Dangers of Do It Yourself Wills and Trusts


Will 1. SignIn a previous post, I discussed An Example of What Can Go Wrong When You Make Your Own Will, as well as an article, Consumer Reports: Write Your Own Will? We tested 3 software products that claim to help you do it.

The Florida Supreme Court was recently faced with a similar situation. The deceased used a do-it-yourself Will form. She intended to leave her estate to a brother, but there was a defect in the Will. Because of the defect, her nieces claimed a right to a significant share of her estate. Litigation ensued and the lawyers got rich. In the end, the nieces were awarded the share, even though the court acknowledged that the deceased most likely had not intended that. The share had to go to the nieces because the Will did not meet the formal requirements needed to authorize a different result. (Aldrich v. Basile (March 27, 2014), Florida Supreme Court, Case no. SC11-2147.)

In a concurring opinion, Florida Supreme Court Justice J. Parienta noted:

“While I appreciate that there are many individuals in this state who might have difficulty affording a lawyer, this case does remind me of the old adage “penny-wise and pound-foolish.” Obviously, the cost of drafting a will through the use of a pre-printed form is likely substantially lower than the cost of hiring a knowledgeable lawyer. However, as illustrated by this case, the ultimate cost of utilizing such a form to draft one’s will has the potential to far surpass the cost of hiring a lawyer at the outset. In a case such as this, which involved a substantial sum of money, the time, effort, and expense of extensive litigation undertaken in order to prove a testator’s true intent after the testator’s death can necessitate the expenditure of much more substantial amounts in attorney’s fees than was avoided during the testator’s life by the use of a pre-printed form.

I therefore take this opportunity to highlight a cautionary tale of the potential dangers of utilizing pre-printed forms and drafting a will without legal assistance. As this case illustrates, that decision can ultimately result in the frustration of the testator’s intent, in addition to the payment of extensive attorney’s fees—the precise results the testator sought to avoid in the first place.

Sadly, the deceased had an appointment to see a lawyer about her Will, but put it off until it was too late.

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An Example of What Can Go Wrong When You Make Your Own Will.


Do-it-yourself Wills: a sad story of planning gone wrong.  Here is a case study by Janet L. Brewer, detailing some of the bad things that can happen when you make your own Will. Read about John, widow and father, faced with unexpected expenses and lack of privacy when his wife, Mary, died with an online Will she made herself.

Wills often do not do what many people think they do. Consult with a lawyer Alone 3about your Will and estate planning. Investing now in a good plan can save your loved ones significant money and a lot of heartache and hassle when you’re gone.

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What to Do with Your Business When You Die or Retire


Business Succession Planning

Business succession planning is the process of providing for the passage of ownership and control of your business to others when you decide to retire, or if you should die or become incapacitated. Business 1Planning for the succession of your business is an important part of being an owner, but one often overlooked by entrepreneurs. Here are some of the most common options and considerations. Keep in mind that they often overlap and the best answer is usually some combination of the options available to you.

1. Sell Your Business to Someone Else.

If your greatest concern is to be sure you get paid for the value of your business – in other words, you want the cash and may the chips fall where they may – then this is usually the safest option. If you find a willing third party buyer, you may be able to negotiate the deal to require the buyer to obtain their own financing and pay you up front.

The downside is that settling upon an agreed value for your business can be a time consuming and expensive process, involving accountants, tax experts, lawyers, realtors and potentially other experts.

If this is an option you think you would pursue, start documenting value now! Keep meticulous business and accounting records. Track repeat customers, referrals, customer comments and other indications of your business’ reputation and good will in the community. Commit to efforts to retain long term employees. All of these factors will make your business more attractive to potential buyers and favorably impact its perceived value.

That said, keep in mind that it can be very difficult to find a good buyer, willing to pay an acceptable price and on terms that you can live with. Valuation is often the most difficult aspect of a business sale.

2. Leave the Business to Your Kids.

If you are planning to go this route, it is important to bring your kids in early and let them learn the business from the ground up. Start them out in an entry level position. Let them learn several of the jobs needed to run your company, one job at aBusiness 6 time. Let the other employees get to know your kids as trustworthy, hard workers who are committed to the company. Don’t just show up one day with your child and announce that he or she is suddenly running the company.

Consider the wants and needs of your children as well. Much as you might not like hearing it, your kids may not want your business. Don’t force it upon them if they aren’t interested. Most small businesses fail by the second or third generation. Leaving the business to kids who don’t want it is a sure way for your business to join that statistic.

Another big mistake is to divide the business equally between several of your kids, even though only some of them are actively involved in the business. Fair is not always equal. Give the business to the kids that are active in the business and leave some other asset of equal value to the disinterested other kids.

3. Promote from Within and Transfer the Business to Employees.

Think about your existing employees. Are there any whose loyalty and commitment to the business stand out? Any who seem able to handle more responsibility. Any with the skill and judgment to carry on when you’re no longer involved?

Promoting from within and mentoring a replacement is an attractive option, especially if you have built the business yourself from the ground up and you don’t want to see it end or go to “just Business 8anyone.” Mentoring gives you the opportunity to pass along your know-how and your work ethic to a willing audience, provides for greater continuity of management, and gets you a successor as personally interested in the continued success of your business as you are.

The trick with this option is that you may have to finance some of the “buy out” yourself. New owners, especially younger ones without a track record of proprietorship, are often unable to obtain full financing to purchase a business. A combination of third party financing and your own “pay over time” arrangement will likely be necessary. This may include an arrangement for you to have some degree of continued participation in the business as a “consultant” to help with transition, or a profit sharing arrangement in exchange for more favorable terms on the buy out.

Of course, this option is not without risk. A sale to a third party is less likely to require that you self-finance. Sponsoring the buyout of an employee purchase means that you may not get paid if they run the business into the ground. Depending on your circumstances, however, this risk can often be somewhat minimized by slowing the transition process and allowing you to retain more control until the successor has a more proven track record.

Another alternative is to use an Employee Stock Ownership Plan (ESOP), which allows the employees to earn ownership interests in the company.

4. Close the Business.

For many business owners, closing the business is the least desirable option. They have put their heart and soul into building that business, with much blood, sweat and tears. To watch it just close up is, for them, like watching the death of their dreams. Other owners find closing up shop to be a liberating experience with the least amount of hassle. The key to making this a good experience is for closure to be an option not something forced upon you because you have no choice.

Putting in place the strategies described above is the way to keep control of the decision. Failure to plan is planning to fail. If you have no plan in place, it is far more likely that you will have no choice but to close up and move on. If you are one of those who prefers that option, you’re not done yet. When you close, be sure you pay attention to closing formalities and that you provide for payment of the business debts – especially if you have personally guaranteed payment, which is very common for business loans and lines of credit.

5. Put a Business Buy Sell Agreement in Place.

A business buy sell agreement is an agreement between the owners of a company (owners, shareholders, members, partners, etc.) that settles what will happen if certain events occur. For example, a buy sell agreement can decide when one owner gets to buy out another, or when the company has the right to reacquire shares. It spells out how the company will be valued, what happens if someone gets divorced, and what to do when someone dies. Getting this settled up front can save a lot of time, hassle and expense when events later happen.

6. Get Key Man Life Insurance.

“Key man” life insurance is a life insurance policy, usually owned by the company, that insures the life of any key executive — someone whose death would gravely affect the business. The insurance provides liquidity to fund a stock repurchase, hire a qualified replacement, pay taxes, and other needs.

No matter what option you find appealing, the key is to get a plan in place and to do it as soon as possible.  Remember:  failing to plan is planning to fail!

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Poll: Why don’t people make their Wills?


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Name the Right Life Insurance Policy Beneficiary


How Not to Name a Life Insurance Beneficiary

In estate planning, there are right ways and wrong ways to designate beneficiaries for your life insurance.  Here are some common mistakes people make:

♦ Assuming a Will or Trust controls the beneficiary designation.

      This point cannot be hammered home often enough. Neither your Will nor your Trust will control or “trump” a beneficiary designation made with the insurance company. If you make a designation on the insurance company form, that is the one that will control what happens to the insurance money. All insurance companies require you to complete a beneficiary designation when you sign up for the policy, so you most likely do have a designation — whether you remember it or not!
      The only way your Will is going to decide who gets the policy is if you either have no designation made (again, that is highly unlikely), or the person you designated is already deceased and you did not designate a contingent beneficiary. Only then will the policy pay out to your estate and be governed by the probate of your Will. Your Trust will not decide things unless the policy pays to your estate and your Will leaves it to your Trust, or the Trust is the designated beneficiary with the insurance company.

♦ Failing to name a contingent beneficiary.

      A contingent beneficiary, sometimes called a secondary beneficiary, names the person or persons you want to get the policy if your first choice dies before you do. This is like naming a backup. Many people fail to do this. It usually happens because, when they bought the policy, they wanted to “think about it” and the insurance company only required that they name the primary beneficiary.
      A lot of folks fail to go back and designate the contingent beneficiary. When the primary beneficiary fails to outlive the insured, who then dies without having named a backup, the policy pays out to the insured’s estate. This usually means that a probate will be required, which can be a very expensive and time consuming process. If you also failed to make a Will, the state will decide who gets your insurance money!

♦ Never updating the beneficiary designation.

      Has it been a long time since you bought the policy and setup the initial beneficiary form? If so, it’s probably time to review that designation and see if changes are in order. People you had named may have passed away, children may have grown, circumstances may have changed. Don’t rely upon your memory either — many people are surprised to see who the designated beneficiaries are when they order a copy of the beneficiary form from the insurance company.

♦ Naming a minor child as beneficiary.

      This can be a recipe for disaster. The insurance company will not pay out to a minor. A court proceeding will probably be necessary and, depending upon the size of the policy, the court may require that it be held in a special court-supervised account until the minor reaches age 18. At that time, the court will distribute the funds to the young person. At age 18. Is that really what you want?

♦ Naming a person with special needs as a direct beneficiary.

      If you have a loved one receiving needs-based government assistance (SSI, Medi-Cal, etc.), then you probably already know how careful you need to be to ensure that you don’t accidentally cause ineligibility.
      Naming the recipient as a life insurance beneficiary is a sure way to cause a problem with non-exempt income and countable resources. If nothing is done, the person will probably lose all government benefits until the life insurance money is spent, and then may have to re-qualify for benefits (which may or may not be awarded again!)
      To prevent this, a court proceeding will be necessary to setup a special trust to hold the money and use it for permitted purposes during the recipient’s lifetime. This is time consuming and expensive, during which the recipient’s benefits are still threatened. Moreover, anything left when the recipient dies will go to the government, not to other family members.
      An estate planning lawyer can help you setup a special trust that can be the direct beneficiary of the policy, use proceeds for the recipient, yet still pass the remainder on to your family when the recipient dies.
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Top 10 Mistakes People Make in Estate Planning, Wills and Trusts: # 1 – Waiting Too Long


Procrastination 1
Procrastination is the number one mistake people make in estate planning. Everyone knows that death is certain to occur but uncertain as to timing. Despite this, numerous surveys suggest that more than half of adults in the U.S. fail to make a formal estate plan. I say “formal” because even having “no plan” is having a plan — the State’s plan! If you die without a Will or Trust, the State will decide for you. Is that what you really want?

Even armed with knowledge, people still delay. Few things are more unsettling than contemplating one’s own mortality. Thinking about the possibility of incapacity, such as dementia or Alzheimer Disease, is equally difficult. But delay will be your undoing. “Coulda – Shoulda – Woulda.” Don’t let this happen to you.

It may surprise you to know that most people find that the actual planning process was not as bad as they imagined and experience a great sense of relief and security once a plan is in place. This can be especially true if you have a good estate planning attorney willing to take the time to really educate you about what it is that’s being done and why. Don’t settle for a “just sign here” approach. Some estate planning concepts are a lot to take in, but you should understand what you’re doing. Even if you later forget the explanation, at least have the assurance that you understood it when you signed it and it reflected the result you wanted.

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Top 10 Mistakes People Make in Estate Planning, Wills and Trusts: # 2 – Too Much Reliance on Self Help


A frequent mistake people make is relying too much upon self help. Most self-made plans or informal arrangements sound good on the front end, but turn out bad in the long run.

For example: Don’t put property into joint names with your adult child so that it automatically passes to the child when you die. People think this is a quick and easy way to pass property and “save” money on attorney fees, but this idea has many pitfalls. If the child dies before you, you’re back to square one. Perhaps not a problem if you have time to fix that, but what if you’re in an accident together and you never get a chance to change things? Or what if you just never get around to it? Now your heirs will have to probate your assets, which will cost them far more than it would have cost for you to hire a lawyer for estate planning.

Creditors are also a consideration. Did you know that your child’s creditors could use your property to collect on the child’s debts? If your child is on title, the child is an owner. Creditors can lien real estate for collection of a judgment. They can garnish bank accounts. When that happens, it’s up to you to try to undo it. Proving something is really all yours, recovering funds, releasing a frozen bank account, or removing a lien can be very difficult and does not always work. It usually requires help from a lawyer – costing more than you would have spent on an estate planning attorney.

Another example? Don’t leave everything to one adult child because that child “knows what you want to do with it” and will just divvy things up when you die. This plan takes many forms, including joint title, naming just the one child in a self-made Will, or simply telling that child what you want without discussing it with anyone else or taking any formal steps. What could possibly go wrong? Plenty! For one thing, as with the prior example, the child could die before you or at the same time as you. You’re also putting your child in a difficult position if there is any dissension at all between your children. You may not think that your little darlings would behave that way, but money and grief do strange things to people – tempers flare, siblings don’t get along, and sometimes the child who was supposed to divide the property decides to keep everything instead. Stories of feuding among children abound, ultimately costing expensive legal fees and leaving behind broken relationships. Even if you’re certain this won’t happen to you (famous last words), consider the other extreme: Will your child feel so guilt-ridden or self-effacing that your child gives everything to the siblings and keeps nothing?

Don’t assume your spouse or partner can just get everything then setup a plan for the joint assets after you die. The chance of a common accident or illness is too high. Think of how often you and your significant other engage in joint activities. Not just higher risk things, like rock climbing, skydiving, or scuba, but everyday activities, like riding in a car, attending a theme park, taking a plane or having a boat trip. How about natural disasters? There may not be time or ability to plan if both of you are involved in a calamity. What if you don’t die, but you become incapacitated instead? Now you have two troubles: no planning for incapacity and no planning for inheritances. You also can’t assume your significant other will inherit everything from you, even if he or she survives you. Most states have laws that restrict or limit the inheritance given to same-sex couples or when the deceased also had children (even adult children).

More good advice: Don’t try to write your own Will or Trust. This is a recipe for disaster! If you fail to follow required formalities, the document will be invalid. If there is anything ambiguous in what you wrote, a court will decide what you meant. That is expensive and like rolling a dice. If you think it’s easy to be clear, think again. Take the case of the man whose Will directed that his daughter receive a large monetary gift if she survived him by 30 days, and that his second wife receive everything else. Daughter died on day 28. Who gets her share? The Will said wife gets everything “else.” The Will did not say what to do if daughter did not survive. Does the second wife get it or does it go to the man’s children from his prior marriage? Where do you think those children think it should go? A court will probably have to get involved and this is going to cost a whole lot more than having a lawyer write the Will!

You shouldn’t try to be your own lawyer any more than you would try to be your own dentist or surgeon. As the saying goes, “You get what you pay for.” If you think do-it-yourself estate planning software or online service is the answer, you should read the evaluation conducted by Consumer Reports.

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Top 10 Mistakes People Make in Estate Planning, Wills and Trusts: # 3 – Inadequate Planning for Adult and Minor Children


Many people mistakenly think that planning for children only applies to minors. Not so! While minor children certainly present unique planning issues, it is just as important to think through the needs of your adult children as well. Some of the more important considerations are:

Guardian for Minor Children:

•  Do you really want to name a married couple?  If they later divorce, both will technically still be entitled to remain guardian.  Is that really what you intended, or would it be better not to name the spouse?  Even if not named, a spouse can be given authority by the guardian and can help raise the children.  But the guardian remains the boss, not the spouse.  Delegated authority ends whenever the guardian says it ends.

•  Did you know that you can name one person to be in charge of raising your children and a different person to be in charge of their inheritance?  Most parents do not know this and struggle to decide upon someone that might be a good choice for both jobs.  That’s often difficult to do because most people are better suited to one task or the other.

Encouraging Values and Behavior:

•  Most folks know that they can setup an inheritance to pay for college.  But did you know that you can specify what degrees would be acceptable, what minimum grades Graduate 6the student must attain to keep receiving assistance, and even what types of education can be supported.  College only?  Dance lessons?  Golf?  Travel abroad?  You can be as specific or as general as you care to be.

•  An inheritance can also be structured to encourage certain behaviors or achievements.  If you were still here, would you encourage college?  Then how about providing for a nice monetary gift or new car as a gift when the person attains that first degree?  It’s like a carrot, hanging out there and encouraging progress.  You can use your estate plan to encourage development of charitable giving, attaining certain skills, starting a business, or experiencing things that you consider to be important or worthwhile.

•  Planning for fiscal responsibility is an area often overlooked.  Without proper planning, a minor child will receive the inheritance outright — no strings attached — the moment he or she turns 18.  Imagine all the things that could wrong with that!  A structured estate plan can avoid this and instead, for example, provide for the inheritance to remain in trust and be given out to the young person in increments over time.  This provides the heir with an opportunity to learn to manage money, while retaining the bulk of the inheritance securely during the learning process.

Addressing Special Needs or Circumstances:

•  An unplanned inheritance can be disastrous for anyone receiving government benefits for a needs based disability, such as SSI or medicaid (Medi-Cal in California).  Receiving an inheritance outright can result in a total cancellation of benefits!  With proper planning, this can be avoided and a trust fund can be established to provide for things not covered by government benefits.

•  Have a loved one with a substance abuse problem or other challenge?  An unfettered inheritance may be squandered or even used to carry on life threatening activities.  Adequate planning can address this situation and allow others to control the inheritance,  provide for rehabilitation services, medical care, and necessaries of life until the heir’s situation has improved.

When it comes to your children, your estate planning should not stop when they are no longer minors.  A bit of considered thought can open the door to all manner of planning possibilities.

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Top 10 Mistakes People Make in Estate Planning, Wills and Trusts: # 4 – Failure to Avoid Probate


California probate is well worth avoiding! Unlike many states, where probate of a will is a fairly quick and easy process, California probate is expensive, time consuming and very public.

California probate is very expensive. The probate court filing fees and court appraiser fees are usually about $2,000 minimum. Attorneys fees and executor fees are set by law according to a formula and the value of the estate. The value used for calculating fees is the gross value, not the net value after deducting liens or expenses. On an estate valued at $1 million, attorney and executor fees are $48,000, split evenly between the attorney and the executor. Fees and expenses can be even higher if contested litigation is involved, such as creditor disputes or lawsuits to recover property.

Throw Money AwayThose expenses can be avoided if you have a trust. Most trusts cost only a few thousand dollars to create. Contrast that with $50,000 for the probate process! And that’s just for a $1 million estate. The expenses are higher as the estate value increases. Even average people can easily exceed a million dollars with the value of their home, cars, a few bank accounts, and life insurance payable to their estate.

California probate is time consuming and very public. If you die without a trust, unless your estate is very small, it will have to pass through the probate court. Court 1 In California, it takes a minimum of about 6 months to finish a probate, and usually closer to a year (sometimes several years!) Your heirs have to wait for their inheritance. Meanwhile, the executor (usually a loved one) will have to account for every penny, follow required procedures before taking any action, and keep reporting to the court.

California probate is also a very public process. The papers that must be filed with the court — and which become public documents available for all to see — include your last known address, the names and addresses of all of your loved ones, an itemization of your property and the value of each item, and disclosure of “who gets what” from you. If you think no one bothers to look at public court filings, think again! There are all manner of predators out there, trawling the court filings in search of heirs to scam, property to “case out” for potential theft, or folks to pursue with unwanted solicitations.

With proper planning, especially the use of a trust, all of these situations can be avoided.

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Top 10 Mistakes People Make in Estate Planning, Wills and Trusts: # 5 – Failure to Follow the Estate Plan


Plan 2Don’t go through the time and expense of making an estate plan, then fail to follow it!  It is an estate plan and, as they say, the best laid plans are only as good as their execution.  Failure to follow the estate plan will almost always result in significant and unintended consequences when a death occurs.

The two easiest ways you can mess up your estate plan are 1) not keeping your assets properly titled to your trust, and 2) failing to coordinate your beneficiary designations (which was discussed in post #6 of this series).

Failing to properly title assets can occur in a variety of ways.  You may have forgotten you owned a particular asset.  You may have procrastinated in changing accounts over to the trust, then something happened (and it was too late!) or the task got lost in the shuffle.  You may have purchased additional property and failed to title it to your trust.  You may have put one of your children on an account with you, or promised someone something that is not set forth in your plan.

Failure to follow your estate plan can result in needless probate proceedings, cost money you didn’t have to spend, and change the ultimate disposition of your assets.  It may also necessitate court intervention if you become incapacitated.

Luckily, following the plan is usually not terribly difficult if you just remember two golden rules:  1) Include all intended gifts / bequests in your estate plan – do not make side deals, promises, joint accounts or take any other steps that were not planned out; and 2) Pay particular attention when you are buying or changing assets — this is where most mistakes are made.

For example, if you have a trust and your house is titled to the trust (as it should be), but then you refinance the house, watch out!  Most lenders will not make loans while the house is in trust.  Instead, into that enormous pile of documents you sign at close of escrow, the lender includes a deed transferring title to your house out of your trust.

The pile also includes a “deed of trust,” which some folks think means a deed putting the house back into the trust, but that is not the case.  A “deed of trust” is the document that creates a lien against your property to secure the loan.  It does not change title.  The only way to get the house back into your trust is to sign another deed.  The lender won’t tell you that and the deed will not be included among the escrow documents.

If you die before the house is put back in your trust, a probate may be required.  If you become incapacitated and you do not have a power of attorney for finances, a court proceeding may be necessary to sell the property or get it transferred back to your trust.  The same result may occur if you sell the property, then deposit the proceeds to an account outside of your trust.

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