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Do-It-Yourself Estate Planning: Keeping it Simple

After doing Estate Planning for many years, a pattern emerges in the questions that people ask (and statements that people make).  For instance, people often say something like, “I just want a simple Will.” The statement begs the question: why do you want a simple Will?

The reality is that people often don’t know the questions they should ask, and they don’t know the answers to those questions. The unknown causes a certain degree of fear, uncertainty, and (frankly) distrust. I think many people come in saying, “I just want a simple Will”, because they don’t want to be talked into more complicated and expensive estate planning.

The area of Estate Planning is very particularly the province of attorneys, and it is foreign territory for most other people. I would like to dispel some of the confusion and, in the process, maybe gain some trust.  There is a place for a simple Will. In this In this blog article, I will explore why someone might choose a “simple Will” over other forms of estate planning.

First of all, estate planning can be broken down into different categories that range from simple to complex. As one might expect, estate planning also graduates from less expensive to more expensive as it goes from simple to complex. As we will see, though, simple or cheap on the front end doesn’t necessarily mean simple or cheap on the back end. There are trade-offs. Knowing when to keep it simple, and when simple isn’t good enough, is the key.

The “front end” is the estate planning that you do while you’re alive, and the “back end” is the administration of your estate after you are gone. Factors to be considered should include the expense, time and effort involved, the complexity and the degree of certainty desired for achieving your goals (which we also might call the degree of control) on both the front end and on the back end.

Decisions you make on front end often have inverse effects on the back end.

The simplest form of estate planning (other than doing nothing) is to set up the ownership of your assets in a way that they will pass automatically on death to designated individuals. This kind of estate planning doesn’t even require a Will.

Not many attorneys would advise using this, cheapest alternative for estate planning, but it should be no secret that this is the easiest way of “keeping it simple”. In fact, this kind of do-it-yourself estate planning can work well between spouses, but it doesn’t usually work as well in other circumstances.

This simplest form of estate planning involves using beneficiary designations (i.e.; life, insurance, IRA’s, etc.) and payable on death designations (i.e; for bank accounts, investment accounts, etc.) and joint ownership of all other assets (that can be jointly owned). If every asset that you own has a beneficiary designation, payable on death designation or is jointly owned when you die, your estate will pass to those beneficiaries, designated persons and/or joint owners without the need of any Will, probate proceeding or trust.

This would be the cheapest and simplest form of estate planning anyone could use on the front end, but there is a catch.

I see many people who have attempted to arrange their assets like this in a kind of do-it-yourself estate plan. There is no overarching “plan” document, like a Will or a Trust. Most people who do this have not seen an attorney, and they don’t usually know or appreciate the pitfalls. Having no overarching plan document means that, if something goes wrong, your plan fails.

So, what could go wrong?

Well, for one thing, not all of your assets have beneficiary or payable on death designation capability. Some bank accounts can be made payable on death to designated people, but not all account provide that option.

Joint ownership is rarely the best idea for bank accounts (or any property) unless the joint owners are spouses married to each other. Jointly owned property becomes subject to the creditors (and spouses) of joint owners.

A joint owner is an owner of the bank account! A joint owner has a legal right to all the funds in the account. Thus, a creditor of your son or daughter could force the account to be liquidated to satisfy a debt. In a divorce, the account may be considered part of the marital estate of your son or daughter, subject to division by the court. You take on the risk and liabilities that another person incurs when you add another person to your account as a joint owner.

Jointly, owned property also becomes the surviving joint owner’s property when you pass on. If you have more than one child, and you have added only one of your children to an account with the idea that he/she will share it with the others, you need to understand some things. First, they don’t have to share it. They can’t be compelled to share it because it becomes the surviving joint owner’s property, alone, when you pass on.

Most people trust their children. In my experience, trust can sometimes be a dangerous thing, especially in the context of estates and families, but let’s assume that the trust is warranted. In order for your son/daughter who is the co-owner to “share” the asset with your other children, they will have to “gift” it. Because they own it legally, no strings attached, when you pass on, the property is theirs, and any transfer to another party is considered a gift.

That transfer will have gift tax consequences if the gift exceeds $15,000 in value. If it does exceed that (annual exclusion) amount, the person making the transfer would be legally required to file a gift tax return.

I have seen people designate all their children as beneficiaries on bank accounts. If they call get along, that might work, but children don’t always get along when it comes to money.

There are issues with designated beneficiaries too. Beneficiaries may die before you do. If that happens while you are still capable of managing your affairs, you can make changes, but many people forget to do that or just never get around to making those changes. I see it all the time.

If a person passes without a Will, and if any assets do not have beneficiary, designations, payable on death designations and are not jointly owned, they are “subject to probate”. That means that they are subject to the Probate Act. “Probate” administration is handled through the local probate court. Someone will have to step up to handle the probate administration and hire an attorney to represent the estate.

Without a Will, the entire process will be guided by the Probate Act, and not your wishes. Your assets will be divided according to the dictates of the Probate Act. Everything will be determined by the Probate Act, and nothing will be determined by you.

Even if all the assets go directly to beneficiaries, designated persons and joint owners, there is one final sticking point. Who takes care of your estate? With no Will putting one person in charge, who pays the debts and expenses of the estate and makes the inevitable decisions that must be made? With nothing in writing, disagreements often arise over what mom or dad intended and said.

The biggest issues often arise with tangible personal property (your possession and “stuff”). It can become a kind of free for all. Whoever gets there first cleans out the house. Children fight over who should get what. Dividing up tangible personal property causes more tension than anything else in many cases I have seen.

The simplest form of estate planning is cheap, but it isn’t very flexible, and it is fraught with many potential problems. Those potential problems often do arise. I get calls on a regular basis from distraught relatives trying to wrestle with an estate subject to the kind of planning described in this article. With no one designated by a Will or Trust to handle the estate, someone usually ends up with the short end of the stick (and that’s when they call me).

The simplest form of estate planning – using beneficiary designations and joint ownership – may be good in a pinch or when funds are limited, but it isn’t the best way to ensure that your estate is handled the way you want it to be handled. It may be good between married couples and when only one heir exists, but it causes more problems than it solves outside of those circumstances

A “simple Will” is a good way to ensure that your desires will be carried out. The cost and effort to do a Will is less expensive and less involved than a living Trust, but you can have a high degree of confidence with a Will that your desired ends will be met. A Will allows to you empower a person you trust to handle your estate and make sure your instructions will be carried out. I will explore simple Wills, more complex Wills and Trust in future articles.

Up next: Do I Need a Will?

Kevin G. Drendel
Drendel & Jansons Law Group
111 Flinn Street
Batavia, IL 60510
630-406-6179 fax
[email protected]