Reason 1: The pitfalls of not getting legal advice from an attorney can cause your estate plan to be defective because of wrong heirs, wasteful spending, and worthless investments.

Arguably one of the biggest reasons why online estate planning documents can devastate your family’s estate plan and leave them in financial ruin is because you don’t get legal advice with do-it-yourself documents. What most people don’t realize is that the value of an estate plan isn’t just in the documents—it’s in the advice and counsel you get from your estate planning lawyer. An estate planning lawyer can identify issues that are unique to your financial and personal life that will affect your estate plan. Some of those issues might include: blended families, predeceased beneficiaries, family drug/alcohol problems, problems with the in-laws, careless spending, worthless investments, and Medicaid planning opportunities. Part I, Part II and Part III of this series addressed the concerns you might have if the wrong heirs inherited your estate, concerns you might have with wasteful spending and worthless investments, and concerns with outliving your money. This blog, which addresses the last part of Reason 1, will present an unfortunate, but all too common case study on how do-it-yourself documents can ruin your estate plan.

 

Part IV. Don’t get false peace of mind! A case study on how do-it-yourself documents can ruin your estate plan. 

Kim’s Financial Situation

Kim is a resident of Ohio. She is 72 years old, widowed, retired and has two independent adult children. Her estate consists of two main assets: a large retirement account and a $75,000 checking account. When Kim set up her retirement account many years ago, she listed her husband as the beneficiary but never updated it when he passed away. She also added her son as a joint owner on her checking account to help pay her bills.

Kim’s Plan

Like most people from Kim’s generation, Kim does not like talking about end of life planning with her children and thinks lawyers are a waste of money. She decides to use a popular do-it-yourself legal website to set up her estate plan. Kim recently heard a statistic that 80 percent of lottery winners go broke within 18 months. She wants to limit the amount her two children inherit to annual payments over 10 years to avoid wasteful spending and bad investments. She also knows that she wants her children to inherit everything equally and she wants to avoid probate to save money and keep her finances private.

Kim’s Online Documents

Kim decides to implement a Trust in her estate plan because a Trust will satisfy all of those concerns. Her Trust ultimately provides that her two children shall receive equal distributions of her Trust assets in annual installments for 10 years. The website also suggests that Kim needs to implement a Last Will and Testament. She executes a Will and Trust, which simply lists her two children as equal beneficiaries. Kim feels confident that her basic website documents were done properly and can’t understand why anyone would spend the money to consult with a lawyer. She puts her executed documents in a desk drawer and never thinks about them again.

What Happened When Kim Died

A few years later, Kim passes away. Her deceased husband is still listed as the primary beneficiary of her retirement account and no contingent beneficiary is listed. Her son is also still a joint owner on her checking account. While cleaning out Kim’s house, her children discover Kim’s Will and Trust. They consult with an estate planning attorney to find out how they need to proceed. The attorney tells the two children that the Will and Trust are valid. He further explains that any assets titled in the name of the Trust would have passed equally to the two children over 10 years pursuant to the terms of the Trust.

The attorney indicates that Kim’s Will governs all probate assets, which are owned in Kim’s name individually. Such assets will have to pass through probate and will be distributed to the two children outright, pursuant to the terms in the Will.

After reviewing Kim’s assets, the attorney determines that the retirement account will pass to the children outright under the Will through probate because the account has no living designated beneficiary. He also concludes that the checking account will not pass under Kim’s Will through probate at all, but will rather pass to the joint-owner child individually. The attorney confirms that the Trust does not hold or will not hold any of her assets and it will not govern how her estate is to be administered.

 

Kim’s Estate Plan Flaws

In this example, Kim tried to accomplish her estate planning goals to make things easier for her family, but she ultimately failed to properly memorialize her wishes in several different ways:

  1. She does not avoid probate. By failing to remove her deceased husband and failing to add her Trust as beneficiary of her retirement account, her estate becomes the beneficiary of the account, resulting in probate. When an estate is probated, it becomes public record.

  2. Failing to review and update her retirement account beneficiaries resulted in her children inheriting her retirement account outright rather than in Trust over 10 years. If Kim had named the Trust as the beneficiary of her retirement account (no probate) or named the Trust as the sole heir under her Will, her retirement account would have been owned by her Trust rather than by her children outright.

  3. Her children will not inherit her estate equally. Kim added her son to her checking account for convenience purposes but failed to provide that the account would be payable on death to her children equally. What seemed like a simple means of convenience for Kim ended up with a $37,500 inequality for her one child who inherited none of the checking account.

  4. Kim wasted money using online documents. She tried to save money using online documents, but she ultimately paid for a Trust that was never used and her estate plan failed because none of her goals were accomplished.

 

In conclusion, Kim got a false sense of peace of mind by preparing her own documents. If she had met with an estate planning attorney, she would have received invaluable advice on how to avoid probate and make sure that her estate plan was set up properly. Her attorney would have also identified the estate flaws detailed above. Unfortunately, Kim’s example is all too common in the estate planning world. What should have been a fairly simple estate plan turned out to be something completely different than what she wanted.

 

Bill Hesch is an attorney, CPA, and PFS (Personal Financial Specialist) who is licensed in Ohio and Kentucky and helps clients get peace of mind with their tax, financial, and estate planning. He focuses his practice in the areas of elder law, corporate law, Medicaid planning, tax law, estate planning and probate in the Greater Cincinnati and Northern Kentucky areas. His practice area includes Hamilton, Butler, Warren and Clermont counties in Ohio, and Campbell, Kenton and Boone counties in Kentucky.

Legal Disclaimer: Bill Hesch submits this blog to provide general information about the firm and its services. Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel. While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog. Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.