Taking a look at DIY estate-planning glitches

The convenience and relatively low cost offered by such services may come at a much steeper price later on

Taking a look at DIY estate-planning glitches

Adventurous souls willing to explore digital financial-management opportunities may be aware of DIY estate planning. Similar to digital investing, websites that offer this service gives users the ability to draft wills trusts, and various other legal documents with just a few mouse clicks and filled-in blanks.

The simplicity and convenience, coupled with affordability — many documents can be produced for under US$100 — will no doubt appeal to many households with wealth planning on their minds. But as David Szeremet of Ohio National Financial Services wrote in a recent piece in InsuranceNewsNet magazine, the platform has its pitfalls.

“I have seen a significant increase in DIY estate-planning documents crossing my desk,” he said. “I have also seen an increase in estate-planning glitches.

One common real-world example, Szeremet said, comes as a mistake in preparing simple wills. When two spouses intend to leave everything to each other, one may commit a copy-and-paste error and end up naming themselves as the one to inherit their own estate upon their death. “Needless time, trouble and money will be expended to fix an apparent scrivener’s error like this,” he said.

As a second example, he shared how an elderly man prepared a durable power of attorney that includes the power to change ownership of his life insurance policy — a feature that proved desirable two years later, when he became incapacitated following a stroke. Unfortunately, the man entered his own name in the space intended for the attorney-in-fact, making the form unacceptable in the eyes of the insurance company.

Szeremet went on to describe how a woman prepared a will leaving her entire probate estate to her husband — a process that cost her only 20 minutes and US$79. Unfortunately, she did not click on the blank space intended for her executor; on the printed form, the website address was left as the default space holder.

“I have yet to see a probate court approve a website as an executor,” he said. “Her heirs are now stuck with hoping the court will fix things.”

Another issue comes with using standard forms for special estate-planning cases. Szeremet related the case of a single mother with a six-year-old son; the mother’s will included a standard trust for minors, which provides income and principal to him until he’s 21 years old, at which time the remaining trust assets — including a $1 million, convertible 20-year term life insurance policy — will be distributed to him. But her son has autism, and the standard trust form does not include any “special needs” provisions, leaving him at risk of losing or not even qualifying for valuable support that he’d need throughout his lifetime.

Learn everything you need to know about 21-year rule trust, key approaches and ways to negotiate them.

Finally, Szeremet discussed how a husband and wife each created a credit shelter (bypass) trust to “double dip” on estate tax savings; using a website-generated form, they specified that their respective assets flow into their bypass trusts up to the federal estate-tax free limit before the rest goes into their marital trust. But years passed, and federal estate tax laws changed to effectively increase exclusion limits for the bypass trusts and the marital trust.

“At death, under current tax laws, all of [the husband’s] separate assets would pass into the bypass trust, and the life insurance would pay to his children,” Szemeret said, explaining how the wife has been effectively disinherited from her husband’s probate estate. “Lesson: Don’t expect a DIY drafting program or website to update documents or schedule checkup meetings.”


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