Do-it-yourself estate planning tools are everywhere; whether we see a commercial for LegalZoom or a CD of legal forms at the local Minneapolis Office Depot, we are told that legal drafting is something we can do without outside help, for minimal cost, just by filling in a few blanks on a form. Probably the biggest attraction to this idea is the issue of expense . . . if a will can be drafted online for minimal cost, why consider an alternative? The simple answer is that the cost is minimal . . . today. Talk to an experienced attorney who brings estate planning documents to the probate court, and ask him or her what it’s like to probate a do-it-yourself will. The answer will likely revolve around the thousands of dollars that attorney earns by unraveling ambiguous language and missed planning opportunities. Both the money to pay for these services and the heartache that goes along with it lie squarely with the heirs to your estate.
Part One of this blog series discusses the over-arching problem with do-it-yourself planning: there are no do-overs. By the time the mistakes are uncovered, it is too late.
Part Two discussed an all-to-common problem with online documents: improper execution.
Part Three deals with the common misconceptions about “simple wills;” unfortunately, there is no such thing, particularly for those with minor children.
This brings us to Part Four:
4. MISUNDERSTANDING PROBATE AND NON-PROBATE PROPERTY
My clients are often surprised that a will always go through probate, which is the court proceedings by which your debts are paid and your assets are distributed to those you specify in your will (or, absent a will, your assets are distributed according to your state’s intestacy statute). A will is not a probate-avoidance tool; a properly drafted and executed will replace your state’s intestacy statute and tell your personal representative and the probate court what to do with your probate property. Note those last two words: probate property. Your will only controls probate property; it does not control the non-probate property. Probate property is property held in your name only (not jointly with another person), which does not have a beneficiary designation or other pay-on-death designation. If your house is titled in your name alone or titled as tenants in common, it is guided by your will. Same for banking or investment accounts without beneficiary designations and your tangible personal property (your “stuff,” like furniture).
Assets that are held jointly with another person or that have a beneficiary or other pay-on-death designations (such as most retirement accounts and life insurance policies) are non-probate property. Not only do these assets skip the probate process (assuming the beneficiary designation is properly drafted), these assets are not controlled by your will unless you fail to provide a beneficiary designation or if you designate your estate as your beneficiary (the reasons to never do this are numerous). If you name your spouse as your 401(k) beneficiary, then write in your will that your 401(k) goes to your church, your church is out of luck. The beneficiary designation governs. The same applies to jointly-owned property.
If you wanted to skip probate altogether, there are estate planning tools that would allow you to do so, such as a properly drafted and properly funded revocable trust (with special emphasis on “properly”). A revocable trust takes your tangible property, real estate, cars, bank accounts, and anything else without a beneficiary designation and turns it into a non-probate property. Do not attempt this on your own. An understanding of the different types of property and different types of property rights is inherently a key part of a proper estate plan. An estate planner can guide you through this process and will understand what the probate court will be looking for, and what will cause probate and non-probate property to pass correctly (and incorrectly). Minor beneficiaries, for example, cannot inherit property because they cannot legally own it; consider how many people have named their minor children as the beneficiaries of their IRA and 401K plans. This will create big problems because these non-probate assets have improper beneficiary designations; what would have been a non-probate asset will now likely go through the probate court system, and the attorney bills for this work will be paid from the assets.
Talk to an estate planning attorney about what is right for your family. No two families are the same, and no two estate plans will be the same either. An estate planner doesn’t just draft documents; he or she will also guide you through the proper disposition of all property. Let me know how I can help.
Philip J. Ruce creates wills and trusts for families who want to feel secure that their loved ones are cared for. Philip is a trust and estate attorney based in Minneapolis, Minnesota. Philip is the author of Trustee University: The Guidebook to Best Practices for Family Trustees. available at Amazon.com in paperback or Kindle edition (free chapter available here!) He also works with trustees and beneficiaries who need help with their trusts. You can contact him here.