Tuesday, August 24, 2010

Traps for the Unwary

Most Americans have never done their Estate Planning.  Everybody knows that human beings are mere mortals and that it is a good idea to plan for the event of incapacity or death.  However, for most people, thinking about these issues is uncomfortable and there are many other tasks we'd rather focus upon such as planning a vacation, looking forward to a relative's graduation, and celebrating a birthday.

Some folks who decide to finally do their Estate Planning look for shortcuts such as "do-it-yourself" kits or "trust mills"- out-of-town companies that provide a "one-size-fits-all" plan for a nominal fee.  However, delving into the complicated world of Estate Planning without detailed knowledge of key issues can lead to traps for the unwary.

A common problem is when individuals attempt to draft their own Wills.  While the formalities of a legally binding Will are not complicated, they are specific.  If the Will is typed, the Will must be signed by the testator and must also be signed by two disinterested witnesses during the testator's lifetime.  A common mistake is to have a Will notarized instead of witnessed which does not comply with the law.  If a Will is not properly witnessed, it may still be valid if the material terms are in the testator's handwriting.  If a Will is not properly witnessed and if the material terms are not in the testator's handwriting, a Will may still be valid if there is "clear and convincing evidence" that the testator intended the document to be his or her Will.  While the Will may eventually be considered valid, a lack of proper formalities can create unnecessary hurdles. 

Another common problem relates to Trusts.  Most individuals decide to use a Trust rather than a Will in order to avoid probate.  However, a Trust will only control what is titled to it.  Many people who use "do-it-yourself" kits or "trust mills" will draft a trust but will fail to properly re-title their assets to their Trust.  As a result, they have an empty document that is ineffective and it is as if they never did their Estate Planning in the first place.

Finally, without proper guidance, many people do not realize that other mechanisms may supersede the provisions of a Will or a Trust.  For example, any property held in joint tenancy will automatically pass to the surviving joint tenant, even if the Will or Trust has a specific clause that gives the property to someone else.  Retirement plans and life insurance are controlled by beneficiary designations.  If there is a conflict between the beneficiary designation and the Will or Trust, the beneficiary designation controls.

Most people think their Estate Planning is simple.  However, without detailed knowledge of the complex laws, many people fall into unexpected traps that lead to tragic results.