Do It Yourself Estate Planning

Do It Yourself Estate Planning.

There is a time and place for do it yourself estate planning.  DIY documents are particularly well suited for the young, those just starting out, those with little to lose, and those that are going to stay that way.  For example, a DIY business entity is far better than no business entity.  In the beginning stages of a business, when resources are limited, that may be the best way to go.  But sooner or later, if the business works, the DIY corporation, LLC or trust is not going to be enough.  The critical factor is knowing when you need to get help.

In certain circumstances, do it yourself estate planning documents do more damage than good.  For example, an elderly person with few or no assets, will certainly benefit by having certain basic documents such as a medical directive or medical power of attorney and living will. If going to an attorney is cost prohibitive, using the appropriate resources including documents provided by the state, care facilities, hospice and certain on-line providers, may be the best available option.  Often younger family members can assist an elderly parent or grandparent in the do it yourself process to fill out and complete the forms.

Likewise, savvy individuals can avoid probate by naming “Pay On Death” (P.O.D.) beneficiaries for certain financial accounts, by holding real estate under beneficiary deeds where allowed, and by otherwise structuring their assets so that they pass by contract rather than going through the courts.  This takes considerable follow through.  Too often, with the best of intentions, such do it yourself estate planning is not complete or adequate.

I review estate planning documents on a regular basis including the DIY documents people put together.  Nearly every time, the documents have serious defects such as blank lines that are not filled in, signatures that have never been made, and funding that has not been completed.  This is not to say that the DIY approach is not capable of working.  It is just difficult enough in the implementation that it is easy to miss a critical element.  The unintended consequences of little mistakes can be probate, conflict, complexity, and higher cost of administration.  By not paying a small amount of legal fees up front, a large amount of legal fees become necessary on the back end.

Do It With Help.

DIY does not mean doing it alone.  Often, the problems can be avoided just by getting help.  There are a number of factors that cause the do it yourself estate planning approach to fail or fall short.  Here are a few of the major ones I have encountered:

• No attention to detail.  Filling out forms requires you to read and follow instructions.  This can be tedious and difficult.  Not everyone is well suited for this task.  This is not a character flaw.  Some people mistakenly think that if they can’t do it themselves, there must be something wrong with them.  The truth is, each of us have different skills.  We all do better when we play from our strengths.  We set ourselves up for failure when we refuse to delegate or out source things that others can do better and more efficiently than we can do for ourselves.  If you can do it, go for it.  If you can’t or won’t, look to someone who does it well and have them do it for you.
• Family conflict.  When family members disagree over health care decisions, property allocations, and administrative details, the DIY approach simply fails.  Even with legal help family conflict is sometimes difficult to prevent.  Candidly, using the wrong type of attorney can also make family conflict worse, particularly when the attorney’s professional business model is based on aggravating conflict in order to get paid more.  Attorney’s who focus on resolving and avoiding conflict before he escalates into litigation are often disparaged by litigators, but save families from costly fights.
• Financial Conflicts.  When the people who stand to benefit financially from the estate are putting together the documents, the probability of creating long term problems is very high.  In some instances, structuring personal benefits into an elderly parent or grandparent’s estate planning can amount to elder abuse with serious legal consequences.  It is in the best interest of the family members to engage appropriate legal counsel and other advisors to prevent even the appearance of abuse.
• Family diversity.  Families today are far more complicated and diverse than ever before.  With multiple marriages, co-habitation, blended families, alternative families, and couples with no children, there are issues and concerns that simply cannot be addressed by off-the-shelf DIY documents.  They require thoughtful and careful customization based on experience and knowledge of the law and how things actually work when a person passes away.  Sadly, I have seen DIY estate planning documents have serious unintended consequences like disinheriting children, leaving wealth to the children of the second spouse, or shifting tax burden’s to one part of the family while another group receives the financial benefits.  The more complicated the family, the less appropriate do it yourself documents are.
• High Net Worth.  “High net worth” is a fuzzy condition.  In my experience, most people who I think have a high net worth don’t regard themselves as wealthy because they know someone else who has more, and they would like more if they could get it.  As a practical matter, however, for estate planning, there comes a point where the value of your estate warrants getting appropriate legal, accounting, tax, and financial advice.  The question is not whether someone else thinks you have a high net worth, but whether you think the assets you possess are valuable enough to be worth protecting.  The greater your wealth, and the more you care about protecting it, the more important it is to get appropriate help rather than doing your own estate planning.
• Business interests.  One of the markers that indicates the need for planning beyond the do it yourself stage is owning business or real property interests.  Too often even with qualified business legal counsel, the business and real property are not “integrated” into the estate plan.  They are independent of the estate plan, and therefore do not have the benefits of the plan.  For example, it is a common problem for people to have a trust for estate planning purposes and a business entity for their business, but their trust does not own their business.  This can cause unnecessary probate, conflict, taxes, and succession issues.  Regardless of the value, the more you have in business or real property interests, the less appropriate DIY planning and the more you need appropriate guidance.
• Disinheriting Family.  Some years ago I became involved in an estate where a man created a trust that disinherited his children, and left millions of dollars to charity.  There were very good and justifiable reasons for not leaving the wealth to his children.  He was also very cost conscious, and prepared the trust himself using a form he obtained from a stationary store.  Under the form, the standard trustees were his children.  So the result was his children were trustees of a trust which disinherited them and gave their father’s multi-million dollar estate to charity.  Needless to say, there were serious problems that cost a great deal of time and money to sort out.  Whenever family members are not being treated equally or are being disinherited, it is simply foolish to use do it yourself estate planning documents.  This is stormy and treacherous water, and much trouble is prevented by engaging a skilled pilot to guide you through the hazards.

Coming of Age.

DIY planning is a youthful enterprise for the early stages of our life.  It is not where we want to be at or near the end game.  If we never mature beyond the start up level of asset accumulation, then we may never need more than do it yourself estate planning documents.  However, if we do what we say we are going to do, and actually succeed in our business and career efforts, then we will out grow the DIY documents we started with.  When you decide to get help depends in part on how confident you are of success.

Do it yourself estate planning is like a starter job for a teenager.  It teaches important skills, meets a short term need, and provides a spring board for bigger and better things to come.  But long term, our high income earning years should out perform our youthful time spent in fast food restaurant service.  Likewise, our estate planning will hopefully outgrow the self-help approach.

Years ago I had a new college graduate come to me and ask for an advanced estate and asset protection plan like we would prepare for an extremely high net worth individual or family.  When I reviewed his balance sheet, I flatly told him he did not need such a plan.  He had nothing to protect and nothing to plan for.  Still, he insisted that I prepare the plan for him.  At the time, it cost more than ten thousand dollars, which was a lot of money then and now.  When we signed documents, this was what he told me:

“You have created the box.  I am going to fill it up.”

That is exactly what he did.  He told me that the kind of people he was going to work with in his profession had and needed the same kind of advanced planning we did for him.  He wanted the advanced planning as part of his own education so that he could relate to and understand the mind set of people with that kind of wealth.  He understood early on that he was not going to be broke for long.  He was fully engaged in the great American Dream of starting with nothing and rising above great opposition and difficulty to succeed in spite of the odds.  Over the years, I have watched him build a wonderful family, create enormous wealth, and give generously to his community.

It would not have been wrong for him to start with do it yourself estate planning documents.  But it was also not wrong for him to pay for more than he needed at the time, because he knew how his needs were going to change over time.

Something is Better than Nothing.

Wherever you are in the development of wealth or acquisition of property, whatever the size or nature of your family, having do it yourself estate planning documents in place is far better than having no documents at all.  Start wherever you are and take a step forward.  If the best step for you is a do it yourself estate planning document, great.  Make it happen!  Do it now.  If you have advanced to the point where you need expert help, or if you know you are going to get to that point eventually, call a qualified advisor and make an appointment today.  Do it before you leave this page.  You will bless your family and increase your own odds of success by developing your own exit plan.  Just do the right thing, and do it now.