Over the past few decades, the internet has given people the information they need to do many things for which they would previously have had to rely on a professional. From car repairs to home remodeling, you can learn to do it yourself online. The availability of these types of resources have even extended into the legal realm, leading to a rise of individuals exploring DIY estate planning in lieu of hiring an attorney.
It’s easy to understand the temptation of DIY estate planning. For most people, creating an estate plan can feel like a daunting task from both a financial and emotional perspective. On the surface, drafting a plan in the privacy and comfort of your own home may seem like a quick and easy way to take care of your needs while saving money on the up-front costs associated with hiring an attorney. However, DIY estate planning carries a number of risks, and they may not become apparent until it’s too late—when your family is trying to sort out your estate after your death.
If you read the last paragraph carefully, you noticed that it mentioned that the “up-front” cost of DIY estate planning is lower than hiring an attorney. A DIY estate plan can cost your loved ones much more than you would have paid for experienced professional help in terms of taxes and other financial losses, not to mention added stress at a time when they are already grieving. Here are some of the risks of a DIY estate plan:
Working with an estate planning attorney gives you the assurance that the estate plan you’ve created is not only right for your unique needs, but that the documents are clear, thorough, and properly executed. Ambiguous language in online forms can lead to confusion and disputes, even litigation, among your loved ones. Failure to comply with your state’s requirements for a valid will or trust may mean that your estate plan is invalid, and that your estate will be distributed according to state law rather than your own wishes.
If you own significant assets, your estate could face exposure to estate tax, capital gains tax, or income tax. DIY estate planning options rarely take into account advanced estate planning options strategies like Qualified Personal Residence Trusts (QPRTs), Grantor-Retained Annuity Trusts (GRATs), and Generation-Skipping Trusts, among many others. In addition, lack of awareness of available tax exemptions and deductions could cost your beneficiaries hundreds of thousands of dollars or more. Without proper tax planning, everything you have worked to achieve for your loved ones could be in jeopardy.
A simple will may be adequate if your estate consists of only a modest amount of tangible personal property. But if you have complex assets such as privately-held business interests, foreign assets, intellectual property, restricted stock, or private equity interests, you likely need more advanced planning. These assets are challenging to value, manage, and liquidate, and their disposition may have complex tax implications.
If you have accumulated assets to provide your loved ones with financial security, the last thing that you want is for those assets to be vulnerable to creditors or lawsuits, including divorce proceedings. Unfortunately, that’s exactly what can happen without professional estate planning help; advanced estate planning strategies like irrevocable trusts, which provide asset protection, are typically beyond the scope of online providers.
Trusts are increasingly popular estate planning tools for a variety of reasons, including that assets in a trust bypass the probate process. Unfortunately, assets need to be properly transferred to a trust in order to pass this way—a process called funding the trust. An experienced estate planning attorney will help ensure that your trust is properly funded, which can be a complex undertaking. DIY estate planning tools, online or otherwise, cannot provide this assistance. And unless your trust is properly funded, it isn’t worth the paper it’s printed on.
Many assets with beneficiary designations, like life insurance policies, IRAs, and 401(k)s, pass outside of a will or trust. If you have a DIY will that conflicts with the beneficiary designations you have made regarding these assets, the beneficiary designations will control—not the will. You might believe that you are leaving an asset to one person via a will you have created, only for them to find out after your death that they have been unintentionally disinherited. Improperly executed estate planning documents that turn out to be invalid can also result in accidental disinheritance.
Estate planning is intended to give you peace of mind about life’s “what-ifs;” DIY estate plans may lack the flexibility to provide for unforeseen circumstances such as a child who predeceases a parent, or a successor trustee who lacks the legal capacity to carry out your estate and trust administration when needed.
Estate planning isn’t only about what happens to your assets after your death; it also deals with protecting your interests should you become incapacitated and unable to manage your own affairs. DIY estate planning may not include incapacity planning. If your estate plan doesn’t include durable powers of attorney or advance healthcare directives, a legal guardian may need to be appointed to make decisions on your behalf if needed, and that guardian may be someone other than the person you would have chosen.
These aren’t all of the dangers of DIY estate planning, but they are some of the most common. At best, they may cause your loved ones some confusion or inconvenience. At worst, they can lead to conflict, litigation, and huge financial losses for your beneficiaries.
DIY estate planning isn’t really recommended for anyone, but it is especially risky for those with large or complex estates, potential estate tax exposure, or complicated family relationships. The services of an experienced estate and tax planning attorney should be viewed as an investment in your peace of mind today, and your family’s peace of mind in the future.
To create a comprehensive estate plan designed for your unique needs and goals, and calculated to protect what matters to you, contact Oliver Law, P.C. to schedule a consultation.
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