The Perils of Online Estate Planning

The rise of online estate planning has lead to a rise in problems attorneys discover after the fact, many of which an estate planning attorney could avoid.

While the attraction of simplicity and low cost is appealing, the results are all too often disastrous, affirms Insurance News in the article “Mind Your Mouse Clicks: DIY Estate Planning War Stories.” The increasing number of glitches that estate planning attorneys are seeing in online estate planning after the fact has increased, as much as the number of people using online estate planning forms. For estate planning attorneys who are concerned about their clients and their families, the disasters are troubling, and very difficult to fix in estate administrations.

A few clumsy mouse clicks can derail an online estate plan and adversely affect the family. Here are five real life examples.

Details matter. One of the biggest and most routinely made mistakes in DIY estate planning goes hand-in-hand with simple wills, where both spouses want to leave everything to each other. Except this typical couple neglected something. See if you can figure out what they did wrong:

John’s will: I leave everything to my wife Phyllis.

Phyllis’ will: I leave everything to my wife Phyllis.

Unless John dies and Phyllis marries someone named Phyllis, this will is not going to work. It seems like a simple enough error, but the courts are not forgiving of errors.

Life insurance mistakes. Jeff owns a life insurance policy and has been using its cash value as a “rainy day” fund. He had intended to swap the life insurance into his irrevocable grantor trust in exchange for low-basis stock held in the trust. The swap would remove the life insurance from Jeff’s estate without exposure to the estate tax three-year rule, and the stock would receive a stepped-up basis at death, leading to tax savings on both sides of the swap.

However, Jeff had a stroke recently, and he’s incapacitated. He planned ahead though, or so he thought. He downloaded a free durable power of attorney form from a nonprofit that helps the elderly. The POA specifically included the power to change ownership of his life insurance.

Jeff put his name in the space designated for the POA. As a result, the insurance company won’t accept the form, and the swap isn’t going to happen.

Incomplete documents. Ellen created an online will leaving her entire probate estate to her husband. It was fast, cheap and she was delighted. However, she forgot to click on the space where the executor is named. The website address for the website company is the default information in the form, which is what was created when she completed the will. The court is not likely to appoint the website as her executor. Her heirs are stuck, unless she corrects this, hoping the court will understand. Hope is a terrible estate plan.

Letting the form define the estate plan. Single parent Joan has a 6-year-old son. Her will includes a standard trust for minors, providing income and principal for her son until he turns 21, at which point he inherits everything. Joan met with a life insurance advisor and applied for a $1 million convertible 20–year term life insurance policy. It will be payable to the trust. However, her son has autism, and receives government benefits. There are no special needs provisions in her will, so her son is at risk of losing any benefits, if and when he inherits the policy proceeds.

Don’t set it and forget it. One couple created online wills, when the estate tax exclusion was $2 million. They created a credit shelter, or bypass, trust to reduce their estate taxes, by allowing each of them to use their estate tax exclusion amount. However, the federal estate tax exclusion today is $11.4 million per person. With $4 million in separate assets and a $2 million life insurance policy payable to children from a previous marriage, the husband’s separate assets will go into the bypass trust. None of it will go to his wife.

Online estate planning is dangerous because there is no opportunity to receive legal advice on how to meet your goals in your estate plan.  An experienced estate planning attorney who is licensed to practice in your state is the best source for creating and updating estate plans, preparing for incapacity and ensuring that tax planning is done efficiently.  This post will help you get started.  https://galligan-law.com/how-to-begin-the-estate-planning-process/

Reference: Insurance News Net (Sep. 9, 2019) “Mind Your Mouse Clicks: DIY Estate Planning War Stories”

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Read more about the article Probate: Dissolving the Mystery
It is important to understand the probate process before deciding whether and how to avoid it.

Probate: Dissolving the Mystery

probate and estate planning
If you want to avoid probate, work with an experienced attorney to coordinate your plan and assets.

Probate avoidance is a common concern for our clients.  They frequently seek ways to pass their assets to their loved ones without going through probate.  Although it can be avoided with proper estate planning, probate avoidance should be done carefully and at the advice of an attorney as using piecemeal strategies usually don’t work, and sometimes create bigger problems.  For example, consider using trusts in your estate planning.  See this article for more information.  https://galligan-law.com/how-do-trusts-work-in-your-estate-plan/

Before considering whether you want to avoid probate, it is important to understand what the process is.  The Street’s recent article on this subject asks “What Is Probate and How Can You Avoid It?” The article looks at the probate process and tries to put it in real-life terms.

Probate is the process by which an Executor (person put in charge of the Will) goes to court to prove the validity of the Will and their authority to be in charge of the estate.  I find it helpful to remember that the word probate is essentially Latin for “prove it.”

Every state’s process is different, but in Texas, the Executor starts by filing the Will and an application to probate along with other documents necessary to that case.  Next, there is a hearing before a probate judge.  The Executor and her attorney ask the judge to admit the Will to probate as the valid Will of the decedent and ask that the Executor be empowered to handle the decedent’s affairs as directed in the Will.

Once the Will is admitted to probate and the Executor agrees to serve, there are many tasks for them to complete.  They include the following:

  • Giving notice to the beneficiaries in the Will;
  • Giving notice to potential creditors of the estate;
  • Gathering, valuing and categorizing the decedent’s assets;
  • Prepare an inventory of those assets;
  • Paying off any of the deceased’s existing valid debts or fighting invalid ones;
  • Paying final taxes or expenses of the estate; and
  • Distributing the deceased’s property to those directed by the Will

The above are just the basic responsibilities of the Executor.  The probate process becomes more complicated when a creditor appears, the family disagrees, assets are entangled or cumbersome, such as land or business interests, or the Will was written without the aid of an attorney.  Even worse, it is hard for an Executor to locate assets in the first place!  This can make estates drag on months or even years.  I recently spoke with a client whose family is still going through a probate 10 years after the decedent has passed.

With all of that uncertainty, it is worth discussing your wishes with an experienced estate planning attorney who will be able to explain what strategies are used to avoid probate, how to remove certain assets from the process, or whether it needs to be avoided at all.  The key, as with all estate plans, is to find the option that fits your goals for you and your family.

Reference: The Street (July 29, 2019) “What Is Probate and How Can You Avoid It?”

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How to Begin the Estate Planning Process

The estate planning process can be intimidating, but doesn’t have to be.  Start by listing your assets, who they go to and who to put in charge.

The hardest part of the estate planning process is  starting it.  About 17% of adults don’t think they  need  a will, believing that estate planning is only for  the very wealthy. In fact, clients frequently ask  whether they have enough money for an “estate.”    Sometimes they think state law will already directs their assets and they don’t need a plan.

However, the estate planning process is not about how much money someone has.  It is about planning for the assets you have, however much or little that may be, your wishes for those assets, yourself and your family.  It is about empowering you to make the choices you want for you and your family, not leaving it up to the state.  Even completing a few simple documents can make a huge difference in the future.

valuewalk.com’s recent article, “Couples: Here’s How To Start The Estate Planning Process” notes that although the estate planning  process can seem overwhelming, taking inventory of assets is a terrific place to start.

Make a list of all your assets, including confirming how they are titled and whether there are beneficiaries named on the accounts, as well as the general value of the assets. Then, decide who you want to leave these assets to and who should be in charge of the process.  Our firm uses questionnaires as part of the estate planning process to help gather this information so we can focus on the issues most important to you.  I also did a video segment on Kevin’s Korner that walks through some of these issues as well.  See this link for the video.  https://www.youtube.com/watch?v=B2M_-tBoSiU 

Drafting a will or a trust may be the most critical step in the estate planning process. These documents serve as the directions for how assets are to be distributed and who is responsible to do it.  A well-crafted will or trust can simplify the distribution of assets at your death, provide instructions to your family, and avoid disputes, unnecessary taxes and protect your beneficiaries from predators.

Without an estate plan in place, your assets will be distributed according to state law, rather than according to your wishes. Don’t assume state law leaves everything to your spouse!  Many people assume if they are married everything they own goes to their surviving spouse, but in many situations, that isn’t true.  For example, blended families, children outside of the marriage and some non-marital property.  Speak with your estate planning attorney about how these issues impact you.

Once you have an idea of your assets, beneficiaries and who to put in charge, the next step in the estate planning process is to meet with your estate planning attorney to review the information so they can make recommendations on the best way to accomplish your goals and highlight other issues to address.  Our firm offers free estate planning consultations, so please contact us today to start the estate planning process.

Reference: valuewalk.com (July 22, 2019) “Couples: Here’s How To Start The Estate Planning Process”

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