Is DIY Estate Planning a Good Idea?

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DIY estate planning can be expensive.

You have heard the words “estate plan” from family and friends.

They advise you to get one.

You reached out to a few attorneys and were overwhelmed by sticker shock.

You then researched estate planning articles online.

It looks simple enough.

Surely, you can do-it-yourself.

According to a recent Glen Rose Reporter article titled “Do-it-yourself estate plan goes awry,” think twice about creating a DIY estate plan.

DIY estate planning could cost you and your loved ones.
DIY estate planning may fail to protect your assets.

Why?

Unless you are an estate planning attorney, you could set up serious tax consequences or create an invalid estate plan.

Consider this example.

A widow wants to transfer her home to her children.

She wants to keep it out of probate.

What does she do?

She deeds the home to her children and retains a life estate.

Did she accomplish the goal of avoiding probate?

Yes.

However, her DIY planning created other problems.

How so?

She disqualified herself from taking out a reverse mortgage or selling the home for its equity.

She also created a taxable event.

She needs to now file a gift tax return.

Because it is a life estate as well, the value of the gift is diminished and her estate is not big enough to require payment of an actual tax.

She also created a “basis” issue.

When her children sell the home, they may owe a capital gains tax on the difference between the value of the home at the time their father died and its  value when the home is sold.

This will be a larger tax than if the home had been transferred upon the death of their mother.

How?

If the home had been transferred as part of the mother’s estate instead of via a life estate created by the mother, then it would have received another step-up in basis when she died.

The capital gains tax would have been  the difference between the value on the mother’s date of death and the eventual sale price of the home.

In addition to tax issues like this, there can be other problems if your will does not comply with specific laws in your state or your DIY estate plan is found to be invalid by the probate court.

DIY estate planning mistakes are costly in time and money.

Work with an experienced estate planning attorney.

The upfront cost now will save your loved ones time, money, and stress in the future.

Reference: Glen Rose Reporter (September 17, 2019) “Do-it-yourself estate plan goes awry”