The Risks of Creating Your Own Estate Plan
We call it the brother-in-law syndrome: your brother-in-law knows everything, even though he doesn’t. He tells anyone who’ll listen how much money he’s saved by doing things himself. Sadly, it’s the family who has to make things right after the do-it-yourself estate plan fails. This is the message from a recent article titled “Dangers of Do-It-Yourself Estate Planning” from Coastal Breeze News.
Online estate planning documents are dangerous for what they leave out. An estate plan prepared by an experienced estate planning attorney takes care of the individual while they are living, as well as taking care of distributing assets after they die. Many online forms are available. However, they are often invalid under Louisiana law, are often limited to wills, and an estate plan is far more than a last will and testament.
An estate planning attorney knows you need a will, power of attorney, health care power of attorney, a living will and possibly trusts. These are essential protections needed but often overlooked by the do-it-yourselfer. Keep in mind that when you buy an online will, you are buying merely paper, not advice from a competent attorney applying your needs and wants to develop a plan for you.
A Power of Attorney allows you to name a person to manage your personal affairs, if you are incapacitated. It allows your agent to handle your banking, investments, pay bills and take care of your property. There is no one-size-fits-all Power of Attorney. You may wish to give a spouse the power to take over most of your accounts. However, you might also want someone else to be in charge of selling your shares in a business. A Power of Attorney drafted by an estate planning attorney will be created to suit your unique needs. POAs also vary by state, so one purchased online may not be valid in Louisiana.
You also need a Health Care Power of Attorney or a Health Care Surrogate. This is a person named to make medical decisions for you, if you are too sick or injured to do so. These documents also vary by state,. There’s no guarantee that a general form will be accepted by a healthcare provider. A Louisiana estate planning attorney will create a valid document that is valid in Louisiana.
If the Power of Attorney or Health Care Power of Attorney are not prepared properly, declared invalid or are missing, the family will need to go to court to obtain a interdiction (called “guardianship” in other states), which is the legal right to make decisions on your behalf. Interdictions are expensive and intrusive. If your incapacity is temporary, you’ll need to undo the interdiction when you are recovered. Otherwise, you have no legal rights to conduct your own life.
DIYers are also fond of setting up property and accounts so they are Payable on Death (POD) or Transfer on Death (TOD) accounts. This only works if the beneficiaries outlive the original owner, and may generate unnecessary litigation amongst your heirs if these POD and TOD designations don’t conform to your will. Read this article on the dangers of POD and TOD accounts for Louisiana residents: What Is a POD Account? A litigation time bomb.
If the beneficiary dies first, then the asset goes to the beneficiary’s children. Many financial institutions won’t actually allow certain accounts to be set up this way.
The other DIY disaster zone: real estate. Naming children as the legatees of your real estate sounds like a reasonable solution. However, owning real estate amongst the heirs is a decision often fraught with peril. Some heirs may want to keep the property and others sell it. Or, if it is acreage, the heirs may argue over which portion ech should receive. Also, if the children predecease the original owner, their children will often be named the rightful owners. If one grandchild doesn’t want to sell the property and another grandchild does, things can turn ugly and expensive. If heirs of any generation have creditors, liens may be placed on the property and no sale can happen until the liens are satisfied.
With all of these sleight of hand attempts at DIY estate planning comes the end all of all problems: taxes.
If children are added to a title, it is considered a gift and the children’s ownership interest is taxed as if they bought into the property for what the parent spent. When the parent dies and the estate is settled, the children have to pay income taxes on the difference between their basis and what the property sells for. It is better if the children inherit the property, as they’d get a step-up in basis and avoid the income tax problem.
Another problem for Louisiana residents is forced heirship. Forced heirship is still the law in Louisiana, although it applies to children under the age of 24, and children over the age of 24 if a child suffers from a physical or mental condition such that it renders the child (or may render the child in the future) incapable of caring for himself or herself or caring for his or her property. If you wish to disinherit a child over the age of 24, and the child suffers from a medical issue, forced heirship is in play and must be planned for.
Finally, there’s the business of putting all the assets into one child’s name, with the handshake agreement they’ll do the right thing when the time comes. There’s no legal recourse if the child decides not to share according to the parent’s verbal agreement.
A far easier, less complicated answer is to make an appointment with a competent Board Certified Estate Planning and Administration Specialist, have the correct documents created properly and walk away when your brother-in-law starts talking.
BOOK A CALL with me, Ted Vicknair, Louisiana Board Certified Estate Planning and Administration Specialist, Louisiana Board Certified Tax Law Specialist, and Louisiana CPA to learn more about estate planning in Louisiana, incapacity planning, and Louisiana asset protection.
If you liked this article, “The Risks of Creating Your Own Estate Plan” read also these additional articles: Is A Medicaid Planner Right for Me? and Alert: Scam Targeting Medicare Recipients and CMS Issues Updated Guidance Intended to Improve Quality of Nursing Home Care and What Happens If Couple Divorce and Own Business?
Reference: Coastal Breeze News (Aug. 4, 2022) “Dangers of Do-It-Yourself Estate Planning”