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DIY Estate Planning Documents

By Joe Price from the MO Planning Business & Estate Planning Blog

The appeal of Do It Yourself (“DIY”) software that creates Wills and Trusts is obvious. For a fraction of the cost of hiring an attorney, you can own the software, click a few boxes, fill in a few names and dates, click “Print” and voila, Wills and Trusts for the entire family.  What’s not to like?

Well, maybe nothing. Maybe you are one of those folks for whom the limited choices provided by the software is all that you need now, and all that you will ever need. But before your quit your day job and start a business cranking out Wills and Trusts for your friends, consider a couple of limitations that the software (any version of DIY software) has.

First, what are you going to do with your 401(k) Plan/IRA? That asset probably makes up at least 40% of your total assets now, and unless you have been investing entirely in the Chinese stock market, that percentage will likely continue to increase.

Are you going to name your estate as the beneficiary of your 401(k) Plan/IRA? Bad move. Are you going to name your trust? How about your spouse’s trust? If you name either one, do you have any idea what complications you have just created? How about naming your spouse directly? That’s great from an income tax perspective; but what if your widow(er) remarries after you pass way and your widow(er)’s new spouse talks him/her into leaving a big portion of that 401(k)/IRA to his/her kids? After all, they have so much less than your kids and they need it more. Besides, the new spouse’s grandkids are so cute! And so appreciative of the nice gifts your widow(er) gives them!

OK, so your Estate Planning software doesn’t take care of the 401(k)/IRA issue. Or else, it deals with it in a very superficial way. Why do you think that is? That is not a trick question. The answer is that leaving a 401(k)/IRA to your spouse or children is complicated. It doesn’t lend itself well to a few “Click the Box” choices so it isn’t dealt with by your software, and the creator of that software hopes that you don’t notice.

Second, are there any other common situations that your software doesn’t handle? Yes there are, and the reason that your software doesn’t handle them is the same reason it doesn’t deal with your 401(k)/IRA – it’s complicated. Here are some common situations that may require the hiring of the right attorney to solve:

Let’s assume that you have children who are either unmarried or have been married only a short time. Ask yourself: “Is there a possibility that any of my children will ever get divorced? Is there a possibility that any of my children or their spouses will ever have spending problems? Is there a possibility that any of them will ever have a gambling problem, whether at the casinos or at the Day-Trading market? Will any of them ever start their own business and have to guarantee a bank loan personally?”

Or how about that situation where your child and his or her spouse don’t handle money very well, and you are concerned that they have not set aside enough funds for their own children’s (your grandchildren) college education? Can you create a trust fund that will limit what is distributed to your children to the amount necessary that will leave enough to cover all of your grandchildren’s college costs? What if one of your grandchildren is brilliant and is likely to be admitted into an elite (read: expensive) medical school, while another grandchild struggles and may not make it through two years of junior college? How will you provide for that predicament?

Those are the types of situations that a trust is designed to cover. However, there is no simple way for the software creator to (1) make the trust provision choices available to you that would solve each problem, (2) explain when each choice should be used and (3) detail what other provisions would have to be paired with each of your choices to optimize the particular scenario.

By the way, to successfully deal with each of the difficult situations listed above, the trust may need to be “tweaked” from time to time because those situations will be fluid, and you won’t be able to foresee every twist and turn that is in your children’s futures. In other words, it is shortsighted to think of an estate plan as a set of documents that is put in place once and that never needs to be changed.

If you have read this far, you may be thinking “Wouldn’t some of those difficult scenarios occur only after I have died? How am I going to “tweak” a trust after I am deceased?”

Be aware that post-death “tweaking” of trusts is possible under some circumstances, but you are not likely to find out how to accomplish that with your DIY software because (again), it’s complicated.

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