Estate planning: DIY or pro?

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In this economy, smart consumers are tackling projects they used to turn to pros to handle in an effort to scrimp and save. Can you do that with estate planning? Experts generally agree that there are a few aspects of estate planning you can take on yourself. But trying to handle others on your own would be supremely unwise.

What you can do

Many experts agree that you can handle a few basic forms yourself. “An advanced health care directive, also called a health care proxy, designates who your health care agent — or who can affect your medical decisions — will be if you become incapacitated,” says Terri Hilliard Olson, an attorney at Terri Hilliard PC in Westlake Village and Burbank, Calif. “You can get that online, but it’s essential to update it occasionally because it may expire.”

Another document you can execute easily is a Health Insurance Portability and Accountability Act, or HIPAA, release. “It’s really essential so that your family members can speak to your physician about your medical condition without liability to your physician,” says Hilliard. “You can also do that through an online form.”

Though a durable power of attorney — which allows others to control your finances — may seem like another simple form you can execute yourself, experts have reservations about executing one without legal assistance. Typically, a durable power of attorney “springs” into effect when a specified event triggers it. That event could be your incapacitation, or it could simply be your unavailability for a scheduled real estate closing.

“Clients can inadvertently grant unlimited access to their finances because if a durable power of attorney isn’t filled out properly, it’s not springing,” says Hilliard. “Where people also need counsel is determining the proper person to act for them. What attributes does that person need to properly act on your behalf? Just because people are relatives doesn’t mean they’re the best people to do that.”

What may be risky to handle yourself

Many companies sell form wills and trusts you can download and execute yourself. Creating a will on your own is appropriate only in limited circumstances, and doing the same for a trust is truly risky.

“Online estate planning documents probably work very well if you want to leave your assets outright to one or two people, and those people have virtually no legal or financial problems,” says Gary Altman, an attorney and Certified Financial Planner at Altman & Associates in Rockville, Md. Before you do estate planning on your own, Altman suggests asking yourself these questions:

  1. How big is my estate?
  2. Who am I leaving it to, and are they minors, or do they have issues like angry creditors I need to plan around?
  3. How am I leaving it to them, such as through a will or a trust?

There are some situations in which expert advice is truly necessary, says Jack T. Carney, an attorney at The Law Office of Jack Carney LLC in Birmingham, Ala. Get professional help in these situations:

Hire a pro if:
  • Anyone in your family has a disability.
  • You’re in a blended family.
  • You have assets and insurance in excess of the current estate tax exemption of $3.5 million.
  • You own real estate outside of your state of residence.

Also ask yourself whether you truly know the intricacies of will-drafting and are willing to take the risk of committing an easy-to-make mistake that will wholly invalidate your will. “Most states don’t recognize holographic — or handwritten — wills,” says Kristi Mathisen, a CPA and estate planning attorney at the Seattle wealth management firm of Laird Norton Tyee. “Most states also require one or two witnesses and some evidence that the person making the will is competent and not under duress. You also can’t do a videotaped will.”

The most important thing to remember about DIY estate planning is that if you make a mistake that invalidates your will, the entire document will be thrown out. “Many people think an invalid will still influence(s) where your assets go, but it doesn’t,” says Mathisen. “If you have an invalid will because of a failure in the execution of the document, your state’s law of intestate succession steps in.”

Also be brutally honest with yourself about whether you truly understand what will happen to the proceeds of all the contractual estate planning agreements you’ve entered into over your lifetime. “Contract law covers things like U.S. savings bonds and bank accounts, which are almost always held in joint tenancy with a right of survivorship,” Mathisen says. “There are also pay-on-death accounts in which you open an account, check a box as payable on death and name somebody to receive those funds. Retirement plans, individual retirement accounts and life insurance policies also have beneficiary forms.”

With each of those contractual documents, do you want the proceeds paid directly to the beneficiary? If your beneficiaries are minor children, would you prefer they get the funds over time or at a specific age? You need to be able to answer those types of questions — and then create valid legal documents to fulfill your wishes — if you choose to do estate planning without expert advice.

“I’m about to hand a check for $400,000 to an 18-year-old because instead of making sure her life insurance proceeds went into a trust for her daughter, the mom left the money to her daughter outright,” Altman says.

Will you know when changes are necessary?

Finally, remember that an expert can help you identify when changes in the law make it necessary to update your estate planning documents. “Sometimes people think that when they’ve done estate planning, they never have to look at those documents again,” says Altman. “I had clients who did estate planning with me in 1997. Since then, the estate tax laws changed, and an obscure regulation that affected a small fraction of the public — including them — changed.”

Though Altman sent the clients many letters suggesting that they update their documents, they didn’t respond. When the wife died earlier this year, the husband was hit with a large estate tax bill. “Due to the change in the estate tax laws and the fact that they didn’t take advantage of this small modification in a regulation,” says Altman, “it cost $200,000 more in estate taxes than it would have cost if they’d have just updated their estate planning documents. For not wanting to spend $1,000 to $3,000, it’s cost them $200,000.”

Altman has final words of caution. “There are a number of people who don’t consult estate planning experts because they don’t want to spend the money,” he says. “But estate planning is something that if you make a mistake, there’s no way to correct it because you’re no longer around. If you don’t pay to have estate planning documents done properly now, your heirs will probably pay more than you’ll have ever paid a professional to do them. In many ways, the most selfless thing you’ll ever do is to make sure your children or heirs will receive your assets in the best and least costly way possible.”