Five Key Issues in an Estate Planning Document

The NC courts have again spoken in the ongoing war between LegalZoom and the NC Bar. LegalZoom assists people in creating their own legal documents through an interactive website. The NC State Bar claims they are practicing law without a license. The responses to all of this vary from ‘LegalZoom is a scam that should be shut down’ to ‘the Bar is just protecting its turf so that lawyers can keep screwing everybody’ to ‘caveat emptor’, and a few things more thoughtful.

I have considered weighing-in on this. But before (maybe) someday so doing, I think that there is some background information that is necessary. And (in my opinion) this information is helpful even if you don’t care about the war between LegalZoom and NC (or Alabama, or Arkansas, …).

Of course, DIY legal documents are nothing new. Libraries (remember them?) used to have books (ahh…more memories) full of forms that could be filled in/modified for use, especially in business transactions. I need a will (or a trust, or an LLC, or a contract, etc). (We will save the business application for another day and focus on estate planning documents.)

You have a will or trust done by an attorney, I do one online. We both have wills (or trusts). All documents are the same, right? Well…no.

There are really five keys (or issues) in the assessment of an estate planning document. This is true of both wills and trust agreements. And it is true whether the document is DIY or attorney-drafted. These are:

1.  Is the document valid?

In other words, is the will a valid will under state law? Does it meet the technical requirements to be admitted into probate? Does the purported trust agreement actually create a trust under state law? Usually, this is not a problem. Because while the technical requirements for a valid will are quite particular and rather inflexible, they are not tough. (Note: the requirements for a valid will vary somewhat from state to state.)

Trust agreements, which are basically contracts, are even easier. Someone without legal background sitting at a keyboard without any aids might not be able to create a valid will or trust. Doing a “cut and paste” job with stuff found online may not work out much better. But with the use of form books, software, or online form generators most people will usually wind up with a “valid” document. Hence, those online sources will often “guarantee” you a “valid” document. But “valid” is only the start. Read on—because sometimes we will see people who would be better off if the will was not valid.

2.  Will your document really do what you want it to do?

So the will is admitted into probate. What next? Will your property go to the right people? Depends in large part upon the document and the planning behind it. And it usually won’t matter what you intended, only what the document actually does. So you have to be able to articulate what you want. That can be hard enough, but that is the easy part. You also have to anticipate all of the ways things could change between now and when you pass away, and deal with all of those possibilities. Then you have to anticipate all of the things that could go wrong and deal with them.

Suppose you are on your second marriage. Your spouse has a child who is 6. You have two adult children from your first marriage. You have about $100,000.00. You like your step-child and want to leave him something. Your current husband makes plenty of money and will be fine (financially). Mostly, you want to leave your money to your two kids. So you draft an online will. Simple enough. You will give $5,000.00 to your step-son. (You can’t give money to someone under 18 in NC, so you must deal with that or the court will deal with it for you…for a price.)   You decide to divide the rest between your two kids. The online generator does that. Simple enough (except for that money-to-a-minor thing).

Until you die. You leave $30,000.00 in debt that must be paid. You now have $70k. Your step-son not only takes his $5k, but files a statutory dependent’s allocation petition for another $5k (so your will really left him $10k—bet the online form vendor didn’t tell you about that!), and your current husband files spousal allocation for $30k—OR WORSE exercises his statutory right to dissent from your will and take half of EVERYTHING (including life insurance). Of the $100k your two kids, at best, are getting about $5k each. Probably not what you intended—but what you did.

There are at least four big issues involved here (and a lot of little ones). The first is that there may be various statutory considerations (like dependent’s and spousal allocations) that just aren’t anticipated by DIY sources. And they complicate things. Second—wills (and to a slightly lesser extent trusts) are realms of “magic words”. And the form may use the “right” words, but if you don’t recognize them and/or their absence—and know what the courts have said about them—then when you read the document you won’t really understand what it says. Which makes it hard to assess. Third, and related to the second, courts have a funny—or particular—way for reading these documents. That is part of the deal. If you don’t understand it you are probably headed for trouble. And finally, life is complicated and can change rapidly. Good estate plans allow for that. Freebies usually don’t.

3.  Is what you want it to do well-considered?

I think that this is a HUGE point. Even if the document is valid and will do what you want, is what you want a good idea? Have you considered the full impact of what you are doing? The potential results and complications? Other, possibly better, options? The key component of estate planning is the PLANNING. The documents are just tools to make it happen—the PLAN is the KEY.

4.  How many potential problems are created, and how will complications be handled?

Does the document itself create problems through vague, conflicting, or missing terms? Does it fail to address key issues that may arise (or that are sure to arise)? How solid is the document if there is a challenge by an heir or prospective heir? How much will the resolution cost? While there are certainly problems that arise in trusts and estates with attorney-drafted documents, DIY documents are particularly prone to vague and/or conflicting provisions, even among key terms. (Not all attorney-drafted documents are created equal either, but that is a different post.)

5.  How well is the rest of your life integrated with the document?

This gets back to the planning issue. Do you have Qualified accounts with beneficiary designations? Life insurance? Bank accounts with Pay-on-Death provisions or a joint owner? All of this needs to be integrated as part of your estate plan, and you need to understand how this all intersects with your will or trust.

And if you own your own business…my the potential for problems if this is not carefully thought through and arranged.

So what is the take-away? Are some lawyers crooks? Sure. Do some lawyers draft poor-quality documents and fail to spot issues? Clearly. Do even good and honest lawyers make mistakes? Yes. Are online form sources always a mistake? Probably not. If you need a bill of sale for a car, or are renting a house to your brother for a year, an online form might be a good choice. Simple situations and even if things go bad, you have limited risk.

Not so with estate plans. Even if all you need is a ‘simple will’, that determination is itself a complex one. And often when someone finds out it is screwed up it is too late to fix it. So the risk is great.

If you own a house you likely have fire insurance. Not because the house is likely to burn down, it isn’t. But if it does, the risk (expense) is great. This is the problem with DIY estate planning. Or, for that matter, with the most popular form of estate planning which is doing nothing. Because the death rate is one per person. You will die. When you do, there may or may not be complications. There may or may not be problems with your estate plan. But if there are either, it is bad news.