Dangers of DIY Estate Planning
Abraham Lincoln famously said that “a man who represents himself (in court) has a fool for a client.” Can the same be said of someone who serves as their own “attorney” for purposes of creating an estate plan? Unfortunately, the answer is often “yes.” The good news is that if you make mistakes in creating your estate plan, you might never know about it. The bad news is that the people you love probably will.
In recent years, it has become easier than ever to create a DIY estate plan. You can purchase forms at an office supply store, or download them from the internet. The initial cost for these documents is much less than you would pay an estate planning attorney, so why not DIY your estate plan?
Well, there are several mistakes you could make, some of which we’ll discuss below. If any of them concern you, you may want to reconsider that DIY estate plan.
Thinking Estate Planning is Only About Distributing Your Possessions After Death
A big part of estate planning is, of course, deciding what will happen to your assets after you die. That aspect is so important that every state has laws about how property will be distributed after death if the deceased did not have an estate plan.
But even though the distribution of your assets is an important part of estate planning, there is much more to an estate plan. If you have children, who would you want to serve as their guardian if you can no longer care for them? If you fell ill or were seriously injured and could no longer make decisions for yourself, who would make them for you? You need a financial power of attorney and an advance health care directive.
In short, one of the dangers of DIY estate planning is thinking that all you need to think about is the distribution of your property after death. You also need to consider the care of your minor children, and who would make important decisions for you if you were to become incapacitated.
Not Understanding Whether You Need a Will or Trust
When most people think of an estate plan, they tend to think of a will. A will is certainly one of the basic building blocks of an estate plan. But for many people, it makes more sense to have most of their assets in a trust. A trust avoids probate, and it can also keep financially immature or irresponsible heirs from getting their hands on their whole inheritance at once.
Trusts are generally more complicated than wills — sometimes much more complicated. The advantages of a trust usually make the complexity worth it, but if your trust is not drafted or funded properly it can be useless.
If you’re not sure whether you need a will or a trust, you should, at a minimum, have a consultation with an experienced estate planning attorney to clarify your goals. That conversation will probably convince you that whatever your planning needs, you don’t want to go it alone.
Failing to Understand Unintended Consequences
Estate planning has a lot of moving parts. An action that seems reasonable based on one goal often has unintended and unforeseen consequences. For example, let’s say most of your money is in your checking account. You want your son to inherit that money, and to be able to use it to help care for you while you’re alive. You decide to make your son a joint owner of the account. That way, he can access the money to help you, and when you die, the account won’t need to go through probate. It will just be his.
But what you may not have thought about is that if your son has creditors, they can come after the money in the account. So can his spouse if he gets divorced. Or your son could simply (and legally) spend it all; after all, he is now an owner of the account.
Or what if you make your son the joint owner on your financial accounts so that he can help you manage them, then create a will that leaves all your assets equally to your son and daughter? You may intend your daughter to have half the money in the accounts as well as half of all your other assets. But because the financial accounts are jointly owned, at your death they pass outside your will to the other joint owner, your son. Your daughter would have no legal claim to the money in those accounts.
If you talk to an estate planning attorney, you can avoid these and other unintended consequences. You tell your attorney your goals (avoid probate, allow your son to help with your finances), and she can help you explore your options, including risks you may not have considered.
Forgetting to Update Your Plan
In the words of Ferris Bueller, “Life moves pretty fast.” Children and grandchildren are born; close friends and relatives pass away. Marriages begin and end. Assets may come into your hands and pass out of them again. And an estate plan that meets your needs at one moment in time may become hopelessly outdated.
A friend’s story is a cautionary tale. He had a childless aunt whose will left her considerable assets to him and his brother. Unfortunately, the will was twenty years old, and the will left nothing to their much-younger cousin, born after it was executed. My friend and his brother knew their aunt would never have intentionally disinherited her niece, so they shared the estate equally with her. They suffered some minor tax consequences, but felt strongly that it was the right thing to do. Unfortunately, you cannot count on your heirs to clean up your lapses in estate planning this way.
Of course, the aunt might have forgotten to update her estate plan even if it had been prepared by a professional. That said, having a relationship with an estate planning attorney who knows you and cares about your needs makes it easy to review and update your estate plan when needed.
The bottom line when it comes to DIY estate planning is, you don’t know what you don’t know. And you won’t know until you speak with someone who does. An experienced New Mexico estate planning attorney can help you identify your planning goals and meet them in a way that is both effective and cost-effective. If you have questions about estate planning, we invite you to contact us to discuss your concerns.