The other morning, at 2:30 AM local time, I watched my cousin’s son’s Bar Mitzvah at the Western Wall in Jerusalem via a live Facebook stream. An extremely moving service, he chanted from the Torah in front of the holiest site to the Jewish people. The rabbi set up a small table on which he placed the Torah scrolls, covered by a tallit (prayer shawl) until it was time to read the day’s parsha (weekly reading of the Torah portion).
In the background I could hear other Bar Mitzvah ceremonies going on concurrently. I figured that it would be difficult to concentrate enough to chant a Torah portion with the cacophony that surrounded the young man, but he did an exemplary job.
Technology is amazing isn’t it? A few years ago the only way that I could have “been there” would be to hope for a national news service’s live satellite feed. Today, with nothing more than a Smartphone and a wifi connection, I enjoyed sharing the family’s celebration.
But technology sometimes embeds a false sense of security.
Since this is an estate-planning column, I’ll focus here on instances I’ve seen when a self-made estate plan went bad. Legalzoom, Rocketlawyer and other services provide inexpensive and convenient means to create wills, durable powers of attorney, health care surrogates and even trusts. These web-based document preparation services lead the user through a series of questions similar to the online tax preparation programs, resulting in the estate plan.
While self-prepared, web-based documents might be fine and appropriate for someone with a very modest estate and a very straightforward financial and family situation, for others it can lead to unintended and even adverse consequences. You may be familiar with a computer programmer’s common lament “Garbage In – Garbage Out”, meaning that if you don’t know the consequences of the answers to the program’s prompts, you won’t get a proper result.
Florida law is rife with peculiar specifics. Take, for example, the law surrounding the devise of your homestead. If you are survived by a spouse or a minor child Florida law declares a bequest of your homestead to a testamentary (after-death) trust as invalid. This is true even if that testamentary trust benefits the surviving spouse. I see this commonly with trusts that are not only web-based, but those that were prepared by an attorney in a northern state but have not been updated.
Recently I read a self-prepared, web-based will that directed for a $2,000/month distribution to a surviving spouse for the rest of her life. The problem was that the document did not carve out amounts from which to generate the income, nor did it provide for the correct administrative provisions necessary to carry out the decedent’s intent. Without the “carve out” it was impossible to determine how much to distribute to the other beneficiaries. That estate plan ended up in court, with the beneficiaries fighting it out over what the decedent would have wanted.
You can bet the farm that the attorney’s fees spent on fighting out the ambiguity far exceeded what it would have cost to have a qualified estate planning attorney prepare the plan.
In yet another web-prepared plan I noticed that the decedent named five individuals to all serve concurrently as the personal representative (executor) under the will as well as the trustee of the trust. The document did not indicate whether a unanimous consent to conduct trust business was necessary or whether a simple majority ruled.
The banks and financial service firms where the accounts were located were rightly afraid for their own liability. What happened if one of the trustees directed for a distribution, but another objected? What happened next was inevitable. The banks and financial services firms sent the matter up to their in-house legal department, resulting in frozen accounts for several months. The family had to pay out of pocket not only for legal fees to rectify the situation, but to pay bills until the accounts became available for use again.
The new tax act recently signed into law by President Trump pushes the federal estate tax threshold to amounts where only the wealthiest will have to plan to minimize or avoid the tax. It’s likely that with the threshold so high, many will be lured into creating inexpensive web-based plans.
But there are many other traps found in this law for the unwary when planning one’s estate. Income taxes will continue to be an issue in almost everyone’s estate. Everything from taking advantage of the increase in the step-up in tax cost basis at one’s passing to qualified retirement account (IRA, 401(k)) issues to protect the inheritance, defer the income tax as long as possible and achieve tax deferred growth will remain huge issues to anyone with any degree of net worth.
I’ll be exploring those issues in greater detail, including the effects of the new tax act, in upcoming columns.