DIY estate plan

What about a DIY Estate Plan?

Sometimes clients tell me they will not need to sign a Will.  They believe they have taken care of asset transfers after death by adding their children to their bank accounts.  They may even have added a child’s name to the title of their homestead by signing a quit-claim deed.  So many people have a morbid dread of “probate” that they will take any risk to avoid it.  But there are some risks to trying to “DIY” your estate plan.

First, adding someone’s name to your financial accounts (a common DIY estate planning strategy) may make you ineligible for certain government benefits. 

If you add them as joint owners, you may have disqualified yourself from applying for Medicaid should you need nursing home care.  You may have made an exempt asset countable against yourself by adding someone to your deed.  And you may have impaired your homestead protections.  You should be aware of all the protections and potential benefits you may be waiving before adding anyone to your ownership interests.

Second, some DIY estate planning strategies may put yourself financially at risk. 

Say you added your son to all your investment accounts, and later he is getting divorced.  Your daughter-in-law’s attorney will certainly claim that some or all of those accounts should be divided in settlement as a marital asset.  You could prevail by showing that all funds trace from you.  But why take that risk?  Another risk is that your son loses his job and is thinking of declaring bankruptcy.  Those investment accounts could be subject to creditor’s claims.  And people can change.  A child undergoing financial stress may view those accounts as a “fix” for their own cash flow problems.

Third, you must think of the possibility of death and how it it effects your DIY estate plan. 

You never expect one of your children to die before you, but it happens.  If your “co-owner” dies before you, you may be able to make needed changes by naming his or her children instead.  But you might not be able to make those changes due to a compromised condition of your own (e.g. Alzheimer’s).  Those assets will effectively be back just in your name when you might have preferred that they be co-owned by your adult grandchildren.  Another potential problem is if you have named more than one child as co-owner.  The death of one of your children will effectively cut off his or her family from a share in that asset in favor of your other child.

For these reasons, it may be better to consider a living trust.  You can act as your own trustee as long as you are alive and competent, and name a trusted friend or family member to act as successor trustee when you can no longer fill that role.  In some situations an irrevocable trust may advisable for a portion of your assets.  This can be used to pre-plan for eligibility for benefits by moving those funds out of your control and waiting out the five-year look back period for Medicaid eligibility and three-year look back period for VA.

Also remember that there are some misconceptions about the process called probate.  The state does not “take” any portion of your estate during probate.  There are court costs such as filing fees and other costs such as publication of a Notice to Creditors.  There are also attorney’s fees and your executor/personal representative may choose to be paid for his or her efforts if your will provides for that.  But other than the flat fee to open the case, (to the county Clerk of Court), none of your estate goes to any governmental entity.

Some clients tell me horror stories about probates that lasted for years and had everyone in the family fighting.  That could happen in any litigation.  But the vast majority of heirs do not wish to fight or drag things out longer than needed.  Accordingly, most probates can be completed in a year’s time or even less.

Another misconception is that your heirs and your personal representative will not be able to use the assets until the probate is completed.  Not true.  As soon as your personal representative is approved by  the court, he or she  will be issued “letters of administration” reflecting that role.  Then the personal representative has both the power and the obligation to find all the probate assets and manage them.  Banks will allow the personal representative to use the cash assets to maintain upkeep costs on real property, etc.  Partial distributions are possible depending on the overall makeup of the estate.  Similarly, the personal representative may petition the court to sell a car, boat or real property if appropriate.

You should view your estate plan as a cohesive set of documents which explain how you want your assets to go after your death.  Informal arrangements such as co-ownership can lead to unintended consequences.  A DIY estate plan may not serve you well. Don’t try to be your own lawyer. Seek help from an experienced professional.  If you have questions about your plans, please call our office at 239-434-8557.

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