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Why DIY Estate Planning Could Cost You And Your Heirs Thousands…

estate planning on the cheap

You should not sacrifice great planning for a supposed money-saving deal which likely won’t work and will cost you or your heirs thousands.

Six Reasons Not To Do Your Planning On A Budget:

  • You can make serious errors that will cause your estate plan not to work;
  • You may not have a plan in place that is legally valid;
  • Without the help of an experienced attorney, you won’t be able to take advantage of helpful estate planning tips and legal advice;
  • You won’t have an individualized plan that meets all of your personal needs;
  • You may not realize when a law change affects your plan;
  • You won’t be able to ask questions throughout the estate planning process and in the future; and
  • Your loved ones won’t have a trusted adviser to call for help.

Don’t fall for a cheap estate planning process and don’t do your own planning. If you do, you may end up making serious errors. You should not sacrifice great planning for a supposed money-saving deal which likely won’t work and will cost you or your heirs thousands. Take the time to work alongside an experienced estate planning attorney so that your plan works. Your estate planning attorney will be able to create a customized plan that meets all of your goals.

It’s Too Easy To Make Mistakes

A DIY estate plan typically will only handle simple estates, and can’t deal with even the most common complexities such as children from a prior marriage, children with special needs, property that has appreciated in value resulting in capital gains, or estates that are large enough to be subject to estate taxes. And, DIY sources generally fail altogether to take advantage of sophisticated estate planning strategies because they typically can’t account for an individual’s unique circumstances.

One size doesn’t fit all

Further, it’s easy to make an error by failing to understand the instructions or by following the instructions incorrectly.

The result is that the documents you create could be invalid, ineffective, or contain legal language having consequences you never intended. You might not know if that is the case during your lifetime, but at your death your loved ones will find out and may suffer the lasting consequences of your mistakes.

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You’re Not Getting Legal Advice

DIY sources provide forms but not legal advice. In fact, these sources clearly state that they are not a substitute for an attorney, and that they are prohibited from providing any kind of legal advice.

Estate planning involves a lot more than producing documents. It’s impossible to know, without a legal education and years of experience, what the right legal solution is to your particular situation and what planning opportunities are available. The actual documents produced are simply tools to put into effect a plan that should be specifically tailored to your circumstances and goals.

For example, assume parents have wills that specify that in the event of both of their deaths that their estate be placed into a trust for their children’s benefit until the children reach age 25. This is done to avoid the children receiving a large sum of money at age 18 as the parents recognize the negative effect that a large inheritance could have on a child.

Unfortunately, with the children named as contingent beneficiaries of the life insurance they will receive the proceeds at age 18. In addition, the courts will normally require that a court supervised and costly conservatorship be created to control the money while the child is a minor, which will have the effect of depleting the insurance proceeds.

An alternative is to name your estate or a trust directly as the contingent beneficiary. However, the exact beneficiary designation that is appropriate will depend upon the type of will or estate plan that you have in place, as well as other factors. Beneficiary designations are more difficult that they appear and you should consult you’re your estate planner for specific advice concerning this matter.

Another example is…

GIFTING WHEN YOU SHOULDN’T AND NOT GIFTING WHEN YOU SHOULD:

When properly applied, gifting can be an extremely effective way to reduce estate taxes. However, many individuals incorrectly assume that gifting is simple and fail to obtain competent advice. The following examples demonstrate two gifting mistakes:

Example 1 – An individual has a taxable estate and wishes to make gifts to her children in order to reduce her taxable estate. Unfortunately the wrong property is gifted. When a person dies the property in their estate gets a stepped up basis, however, gifted property retains the same basis. The effect can be significant if you gift a highly appreciated asset.

Imagine you have 1,000 share of Intel stock which you paid $15 a share ($15 is your basis) and the stock is now valued at $60 per share. If you gifted the shares to you daughter the shares would retain their $15 basis so if she then sold the shares for $60 a share her taxable gain would be $45,000 (60-15 x 1000). If she inherited the shares her basis would be $60 and therefore there would be no taxable gain on their sale if sold at $60 a share.

The general rule is to gift appreciating assets but not appreciated assets.

Example 2 – An individual has a taxable estate but incorrectly overestimates their spending requirements. If your estate is worth only $50,000 more than the federal exemption amount your estate could pay over $25,000 in estate taxes. Often individuals can gift appropriate assets to the persons who will receive their estate ultimately without any effect upon their financial security or change in lifestyle.

Estate Planning Laws Change

Another issue is Estate Planning Laws are not static. They constantly change because of new case law and legislation, especially when it comes to estate taxes. Attorneys keep up with these changes. DIY websites, makers of software, and other sources may not do as good a job at keeping current and up-to-date.

Fixing Mistakes Can Be Costly

As previously stated, estate planning documents can be obtained from a lawyer for $800 to $3,000 or more, depending on the complexity of your estate. But these costs are minor in comparison to the costs that your loved ones may incur if there are serious errors in your DIY estate planning. Many more thousands of dollars may have to be spent by your loved ones to undo what was done wrong.

Article references:
www.hg.org/article.asp?id=22389
www.360financialliteracy.org/Topics/Retirement-Planning/Estate-Planning-Basics/The-Problem-with-Do-It-Yourself-Estate-Planning

About the author

Michele Ungvarsky

Michele graduated from law school in December of 1994. She practiced law in Albuquerque until 2009 when she relocated to the Las Cruces area. Michele has a unique understanding of issues facing families during disability and health crises because her mother and father (who was suffering from advanced Alzheimer’s) moved in with her. The family struggled with the health issues related to the costs and challenges of her father’s Alzheimer’s Dementia. That is why, Michele is committed to helping families “PLAN IT FORWARD” so there are comprehensive plans in place in the case of disability or death.