DIY Wills & Trusts

A will or trust are two of the most important and fundamental planning documents needed by nearly everyone, especially as you move toward retirement. Yet an astonishing number of people of all ages still don’t have one or the other. Psychological factors are at play–it’s extremely stressful to confront one’s own mortality. Plus it’s painful to spend money on estate planning, because you don’t live to reap the benefits even if you know your heirs will.

Purveyors of do-it-yourself books, software and online forms are trying to change that. The cookie cutter documents they sell to help you generate a will cost a fraction of what many lawyers charge. Fueled by the technological revolution, these products have proliferated in recent years, with at least a dozen offered online, plus many books and assorted boxed software.
This development makes me cringe–so much, that I won’t mention specific products in this article, because I don’t want any of them saying in promotional materials, “As mentioned in the Astill Law Firm Blog (I should be so famous!).”

Why am I strenuously opposed to do-it-yourself wills and trusts? There are just so many things that can go wrong–from the wording of the document, to the required formalities for how it must be signed and witnessed before it can be valid. I make it a hobby of collecting DIY horror stories. And I’ve gathered some doozies. As one lawyer in Indiana has said, “using a DIY will is like pulling your own tooth with a pair of pliers instead of going to the dentist”. No kidding, for those of us who practice in this area, it is too similar to be funny. Likewise, if you use an attorney who does not regularly practice in the estate planning field, it’s like getting your oral surgery done by the person who cleans your teeth.

One sad example involved Charles Kuralt, the CBS News correspondent and anchor. Several weeks before he died in 1997, he penned a note to Patricia Elizabeth Shannon, his mistress for 29 years, promising to leave her 90 acres and a renovated schoolhouse near the Montana fishing retreat where they spent time together. After Kuralt’s death, his family and Shannon spent six years in court fighting over whether this note was a valid amendment to the 1994 Will that a lawyer had prepared, or simply a promise to revise the document–a promise that Kuralt never carried out. Without ruling on this issue, a Montana court awarded Shannon the $600,000 property but stuck Kuralt’s family with all the estate taxes. Surprised that a prominent and wealthy public figure would not have ironed out all of these details? Don’t be, it’s all too common.

Proponents of self-help products argue that a DIY will is better than having no will. But they’re only partially right – or they can be so wrong it hurts. I give them credit for educating people about the dangers of not having a will. Without one, if your children are minors and you were a single or surviving parent, a court would appoint a guardian for them, and it might not be someone you choose. And, state law determines how most of your belongings are distributed. Whatever is left after taxes would be distributed to the persons specified under the law. It’s called the laws of intestacy (a fancy lawyer word for “died without a valid will”). This law, which varies from state to state, establishes a ranking of inheritors from people who die without a will or living trust. Some newer laws say everything will go first to the spouse, then to children, parents and siblings. However, plenty of state laws still divide an estate between the surviving spouse and children in preset proportions, especially if there were children of a prior marriage (that’s what Utah does). But what the DIY folks don’t usually mention, and many people don’t realize, is that the laws of intestacy also apply if you foul up a DIY will.

In one instance we heard of several years ago, a father was estranged from one of his children and wanted to disinherit him. Dad bought DIY will software from a big-box store and, following the prompts, listed his assets and made gifts to children, but omitted some important ones: small numbers of shares of various phone company stocks that he had bought many years earlier. Those shares, which probably once seemed like peanuts, had grown in value because of mergers and stock splits and were worth several million dollars, and made up the largest part of Dad’s estate by the time he died.

Because Dad did not understand how important it was to have a residuary clause, and the DIY software didn’t explain it in a way that a lay person could understand, the DIY will was completed without such a clause. A residuary clause, by the way, is a clause that says, “after everything else is paid for and if there’s anything left, here’s who it goes to…” So guess what happened? The stocks passed according to the law of intestacy, and the son, who the father wanted to disinherit, walked away with almost $400,000. To make matters worse, he had a substance abuse problem and blew through the money in less than a year. Not the intended result right?

Another case had a blank where it said [Insert Name Here]. Dad overlooked the blank and guess what? The State in which he died inherited that “no name” property. Yuk!

Lastly, even signing of the will or trust can be tricky. The law provides some pretty specific signing requirements for wills for a good reason…the avoidance of fraud and undue influence. But it also trips people up. Witnesses have to be in the presence of the signer of the will, and of each other, as each signature is made. One of the earliest cases I ever read on estate planning involved a witness who signed a will, and then walked away for a minute while the other witness signed…IT WAS INVALID! Those things are not well explained in most DIY programs. And even if they are, you have to be a pretty detail oriented person to get it right.

These are just a small sample of problems. I’ve seen too many examples already come into my office from people who did DIY wills. So what’s the answer? Get a competent Estate Planning Attorney to help you do it right. Compared to the cost of lawsuits in the estate, or inheritances going to an unintended beneficiary, or having an invalid will, the services of a good attorney are pretty inexpensive.

Getting Your Trust Funded

This is a story we hear all too often —
“Mom and dad created a revocable living trust. They wanted to avoid probate. You see my sister lives in a group home because she is developmentally disabled. The trust named me as trustee, and my sister’s share goes into a special needs trust. I just discovered they named all of us kids as beneficiaries on their IRAs, and the house wasn’t transferred into the trust. What do I do?”
Simply put, you have some troubles. Some, more troublesome than others, in fact:
1. Not transferring assets to the trust (like the house) means that the probate avoidance value of the trust is lost altogether. In Utah, we will have to file a probate proceeding to transfer the house to the trust — and then it can be distributed properly. The good news is that those assets they DID transfer into the trust won’t be subject to the probate proceeding. The bad news: there will still have to be a probate proceeding. Your parents failed in their goal to avoid probate. In Utah that’s not the end of the world. Our probate system is very user friendly and not excessively expensive, and it is simple if that’s the only asset that we need to deal with (assuming your parents also signed a good “pour-over Will”.
2. The IRA beneficiary designations create a different difficulty, one that is difficult to overcome. The other kids will get their share of the IRA just fine, even though your parents didn’t use the trust. But your sister’s share will go outright to her and will cause her to lose her eligibility for at least some public benefits — and we will probably have to have a court proceeding (in Utah, a conservatorship) to appoint someone with the legal authority to receive and manage her inherited IRA. Plus, we may have to have a related court proceeding to set up a special needs trust (we can’t use the one that your parents created) to receive those funds — and if we do, any proceeds remaining in that trust when your sister dies, will first have to be used to pay back the State for any benefits it provided. In other words, your parents failed in their goal to provide protection for your sister’s inheritance. We can protect it for her benefit, but at her death the State has claim to all or part of the remainder.

How did this happen? Didn’t the creation of the trust address both kinds of problems?
No. Creation of the trust was one thing. Funding of the trust is another.

“Funding” is the term lawyers usually use to describe all the different kinds of things that have to be done to get assets titled in the name of a revocable living trust. It is an essential part of the process, and usually is part of the job taken on by the lawyer who drafted the trust. Not every lawyer agrees, but we at ASTILL LAW FIRM, feel that we have not completed our job unless we have at least initiated the process of getting assets transferred to the trust. The practical effect: even after you sign your estate planning documents, you may still be working with our office for weeks or months to get the “funding” done.

Some assets are fairly easy. The house title (at least for Utah properties) is easy for us to prepare. If there is out-of-state real property, we may need to involve a lawyer from the state where the property is — but even that is usually a fairly modest cost. A lawyer in, say, Indiana might transfer Indiana property to the Utah trust at a low cost, hoping that we will return the favor the next time she has a Utah property to transfer into an Indiana trust (we probably will).

Other assets can be more complicated. Your bank, credit union or brokerage house may resist changing accounts into the trust’s name. Some may flat out refuse. Some will appear to have done it right, but then later decide that the title hasn’t actually been changed at all (and they may not tell us).

Then there are the assets that get changed after the trust is signed. If you have refinanced your home mortgage, or purchased a certificate of deposit from a new financial institution, or talked to your “personal banker” about accounts, you might well have signed new title documents. You often will not even realize that that is what you were doing — no one ever says: “you know, if you sign this document it might just mess up your trust funding — you should talk with your estate planning attorney first.” We wish they would say just that.
Some assets get overlooked. Did you remember that you inherited a 5/24 interest in some oil and gas rights in Texas? Did you tell us about the small bank account you kept in your hometown bank when you moved to Utah 23 years ago? Did you even remember that you had a life insurance policy from your time in the military at the end of World War II?

Then there are the beneficiary designations. Life insurance, IRAs and other retirement accounts and annuities almost always have them. Bank and brokerage accounts and, in Utah and a handful of other states, even real estate can have them. Our clients are forever tinkering with them — you go to a seminar, or listen to the bank manager explain the value of annuities, or talk to a tax preparer who assures you that lawyers are overpriced, and then the beneficiary designation gets disconnected from the rest of your estate plan.
Don’t panic. The problems can usually be solved, it just might not be as smooth as you hoped, or in the manner your parents intended.
It would be best, of course, if we could get things right while you’re still alive. Haven’t met with your lawyer in five years? Make an appointment, gather up all the statements, titles and beneficiary designations you can, and sit down to review the funding of your trust. Not every beneficiary designation should name the trust in every situation. Not every account will actually be held the way you believe it is, or the way your lawyer believes it should be.

Even if you don’t get it straightened out while you’re still alive, there may be things your heirs can do. In Utah, up to a total of $100,000 can be collected into your trust without having to do a full-blown probate (not including real estate). There are rules and limitations, but many problems of failure to fund trusts can be taken care of through those provisions of law. Not in Utah? We don’t know for sure (we don’t practice in your state), but there are similar rules in most, perhaps all, states.

Don’t worry, your lawyer here at ASTILL LAW FIRM and our staff are great to work with and we will help solve your problems. But you can see that some problems, though solvable, may not result in solutions intended by the Trust Grantors. Come see us before it’s too late!