Dangers of “Do It Yourself” Estate Planning

Creating a legally valid estate plan requires careful planning and consultation with your attorney. The prevalence of online legal services has led many people to believe they can create legal documents cheaply and those documents will be just as effective as if they had visited an estate planning attorney. The majority of the time this is wrong. Usually when I see these will forms, they are not executed in compliance with Arizona law and are invalid.
Initially, if you think all you need is a “simple” will or trust, these online services can be tempting. However, while going it alone with a book or a form may save you money now, it likely will cost you and your loves ones more in the future.
Online sites offering “estate plans” are little more than document mills that churn out the same generic forms over and over. They are not attorneys and cannot advise or warn you if you make a mistake. Plus, who will be there for your family when something happens to you if you’ve used an online document drafting service?
One size doesn’t fit all; your family is different from everyone else’s family. Just like every state has different inheritance laws, every family has different situations. An online form will not help you protect a child or relative with special needs, or protect a child’s inheritance from creditors or a nasty divorce. An online form cannot tell you how to protect assets from taxes or help you achieve your financial or charitable goals.
An estate planning attorney creates an entire plan tailored to your individual needs in legal documents that will stand up in court, and advises you on ways to cut taxes now as well as in the future, save for retirement and long-term care and truly protect your unique wishes. We make certain all documents are witnessed and notarized according to Arizona law. No online service does that.

Myths and Facts Regarding Probate and Trusts

Myth: Probate costs and attorney fees are usually as high as 10% of your estate.

Fact: Arizona court costs to open a probate are very modest. In addition, Arizona lawyers may charge only reasonable fees for necessary services, not percentage fees. Fees may increase in the event of tax issues, disputed creditor claims, or other litigation, but these same issues can arise with a trust.

Myth: In probate, assets are not distributed for several years.

Fact: An informal probate procedure can start as early as five days after death, and distribution can occur as soon as it is clear there are sufficient assets to pay expenses, creditors and taxes. Creditors have up to four months to submit claims and the personal representative may, but need not, delay distribution until the end of the creditors’ claim period. A trustee may also have to delay distribution to pay taxes or divide property. An improperly prepared trust may require money and time to correct before distribution can be carried out.

Myth: Probate forces the liquidation of your assets.

Fact: Liquidating assets is necessary only to pay expenses, creditors, taxes, or to make distributions to beneficiaries. Assets may be transferred in kind.

Myth: Probate litigation is more expensive than trust litigation.

Fact: Unhappy family members or beneficiaries can challenge both wills and trusts. A trust is not a guarantee against litigation. Expenses will depend on the nature of the litigation. Call me if you foresee future litigation concerning your estate.

Myth: A trust will avoid federal estate taxes.

Fact: A will or trust that provides for a “credit shelter trust” arrangement can reduce estate taxes for married couples who have combined assets over the federal estate tax exemption ($10,860,000). A trust in and of itself does not reduce estate taxes at an individual’s death, nor does a will.

Myth: Probate proceedings are complex and require special court approval.

Fact: In Arizona, most estates use informal probate procedures that do not require formal court approval. In most cases, personal appearance in court is not required.

Beneficiary Designations

Most retirement plans, life insurance policies, annuities and certain other types of accounts allow you to name who will receive the proceeds when you die by filling out a beneficiary designation form. And it is important that you do so. If you don’t properly complete the beneficiary designation form, that account may be subject to probate and end up in the wrong hands.

So what does properly completing a beneficiary designation form mean? First, you should name your primary beneficiary or beneficiaries. You can name one person (or an institution or trust) as sole beneficiary; or you can name more than one beneficiary and specify what percentage of the account each person will receive. You should also name “contingent” or secondary beneficiaries in case your primary beneficiary dies before you. Failure to do so may end up in a probate court and your retirement account may end up in the hands of an unintended person. Keep a copy with your important papers.

Has Anything Changed in Your Life that Warrants a Change to Your Estate Plan?

As your life changes, your assets change, and the laws change. You may need to revisit your estate planning documents. Conducting a proper review of your estate plan will help identify the potential need to update your plan.

Life transitions: Have any babies been born, loved ones died, people gotten divorced or married? Are you nearing retirement? If so, you may need to revisit your plan.

Changes in assets: Has your net worth gone up or down? Have you invested in any new assets, such as a business, which may subject you to personal liability? If so, your estate plan needs to be updated.

Funding of assets and beneficiary designations: One of the most common mistakes people make is not properly completing the transfer of assets into a trust within their estate plan. Another common error is having beneficiary designations that are inconsistent with the distribution language in the estate plan. I recommend a review of those matters annually.

Where Do I Keep My Estate Planning Documents?

Tell your fiduciary where you keep your documents. If you were to become incapacitated or die, would your agents, trustees or personal representatives know where to find the key to your safe deposit box? The title to your car? Or, your account numbers and passwords? If not, it is time to start compiling your personal records. Below is a list of the top ten types of records you should print out or save in digital format. These items should be kept in a secure location separate from your computer, but in a place that can be accessed by your representative upon your death or incapacity.

1. Personal Information.
2. Cash/Investment Accounts and Safe Deposit Boxes.
3. Real Estate.
4. Brokerage accounts; Partnerships/Closely Held Business Interests.
5. Annuities, Life Insurance and Retirement Plan Assets.
6. Loans/Notes.
7. Estate Planning Documents.
8. Tax Records.
9. Digital Files.
10. List of Advisors.

Six Tips for Avoiding a Will or Trust Contest

A will or trust contest can derail your final wishes, rapidly deplete your estate, and tear your loved ones apart. But with proper planning, you can help your family avoid a potentially disastrous will or trust contest.
If you are concerned about challenges to your estate plan, consider the following:
1. Do not attempt “do it yourself” solutions. If you are concerned about an heir contesting your estate plan, the last thing you want to do is attempt to write or update your will or trust on your own. You will want to title your assets properly to obtain your desired results. Only an experienced estate planning attorney can help you put together and maintain an estate plan that will discourage lawsuits.

2. Obtain a note from your doctor that you have the capacity to make or sign a will.

3. An in terrorem clause is a provision in a will and trust that penalizes an interested person for contesting a will or suing the estate and automatically disinherits them from the will upon such contest. In 2012, this provision was upheld in the case Stewart v. Stewart, 230 Ariz. 480 (Ct. App. 2012) which stated that such clauses were generally enforceable.

4. Let family members know about your estate plan. When it comes to estate planning, secrecy breeds contempt. While it is not necessary to let your family members know all the intimate details of your estate plan, you should let them know that you have taken the time to create a plan that spells out your final wishes, the names of your fiduciaries and the location of your signed documents.

5. Use discretionary trusts for problem beneficiaries. You may feel that you have to completely disinherit a beneficiary because of concerns that a potential beneficiary will squander their inheritance or use it in a manner that is against your beliefs. However, there are other options than completely disinheriting someone. For example, you can require that the problem beneficiary’s share be held in a lifetime discretionary trust and name a third party as trustee. This will insure that the beneficiary will only be entitled to receive trust distributions under terms and conditions you have dictated. You will also be able to control who will inherit the balance of the trust if the beneficiary dies before the funds are completely distributed.

6. Keep your estate plan up to date. Estate planning is not a one-time transaction; it is an ongoing process. Therefore, as your circumstances change, update your estate plan. An up to date estate plan, properly witnessed and notarized, shows that you have taken the time to review and revise your plan as your family and financial situations change. This, in turn, will discourage challenges since your plan will encompass your current estate planning goals.
By following these tips, your heirs will be less likely to challenge your estate planning decisions and will be more inclined to fulfill your final wishes. If you are concerned about heirs contesting your will or trust, you should seek professional advice now.