The Risks of the Do-It-Yourself Estate Plan
Many individuals attempt to save money by preparing their own estate plans using online forms and templates. However, this approach carries significant dangers that often only become apparent after problems arise.
The Limitations of Online Forms
Online estate planning documents are problematic because they typically omit essential components. Most templates focus solely on wills, but a comprehensive estate plan encompasses much more than a last will and testament. An experienced estate planning attorney understands that proper planning must address both your needs while living and the distribution of your assets after death.
Critical Documents Often Overlooked
A complete estate plan should include:
Power of Attorney: This document authorizes someone to manage your personal affairs if you become incapacitated. Your designated agent can handle banking, investments, bill payments, and property management. However, there is no one-size-fits-all power of attorney. Your specific circumstances may require different arrangements—for example, giving your spouse control of most accounts while designating someone else to handle business interests. Additionally, these documents vary significantly by state, and an online form may not be valid in your jurisdiction.
Health Care Power of Attorney or Health Care Surrogate: This appoints someone to make medical decisions on your behalf if you’re unable to do so. These documents also vary by state, and healthcare providers may not accept generic forms. An attorney can ensure your document meets your state’s requirements.
Living Will: This highly personalized document reflects your end-of-life care preferences. Some individuals refuse life-sustaining measures in vegetative states, while others want every possible intervention. Standard forms cannot capture these nuanced wishes.
Consequences of Improper Documentation
When Power of Attorney, Health Care Power of Attorney, or Living Will documents are improperly prepared, declared invalid, or missing entirely, families may need to pursue court-ordered guardianship. This legal process is expensive, intrusive, and time-consuming. Even temporary incapacity requires undoing the guardianship once you recover, as the guardianship otherwise strips away your legal rights to conduct your own life.
Risky DIY Strategies
Payable on Death and Transfer on Death Accounts: Many DIYers create POD or TOD accounts, assuming beneficiaries will receive funds automatically. However, if a named beneficiary dies first, assets typically pass to that beneficiary’s children rather than according to your wishes. Many financial institutions also don’t permit certain accounts to be structured this way.
Adding Children to Real Estate Titles: Placing children on property titles with rights of survivorship seems practical but creates problems. If children predecease you, their children become rightful owners. Disagreements among heirs about selling property can become expensive disputes. If any heir has creditors, liens may attach to the property, preventing any sale until debts are satisfied.
Tax Complications
DIY estate planning frequently creates serious tax problems. When children are added to a property title, it constitutes a gift, and their ownership interest is taxed based on your original purchase price. Upon your death, children must pay income taxes on the difference between their cost basis and the property’s sale price. Inherited property typically receives a “step-up in basis,” which avoids this income tax burden entirely.
The Handshake Agreement Problem
Some DIYers place assets in one child’s name with only a verbal agreement that the child will distribute assets fairly among siblings. Without legal documentation, there is no recourse if that child decides to keep the assets or distribute them differently than you intended.
The Solution
Consulting with an experienced estate planning attorney to create properly drafted documents is far simpler than attempting DIY solutions. Professional guidance ensures your plan addresses your unique circumstances, complies with state law, and protects both you and your family from costly complications.
If you or a loved one needs assistance with elder law or estate planning issues, do not hesitate to contact us. We are here to help.
