{"id":16585,"date":"2019-08-26T08:11:00","date_gmt":"2019-08-26T12:11:00","guid":{"rendered":"https:\/\/lifeinsurance-orleans.ca\/Life-Insurance-Blog\/mind-your-mouse-clicks-diy-estate-planning-war-stories\/"},"modified":"2019-08-26T08:11:00","modified_gmt":"2019-08-26T12:11:00","slug":"mind-your-mouse-clicks-diy-estate-planning-war-stories","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2019\/08\/26\/mind-your-mouse-clicks-diy-estate-planning-war-stories\/","title":{"rendered":"Mind Your Mouse Clicks: DIY Estate-Planning War Stories"},"content":{"rendered":"\n
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\nDo-it-yourself estate planning is officially a thing. Thanks to the internet, everyone has the ability to draft wills, trusts and a variety of other legal documents. Many documents can be produced for less than $100, requiring only a few mouse clicks and filled-in blanks. The lure of simplicity, speed and affordability is appealing.<\/p>\n

\nIt\u2019s no wonder LegalZoom, the largest online legal document provider, was valued at $2 billion in 2018, according to Bloomberg. That growth has been nothing short of amazing when you consider Forbes reported LegalZoom launched in 1999 with a $1 million initial capital investment \u2014 not bad for a self-service business model.<\/p>\n

\nAs an advanced-planning attorney, I review legal documents in conjunction with a client\u2019s consultation with a financial professional concerning the potential uses of life insurance. Over the past decade, I have reviewed more than 2,000 estate-planning legal documents, and I can report that the<\/p>\n

\nDIY revolution is in full swing. I have seen a significant increase in DIY estate-planning documents crossing my desk. It has easily been a five-fold increase. I have also seen an increase in estate-planning glitches.<\/p>\n

\nWhen it comes to DIY estate planning, I have two words of wisdom: User beware. A few clumsy mouse clicks can derail an otherwise sound estate plan and adversely affect life insurance planning. Don\u2019t believe me? Read on to see five real DIY examples from 2018 and 2019 (with names changed to protect the clumsy).<\/p>\n

\nOne: \u201cI love me.\u201d<\/strong> This mistake is one of the greatest hits of DIY planning. It goes hand-in-hand with simple wills \u2014 where both spouses want to leave everything to each other. It goes like this:<\/p>\n

\nJohn\u2019s will: I leave everything to my wife, Jane.<\/p>\n

\nJane\u2019s will: I leave everything to my wife, Jane.<\/p>\n

\nThis appears to be a cut-and-paste job gone wrong \u2014 unless Jane subsequently marries someone named Jane. A simple will is supposed to be simple. Needless time, trouble and money will be expended to fix an apparent scrivener\u2019s error like this.<\/p>\n

\nTwo: \u201cIf it\u2019s free, it\u2019s for me.\u201d<\/strong> Bert personally owns a life insurance policy and had been using its cash value as a rainy day fund. As part of his estate plan, he intended to swap the life insurance into his irrevocable grantor trust in exchange for low-basis stock held in the trust. The swap would remove the life insurance from Bert\u2019s estate without exposure to the pesky estate tax three-year rule, and the stock would receive a stepped-up basis at death \u2014 creating tax savings on both sides of the swap.<\/p>\n

\nBert recently had a stroke and is incapacitated. But he planned ahead. Two years ago, he downloaded a free durable power of attorney form from a nonprofit organization that focuses on assisting the elderly. The POA specifically includes the power to change ownership of his life insurance.<\/p>\n

\nBecause it is durable, his attorney-in-fact (the power holder) could have completed the swap. Unfortunately, Bert entered his name in the blank space designated for the attorney-in-fact. As a result, the insurance company cannot honor the form, and the swap may not take place.<\/p>\n

\nThree: \u201cFailure to click.\u201d<\/strong> I see this one several times a year. Marta created a will leaving her entire probate estate to her husband. It took her only 20 minutes, and the cost was a mere $79. But Marta forgot to click on the blank space for her executor. Naming an executor is kind of a big deal because the executor is the personal representative responsible for handling Marta\u2019s final affairs and distributing her probate assets. In Marta\u2019s case, the website address is the default space holder printed in her will. I have yet to see a probate court approve a website as an executor. Her heirs are now stuck with hoping the court will fix things. Hope is not a plan.<\/p>\n

\nFour: \u201cThe default setting.\u201d<\/strong> Angie, a single parent, has a 6-year-old boy, Lucas. Her will includes a standard trust for minors. It provides income and principal to Lucas until he reaches age 21, at which time the remaining trust assets will be distributed to him.<\/p>\n

\nAngie recently met with her life insurance advisor and applied for a $1 million, convertible 20-year term life insurance policy. It will be payable to the trust. Lucas, who has autism, is an individual with special needs who may need lifetime support that could include government benefits programs.<\/p>\n

\nAngie\u2019s documents, which are like some generic online forms, do not include any \u201cspecial needs\u201d provisions, so Lucas may be at risk of losing (or never qualifying for) valuable support.<\/p>\n

\nFive: \u201cSet it and (don\u2019t) forget it.\u201d<\/strong> Cyrus and Trisha created their wills and trusts when the estate tax exclusion amount was $2 million. They learned how a credit shelter (bypass) trust could reduce estate taxes by allowing each of them to use their estate tax exclusion amount. This would allow them to \u201cdouble dip\u201d on estate tax savings. At the time, they correctly clicked the option to fund the bypass trust up to the federal estate tax-free amount and then pass the rest to the marital trust. They properly executed the documents and then stored the documents in a safe place. Fast forward to 2019 when the federal estate tax exclusion amount is $11.4 million per person, $22.8 million for a married couple.<\/p>\n

\nA recent examination of Cyrus\u2019s probate estate revealed that he has $4 million in separate assets and a $2 million life insurance policy payable to his children from a previous marriage. At death, under current tax laws, all of his separate assets would pass into the bypass trust, and the life insurance would pay to his children. In other words, all of it would bypass Trisha \u2014 in essence, disinheriting her. This is not what Cyrus intended.<\/p>\n

\nThis mistake would likely force Trisha to lawyer up and make a trip to probate court in order to try to fix things. Lesson: Don\u2019t expect a DIY drafting program or website to update documents or schedule checkup meetings. Cyrus and Trisha are on their own.<\/p>\n

\nThese examples are not intended to dissuade the use of online drafting services. DIY estate planning is not going away, nor should it. But clients must understand that words have meaning and mouse clicks matter. These drafting mistakes and missteps could be avoided if clients involve their own attorneys in the process. Please be careful in cyberspace!<\/p>\n

Read the original article at InsuranceNewsNetMagazine.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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