Heir-or in Judgment #5:  Using DIY Estate Planning Forms

Drafting wills, trusts and other estate planning documents is the practice of law.  Even if the documents being offered are “written by lawyers,” laws on the administration of estates differ from state to state and can change year to year; generic forms cannot include any state specific references that could run afoul of another state’s laws.  Also, when you choose and complete your own forms, you have no attorney to ask (and answer) the right questions, decide the right estate planning approach, order and properly complete insurance and retirement plan forms, and confirm that all documents have been properly drafted, signed, witnessed and recorded.

As Timothy E. Kalamaros, a lawyer with his own practice in South Bend, Ind., says, using a DIY will is like “pulling your own tooth with a pair of pliers instead of going to the dentist.”  George Fox, a lawyer with Fox+Mattson in Atlanta, recently sent shared two of his favorite examples, gleaned from a tax group he frequents.  One involved someone who left the form blank where instructions for the DIY will said “[Insert name here]” and wound up leaving $200,000 to “[Insert name here]” instead of to a loved one.  And then there was the poor soul who left “$200.000 to my sister.”  The typo, putting a decimal point where there should have been a comma, became a source of contention.

Finally, having an estate planning attorney provides you with a source of ongoing representation, informing you of changes in the law that may impact your estate and require changes to your plan.

Heir-or in Judgment #4: A Will Disposes All of Your Assets

A Will only controls property that you own in your name alone.  Property that is jointly owned with rights of survivorship will pass to the joint owner.  Additionally, in most states spouses have marital rights in property owned and can elect certain shares of that property even if the spouse is left out of the Will.

Beneficiary designations in retirement accounts, insurance policies and banking accounts will also trump a will.  I recommend to my clients to have a beneficiary audit performed to ensure they are up to date.

Heir-or #3:  A Will Prevents Probate

This is a very common misconception.  I meet with a lot of folks who think if they create a will that states their house is left to their children then their house will avoid probate.  However, that house would still have to pass through probate even if the will stated specifically where it was to be distributed.

Probate is the legal process of administering the estate of a deceased person by resolving all claims and distributing the deceased person’s property.  It is the only way to obtain a court order to change the name on legal documents such as titles and deeds.  There are court costs, fees and probate attorneys’ fees associated with probate, not to mention the amount of time the property remains held up in court.

A will guarantees that whatever property distributed under the terms of that will pass through probate.  There has to be something else along with that will that allows the property to avoid probate.  Placing property with titles and deeds inside a trust will allow that property to be distribtued per the terms of that trust outside of probate.

Other ways to avoid probate:

• Joint tenancy with rights of survivorship
• Designated benficiaries
• Payable on death
• Transfer on death
• Beneficiary deeds

Heir-or #2:  Everything Goes To Your Spouse

Unfortunately, that is not always the case.  State laws do very, but if you die without a will (intestate), the inheritance from your estate will be divided among your spouse and children.

In Arkansas, if you have a spouse but no children, all of your assets pass to your spouse if you have been married for more than three years.  If you have a spouse but no children, only one-half of your assets pass to your spouse if you have been married less than three years.  If you have a spouse and children, your spouse will receive one-third of your assets and the remaining two-thirds will pass to your children.  If you do not have a spouse or children, then your assets will pass to your parents, then brothers and sisters then other relatives such as nieces, nephews, aunts and uncles.

Regarding land, if you have a spouse and children, your spouse will only receive a life estate in one-third of your land.  A life estate means that your husband or wife owns their share of the land only for their lifetime.  They do not have the right to say who gets the property at their death.

This is not what most people want to happen with their assets.  However, in reality, is it exactly what will happen with no planning or poor planning.

This is the first in a new series of estate planning “heir-ors” that I am going to bring to you.  As of this writing, almost 2/3 of Americans do not have a basic will.  One of the big reasons that most families do not yet have this kind of plan in place is because of some incorrect thinking about whether it is right for them or if it is even necessary.

I wanted to speak to some of the more common “heir-ors” out there.  I’ll start with one of the big ones and address more in 2012.

Heir-or #1:  Only Rich People Prepare Estate Plans

Do you own anything?  If so, you need a will.  You see, a will allows you to designate who will receive your property should anything happen to you.  Continuing without one ensures that all of your assets will be distributed under the terms of your state’s “intestate succession” laws.  That means your money and property could end up with family members you haven’t spoken to in years instead of who you’d really like to see control your assets.  Failing to have a will in place is simply a decision to trust your assets to government bureaucrats who do not know you from Adam.

Do you have children?  If so, you need a will.  You will be able to name a guardian to take care of your children should you not be able to.  Without having this guardian clause in a will you will not be able to take part in the decision making process and a judge will decide where your children will live and who with.

Even if you think your situation if pretty straightforward, you may feel more comfortable hiring an estate planning attorney to help guide you the process.

There are a few changes that have recently gone into affect or will be going into affect that can affect an estate plan.  These are all good changes and will make the job of estate planner, whether it is the individual or their attorney, easier.

An owner of any vehicle or boat can now transfer it upon his or her death to a designated beneficiary through the Department of Motor Vehicles (DMV).  What does this mean?  This means the vehicle or boat will avoid probate if you apply for a certificate of title/number and fill out the beneficiary designation form.  It is contractual, so it cannot be revoked by a will.  It can be only be revoked, or changed, by completing a revocation form with the DMV.

Also new to the DMV is the ability for an individual to declare on their driver’s license that he or she has a controlling living will.  This is a great way for medical providers to know that a living will is in place for that individual they are providing care for.  A living will is document that controls end of life decisions of whether or not one would like life-sustaining treatment that only prolongs the process of dying and is not necessary for comfort or to alleviate pain.

There are widespread changes to the durable power of attorney Acts.  A new Act was created and many amendments were made to the existing statutory language.  The Uniform Power of Attorney Act applies to durable powers of attorney (better known as durable financial powers of attorney or durable powers of attorney for business or financial needs) which allows powers of attorney created in Arkansas to be more specific and to fall under uniform application.  I am currently conforming all my existing clients’ durable powers of attorneys to the Uniform Act at no charge.

These changes will allow much more ease and flexibility in estate plans.  Please do not hesitate to contact me if you need help implementing any of these changes or if you would like to speak with me about creating an estate plan for you and your family.

This is the ninth entry in a series I will be featuring about celebrity estate planning mistakes and what they could have done to prevent the problems that arose.

Name: James Brown

Age: 73

Died: December 25, 2006, Atlanta, GA

Cause: Congestive heart failure due to pneumonia

Family: Six children named in will; many others contending paternity

Estate Mistake: Although he was known for keeping a very tight beat, he left a very loose will and sloppy estate planning, which led to multiple lawsuits and severe tax implications.  His will was contested by several parties, partly because he had not updated the document since 2000.

He also left his mansion and music rights to an irrevocable trust to benefit underprivileged students.  However, the trustees and family are still battling over it.  His assets were not well sheltered so an auction of his personal affects was ordered to help settle the tax bill.

This is the eighth entry in a series I will be featuring about celebrity estate planning mistakes and what they could have done to prevent the problems that arose.

Name: Howard Hughes

Age: 70

Died: April 5, 1976 (somewhere over Texas)

Cause: Heart failure while on a plane from Mexico to Houston for medical treatment

Family: No wife or children, but 22 cousins

Estate Mistake: Famed aviator/industrialist/film producer/eccentric left a $2.5 billion estate.  Thousands of people filed claims against the estate once it was in probate.  The estate lingered in probate for years as Mr. Hughes died without a valid will.  The estate was eventually spread among all 22 cousins and several other extended family members who filed valid probate claims.

Among the dozens of wills that surfaced after his death was the handwritten “Mormon Will” with misspellings and mistakes that inspired extreme skepticism.  The will, which named the church as a beneficiary, was produced by Melvin Dummar, a Utah service station owner who claimed to have rescued Howard Hughes out of the desert.  Dummar’s claim was finally thrown out of appeal in 1998.

This is the seventh entry in a series I will be featuring about celebrity estate planning mistakes and what they could have done to prevent the problems that arose.

Name: Warren E. Burger

Age: 87

Died: June 25, 1995, Washington, D.C.

Cause: Congestive heart failure

Estate Mistake: Even though Warren Burger was once the Chief Justice of the United States Supreme Court, the 176-word will he left his two children failed to empower his executors and did not plan for estate taxes.

His $1.8 million estate lost $450,000 in federal and state estate taxes.  The estate was tied up in probate of which court costs and attorney’s fees took more out of the estate.  Additionally, even more money was spent because of expenses in going to empower the executors in probate which could have been avoided if the will had granted those powers automatically.

I recently met with clients who brought their estate planning documents to me on their own to ensure they were “up to date” and “said what they wanted them to say”.  These clients are by far in the minority.  Their plans were from the early 90′s and did require updating.  They had one “general power of attorney” that was not durable and gave no specific powers to their attorney-in-fact.  We also updated the distribution portion of their will and trust as they had new grandchildren that were not specifically mentioned.

There is not a bright line rule for when one should review documents.  It’s a good idea to give your documents a yearly review to ensure laws have not changed and to ensure everything and every person listed are still around.  I, as well as most estate planning attorneys, do not charge to sit down with their existing clients on an annual basis to ensure everything is correct. 

I also recommend to revisit your documents whenever a life change occurs-new job, retirement, a move, new children and grandchildren, marriage, divorce and death.  Additionally, do not forget to review your beneficiaries with your life insurance agent and certified financial planner.