When a DIY Estate Plan May Not Be Enough

Estate planning does not have to be complicated.

For many people, a straightforward will, revocable living trust, financial power of attorney, healthcare power of attorney, living will, or other properly completed estate-planning document can address the most important planning needs without an elaborate legal structure.

But some situations involve issues that a standard form cannot fully analyze.

The question is not whether a DIY estate plan is “good” or “bad.” The better question is whether your circumstances are straightforward enough for standardized documents—or whether there are legal, tax, family, or financial issues that should be evaluated individually.

Recognizing those situations before you sign your documents can prevent unintended consequences later.

When a DIY Estate Plan May Work Well

A DIY estate plan may be a practical option when your wishes and circumstances are relatively straightforward.

For example, your plan may be relatively simple if:

• You know exactly who should receive your property.

• Your beneficiaries are responsible adults.

• Your family relationships are stable.

• You are not trying to disinherit a spouse or dependent child.

• You do not have a beneficiary with significant special needs.

• Your estate does not present unusual tax issues.

• Your business interests are limited or uncomplicated.

• You understand how your property is titled.

• Your beneficiary designations are consistent with your plan.

• You know who you want to serve as executor, trustee, or agent.

• You are comfortable understanding and following your state's signing requirements.

In these circumstances, a well-designed estate-planning form can provide a useful and economical way to document your wishes.

Complexity changes that analysis.

1. You Have a Beneficiary With Special Needs

Special-needs planning is one of the clearest situations in which individualized advice may be valuable.

A direct inheritance can sometimes affect a beneficiary's eligibility for needs-based government benefits.

For example, simply leaving money outright to a child or other beneficiary who receives certain public benefits may produce very different consequences from leaving property to an appropriately structured special-needs trust.

Issues can include:

• Supplemental Security Income

• Medicaid eligibility

• Housing assistance

• Management of the inheritance

• Selection of a trustee

• Distribution standards

• Whether a first-party or third-party special-needs trust is appropriate

This is not usually a situation where the only question is, “Who should inherit?”

The structure of the inheritance can matter just as much as the amount.

2. You Have a Blended Family

Second marriages and blended families can create competing estate-planning objectives.

You may want to provide for your current spouse while also making sure property eventually passes to children from an earlier relationship.

Those goals do not always fit neatly together.

For example, leaving everything outright to a surviving spouse may provide maximum flexibility for that spouse—but there may be no guarantee that the remaining property will ultimately pass to your children.

On the other hand, restricting the surviving spouse's use of property may create financial or family problems.

Additional questions can include:

• Who should receive the family home?

• Should a surviving spouse have a lifetime right to use property?

• Who controls trust assets after the first spouse dies?

• Should children receive property immediately or only after the surviving spouse dies?

• Are any assets separate property?

• Do prenuptial or postnuptial agreements affect the plan?

• Do beneficiary designations favor one side of the family?

If different groups of beneficiaries have potentially conflicting interests, individualized planning becomes more important.

3. You Want to Disinherit a Close Family Member

Disinheritance deserves careful attention.

The law may restrict your ability to completely disinherit certain people, particularly a spouse.

State laws can provide surviving spouses with rights involving:

• Elective shares

• Community property

• Homestead rights

• Exempt property

• Family allowances

• Other statutory protections

Different rules can apply to children.

Even when disinheritance is legally permitted, vague language or an incomplete plan may increase the likelihood of a dispute.

If you are intentionally excluding a spouse, child, or other close relative who would otherwise expect to inherit, professional advice can help determine how state law affects the plan and how clearly the documents should address your intentions.

4. You Expect a Family Dispute

Estate planning becomes more complicated when serious conflict already exists.

Examples include:

• Estranged children

• Sibling disputes

• A second spouse who does not get along with children

• Competing caregivers

• Disagreements about prior gifts

• Allegations of financial exploitation

• Concerns that someone may challenge the will or trust

• Disagreement about who should serve as trustee or executor

No document can guarantee that a dispute will not occur.

But when litigation is reasonably foreseeable, document structure, execution procedures, fiduciary selection, recordkeeping, and evidence of intent can become especially important.

A standardized form cannot evaluate the personalities and risks involved in a particular family conflict.

5. There Are Concerns About Mental Capacity

Estate-planning documents should be completed while the person signing them has sufficient legal capacity.

If there are serious questions about capacity because of cognitive decline, dementia, neurological disease, medication, illness, or another condition, additional precautions may be appropriate.

The issue may not simply be whether the person is capable of signing his or her name.

Different legal documents can have different capacity requirements, and future disputes may focus on whether the person understood what was being signed.

Professional involvement may help address:

• Capacity concerns

• Undue-influence concerns

• Documentation of the circumstances surrounding execution

• Whether additional medical evaluation is appropriate

• Selection of independent witnesses

• Timing of the estate-planning process

If capacity is genuinely uncertain, do not treat the estate plan as an ordinary form-completion exercise.

6. You Own a Business

Business ownership frequently creates estate-planning issues that extend beyond a will or trust.

For example, consider what happens if the owner:

• Dies unexpectedly

• Becomes incapacitated

• Wants one child to inherit the business and others to receive different assets

• Has partners or co-owners

• Has employees who depend on continued operations

• Has outstanding loans

• Has personally guaranteed business obligations

The business may also be governed by:

• An LLC operating agreement

• Partnership agreement

• Shareholders agreement

• Buy-sell agreement

• Redemption agreement

• Employment agreement

• Loan documents

Your estate plan should coordinate with those documents.

A living trust stating that your business interest passes to your children does not necessarily override transfer restrictions contained in an operating agreement or buy-sell agreement.

7. Your Estate May Have Significant Tax Issues

Most estates are not subject to federal estate tax.

But tax planning can become important when a person's assets are substantial or when the estate includes unusual property.

Potential issues can involve:

• Federal estate tax

• State estate or inheritance taxes

• Gift taxes

• Capital-gain basis

• Retirement accounts

• Highly appreciated property

• Large lifetime gifts

• Family businesses

• Farms and ranches

• Life insurance

• Property located in several jurisdictions

The tax consequences of an estate plan can depend on much more than the wording of a will.

Tax planning may require coordination among an estate-planning attorney, CPA, financial advisor, or other professional.

8. You Own Property in More Than One State

Owning real estate in multiple states can complicate estate administration.

Real estate is generally governed by the law of the state where the property is located.

Without appropriate planning, property in another state may require a separate probate proceeding there, sometimes called ancillary probate.

A revocable living trust may help in some circumstances if the out-of-state real estate is properly transferred to the trust.

But the deed used to transfer that property must comply with the laws and recording requirements of the state where the property is located.

If you own substantial real estate in several states, professional review may help coordinate the plan.

9. You Own Property Outside the United States

Foreign property creates an additional layer of complexity.

Another country may have:

• Forced-heirship rules

• Different marital-property systems

• Separate probate procedures

• Inheritance taxes

• Restrictions on trusts

• Different requirements for wills

• Treaty considerations

A U.S. estate-planning document should not automatically be assumed to control foreign property.

International planning often requires advice from professionals familiar with both jurisdictions.

10. You Are Making an Unusual Real-Estate Transfer

Many routine deed transfers are straightforward.

Others are not.

Professional help may be appropriate when:

• Only part of a parcel is being transferred.

• The legal description is unclear.

• Ownership is disputed.

• The property has significant liens.

• Mineral interests are involved.

• A deed is being used as part of a divorce or settlement.

• Property is being transferred between a business and its owners.

• The transfer may affect Medicaid planning.

• A transfer involves creditor concerns.

• The property is subject to complicated easements or restrictions.

• You are unsure whether the grantor actually owns the interest being transferred.

A deed is not simply a piece of paper that changes a name.

It can affect ownership, warranties, taxes, creditor rights, mortgages, and future title.

11. You Are Planning for Long-Term Care or Medicaid Eligibility

Long-term-care planning and Medicaid eligibility are specialized areas.

Transferring assets simply to “get them out of your name” can have significant consequences.

Medicaid rules can include:

• Asset limitations

• Lookback periods

• Transfer penalties

• Spousal protections

• Rules involving the home

• Trust restrictions

A normal revocable living trust generally should not be assumed to accomplish Medicaid asset-protection planning.

If Medicaid eligibility is an important planning objective, specialized elder-law advice may be appropriate before transferring property.

12. You Want Strong Asset Protection

A standard revocable living trust is primarily an estate-planning and management tool.

It generally should not be viewed as a way to place your own assets beyond the reach of your own creditors while you retain full control over them.

If your objectives include:

• Creditor protection

• Lawsuit protection

• Business-liability planning

• Protecting inherited assets from a beneficiary's creditors

• Divorce protection

• Asset-protection trusts

you may need structures beyond a standard revocable trust.

13. You Want to Place Extensive Restrictions on an Inheritance

Standard estate plans commonly delay distributions to younger beneficiaries.

For example, a trust might provide that a child receives assets at age 25 or 30.

More complicated restrictions may require individualized drafting.

Examples include:

• Providing distributions only for particular purposes

• Preventing the sale of family property

• Keeping a farm or ranch together

• Restricting distributions because of addiction concerns

• Protecting assets from creditors

• Creating lifetime trusts for beneficiaries

• Giving one beneficiary different rights from another

• Creating detailed incentive provisions

The more control you want to exercise over property long after your death, the more important customized drafting becomes.

14. One Beneficiary Is Financially Vulnerable

A beneficiary does not need to have a legally recognized disability for an outright inheritance to be a concern.

You may be worried about a beneficiary who:

• Has substance-abuse problems

• Is financially irresponsible

• Has significant creditors

• Is involved in litigation

• Has an unstable marriage

• Has difficulty managing money

• Is unusually young or inexperienced

A simple age-based distribution may not address those concerns.

A professionally designed continuing trust may provide more appropriate protection.

15. You Have Made Large Gifts or Loans to Family Members

Prior family transactions can complicate equality among beneficiaries.

Suppose one child previously received:

• A $100,000 gift

• A down payment for a house

• A business loan

• A forgiven debt

• An interest in family property

Should that amount be taken into account when the estate is eventually divided?

If so, the estate plan should clearly address the treatment of those transfers.

Informal family expectations are often a poor substitute for written instructions.

16. Your Beneficiary Designations Are Complicated

Some assets pass outside a will or trust because they have their own beneficiary designations.

Examples include:

• IRAs

• 401(k)s

• Life insurance

• Annuities

• POD bank accounts

• TOD investment accounts

These designations may override what your will says.

The issue becomes more complicated when beneficiaries include:

• Minor children

• Trusts

• Special-needs beneficiaries

• Multiple generations

• Charities

• A blended family

Retirement-account beneficiary planning can also involve significant income-tax consequences.

If you are uncertain how beneficiary designations should coordinate with your trust or will, professional advice may be worthwhile.

17. You Are Unsure Who Actually Owns an Asset

Before planning for an asset, determine how it is legally owned.

This is particularly important for:

• Real estate

• Joint bank accounts

• Brokerage accounts

• Business interests

• Community property

• Property held with survivorship rights

• Assets held in an existing trust

Estate-planning documents generally cannot control property that legally passes another way.

If ownership is unclear, resolve that issue before relying on the estate plan to transfer the asset.

18. Your Existing Documents Conflict With One Another

Many people create estate-planning documents at different times.

You may have:

• An older will

• A newer trust

• An old financial power of attorney

• Several beneficiary-designation forms

• A transfer-on-death deed

• Jointly owned accounts

• A prenuptial agreement

• Business succession documents

Those documents may not all produce the same result.

When several estate-planning systems overlap, professional review can identify inconsistencies that are difficult to detect by looking at each document individually.

19. You Are Not Sure What You Want

A form is designed to document decisions.

It cannot make every important decision for you.

If you are uncertain about questions such as:

• Who should inherit?

• Should a spouse or children receive property first?

• Who should manage money for a beneficiary?

• Should distributions be immediate or delayed?

• Who should serve as trustee?

• Should a beneficiary receive anything at all?

• How should a business be handled?

the issue may require more than document preparation.

An estate-planning attorney can help analyze the alternatives and consequences before the documents are drafted.

DIY and Professional Advice Are Not Opposites

Using DIY legal forms does not mean professional advice is never appropriate.

Many people can handle the straightforward parts of their planning themselves and obtain professional help only for the issues that require it.

For example, you might use standardized forms for your healthcare power of attorney and living will while consulting an attorney about a complicated business succession plan.

Or you may complete much of a revocable living trust yourself but ask a lawyer or tax advisor to review one unusual asset or beneficiary arrangement.

The goal is to use the appropriate level of assistance for the problem.

A Simple Rule of Thumb

A DIY estate plan tends to work best when the answers to the important questions are clear.

Professional advice becomes more valuable when the questions themselves are complicated.

Consider getting individualized advice when your situation involves:

• Special-needs beneficiaries

• Blended families

• Intentional disinheritance

• Serious family conflict

• Questions about mental capacity

• Significant business ownership

• Significant tax issues

• Foreign assets

• Complicated real-estate transfers

• Medicaid or long-term-care planning

• Creditor or asset-protection concerns

• Highly restrictive trusts

• Financially vulnerable beneficiaries

• Complex beneficiary designations

• Uncertain property ownership

The Bottom Line

DIY estate planning can be an effective solution for many straightforward situations.

But standardized documents have limits. They are designed to help implement common estate-planning decisions—not to analyze every possible legal, tax, financial, or family complication.

As you complete your estate plan, pay attention to questions that make you hesitate.

If you find yourself thinking:

“I am not sure whether this applies to me,”

“My family situation is unusual,”

“I need the document to do something more complicated than the choices provided,”

or

“I do not understand the consequences of this answer,”

that may be a good point to obtain individualized professional advice before signing.

The objective is not to make an estate plan more complicated than necessary.

It is to make sure the plan you create actually fits your circumstances.

This article provides general educational information and is not legal advice. Laws, legal requirements, and individual circumstances vary. Consult a licensed attorney in the appropriate jurisdiction for advice about a specific situation.