance. Now, as a result of the Internet, millions of people have an unlimited amount of “do-it-yourself” advice on nearly every subject imaginable. While empowering people with information is ordinarily not such a bad thing, often times “do-it-yourselfers” become “experts” overnight. Which is why you see people making their own diagnosis of a medical condition through “WebMD.com” or figuring out how to wire their own house through “doityourself.com.” In the end “do-it-yourselfers” often times end up costing themselves more time and money than if they would have just engaged the right advisor in the first place.
While creating an estate plan off the Internet is a good example of the risk of the “do-it-yourselfer,” this phenomenon is by no means limited to estate planning. In our practice, we regularly see corporations or other entities that were formed by people that did not want to spend the money to get expert counsel to ensure the entity was properly formed, capitalized, or that there was an appropriate written agreement in place between the owners to address future contingencies. The result is when there is dissention among the owners, or the venture runs into financial difficulties, the owners find themselves exposed to liabilities or issues they likely could have avoided (or at least minimized), with proper advice on the front end. Recently, I received a “cold call” from a gentleman who had bought a standard form “one size fits all” prenuptial agreement off the Internet for $69. He called wanting to know how much it would cost for me to review the prenuptial agreement, just to make sure “everything was in order.” After explaining to him the importance of making sure the right provisions are included in the prenuptial agreement to make it enforceable under Nebraska law, the gentleman agreed that it was smart not to rely on a $69 form agreement to protect him from a potential future divorce and sharing of his estate (which he approximated at $1 million). While I find it hard to believe that a person would work their entire life to build wealth, just to turn to a standard form agreement from the Internet, it happens more often than you might think (with most times very disappointing results).
The purpose of this article is to outline some of the issues caused by “do-it-yourself” estate planners and the reasons why estate planning is not a “do-it-yourself” project. Armed with the information from this article, hopefully those who are tempted to prepare their own estate plan without the use of a professional will resist that temptation and see the errors of their ways (before it is too late), and those professionals who counsel clients will be armed with the information they need to explain the value and insight they bring to the estate planning process.
SO WHAT CAN GO WRONG WITH THE DO-IT-YOURSELF ESTATE PLAN?
Estate Plan Formalities
The most common problem associated with do-it-yourself estate plans centers around the various formalities required by applicable law. Whether it involves the number of witnesses required, issues raised by having beneficiaries as witnesses, actually signing in the presence of the testator (i.e., the creator of the will), notary formalities, or statutorily required (or recommended) affidavits or statements, one should be loath to rely on a “one-size-fits-all” document to pick up all the necessary requirements applicable in a specific jurisdiction. Lay people are not in the business of regularly executing estate plans (and they don’t know what they don’t know), which is why it should be left to the professional to make sure it is done right. You can bet that if one of the heirs is dissatisfied with how they are treated under the estate plan (e.g., disinheritance or limits on the amount of the inheritance or the timing of distributions), a savvy lawyer representing the beneficiary in what appears to involve a “do-it-yourself” estate plan will closely scrutinize the documents for any possible deficiencies. A deficiency in any of these various formalities (which a lay person may think of as a “mere technicality”), could have dramatic results, including possibly having the estate plan being declared invalid, thus resulting in the relevant state’s “intestacy” laws taking effect. Rarely, if ever, do these laws mirror the deceased person’s intentions. By engaging a professional, the person signing the estate plan gets assurance concerning compliance with all the formalities required. In addition, the professional will take it one step further, for example, by adding in a “no contest” clause into an estate plan when the testator believes there may be a challenge brought by an heir.
Properly Customizing the Plan
In addition to making sure all the formalities and jurisdiction-specific requirements are met in drafting and executing an estate plan, the do-it-yourselfer does not even know what questions to ask or think about in connection with the development of their estate plan. While this should serve as no surprise (e.g., we do not know all the questions a doctor is going to ask us or the tests that will be performed in making a diagnosis of our medical condition), for some reason, people think they know everything they need to know to draft their estate plan. The particular issues to be discussed vary by the person and their particular circumstances, which is why each estate plan needs to be customized for that particular client. These issues can include those surrounding spendthrift beneficiaries, unexpected death of a child, second marriages, blended families, special needs children, adopted children or grandchildren, dealing with unique assets, charitable intentions, beneficiary designations, etc. All of these issues deserve discussion and consideration in order to ensure the estate plan is properly drafted and the client’s desires are achieved.
Someone Watching Out For You
Once a person signs their estate plan, they treat it as a one-time thing. What they fail to consider is how subsequent events may impact their estate plan. When our clients sign their estate plan, we advise them to be on the lookout for “major life events” that may result in a change (or overhaul) of their estate plan. These events can include changes in family dynamics (e.g., a troubled marriage involving a child or a potential personal bankruptcy involving a child) the birth or death of a beneficiary, actual or anticipated inheritances, etc., all of which would likely result in a recommended adjustment to the original estate plan. In addition, the “do-it-yourselfer” does not understand, how changes in state or federal law (e.g., changes in the federal estate tax exemption amount or changes in local probate laws) will impact their plan. By maintaining an ongoing relationship with the attorney who prepared the estate plan, there can be periodic discussions about major life events that usually justify an estate plan review.
Can’t It Be Fixed After the Fact?
The very nature of an estate plan also adds a further complicating feature. Because an estate plan becomes irrevocable (i.e., “unchangeable”) upon the death of the testator, and because deficiencies in documents do not surface until after death, professionals are left with a limited arsenal of tools to try and fix any deficiencies in estate plans that have been prepared by the “do-it-yourselfer.” These tools can include possible disclaimers by beneficiaries, reliance on state reformation statutes, deference granted by a probate court for “harmless errors,” etc. While some of these tools may prove beneficial under particular circumstances, the tools involved in “post-mortem” estate planning vary by state and sometimes are left to the discretion or interpretation of a court. And when presented with the case of an irreversible deficiency where nothing can be done, the heirs are left with only the feeling that the desires of the deceased have not been fulfilled, in that the person who was to inherit the wealth is not going to do so due to something that could have easily been avoided.
While there are an unlimited number of issues that can be raised as a result of people preparing their own estate plans, the result is predictable – disappointment and potential hard feelings (if not litigation) between heirs and beneficiaries. The better course of action (and often times the less expensive option), is to engage the right advisor in the beginning.