The Dangers of DIY Estate Planning

By Kimberly Palmer, US Money
Every year, thousands of consumers bypass lawyers and create their own wills, powers of attorney, and other estate planning documents with the help of online tools and books. As one might expect, lawyers don’t like this do-it-yourself approach. They say it breeds mistakes, since when it comes to legal issues, one size never fits all. Do they have a valid point, or are they just trying to protect their own livelihoods?

The answer might be a little bit of both. As one might expect, the pros and cons of creating your own legal documents without professional help vary by individual. Almost everyone agrees that for people with complicated family or legal situations involving children from multiple spouses or great wealth, professional help is the way to go. But for people with relatively straightforward needs—a will for a single person without much money, for example—there’s more room for disagreement.

“People are starting to realize that they can be empowered to handle common legal matters on their own,” says Chas Rampenthal, general counsel for LegalZoom, a Los Angeles-based company that sells Web-based DIY legal documents. And despite some of the risks that other lawyers point out, Rampenthal insists that having a DIY document is better than having no document at all. According to a LegalZoom survey, about 3 in 4 married couples with minor children lack a legal document that names a guardian for their children. And on the other end of the spectrum, all the legal assistance money can buy didn’t help Michael Jackson get his affairs in order before his unexpected death last summer.

While Rampenthal acknowledges that some people would likely benefit from professional help, he says that LegalZoom, which has about a million customers, helps people who otherwise wouldn’t get any help at all. After all, lawyers are expensive, and many people simply don’t bother to seek one out. “People who benefit from us are individuals who are otherwise not going to pay $300 an hour for a lawyer,” he says.

There are plenty of lawyers who disagree with him: “Unless you are single and have absolutely no money,” says Brooklyn-based estate planning and tax lawyer Hani Sarji, you need an estate planner, because people tend to make mistakes when they fill out their own forms online. “People might get a false sense of security from DIY estate planning,” Sarji adds, and answering one question incorrectly or overlooking something such as appointing a guardian for children can lead to major problems down the road.

On her blog, estate planning lawyer Leanna Hamill writes about a colleague who had a client who used an online do-it-yourself will that he failed to update after some of his beneficiaries died and he opened new bank accounts that weren’t mentioned on the form. “That is the reason to have an attorney assist you with this process. We know the questions to ask, and we know what to do with the answers,” she writes.

“Without a lawyer, you might not understand the terms,” says Deborah Jacobs, author of Estate Planning Smarts. Therefore, you could inadvertently give someone more power than you want to when creating a “durable power of attorney” document, for example. That document essentially gives someone else the power to take care of your finances if you become incapacitated. Jacobs says that if that person isn’t trustworthy, he or she could steal from you. She also warns that if the document isn’t executed properly—in some states you need witnesses to your signature—then it might not even be valid.

Another risk, says Jacobs, is that when it comes to transferring your money to family members after you pass away, a self-written will might contain holes that lead to errors. Without the help of a lawyer—or sometimes even with the help of a lawyer—a person might not prepare for contingencies such as being pre-deceased by children, divorce, or the births of new children. (Again, the King of Pop comes to mind, as does Anna Nicole Smith.)

A third problem with do-it-yourself wills is the complicated world of estate taxes. For people with estates of over $3.5 million, who in normal years can expect to pay a federal estate tax, 2010 provided a temporary reprieve: Due to a quirk, the federal estate tax doesn’t exist this year. But next year, barring any moves by Congress, it will return for anyone with assets over $1 million. That has led to a lot of legal maneuvering that even lawyers have trouble keeping up with, let alone people without professional help. “I think it’s so completely irresponsible for anyone to suggest that people should go and write their own estate planning documents in an environment where lawyers are wringing their hands and tearing their hair out to devise a strategy for clients that will cope with the current uncertainties,” says Jacobs, who spent $4,500 after her son was born to draw up her estate planning documents.

Jacobs suggests using some time-saving strategies to cut down on legal costs. She suggests reading up on estate planning before scheduling an appointment with a lawyer, so you go into the meeting prepared and can skip much of the introductory conversation on estate law. If the lawyer is charging you by the hour, every minute you save is less money out of your pocket. Jacobs also says that small firms tend to be less expensive than large firms, but she adds that you want to be sure you’re visiting a lawyer with expertise in estate planning.

Lastly, Jacobs suggests telling your lawyer in advance that you want to keep costs to a minimum, so they should inform you if anything will cost extra and avoid customizing documents beyond what’s necessary. DIY yourself advocates and estate planning lawyers do agree on one thing: the importance of keeping estate planning documents up-to-date. So whether you use a fill-in-the-blank form or a boutique lawyer, be sure to revisit your documents at least once a year to make any necessary changes.