The Dangers of DIY Estate Planning

DIY estate planning has never been easier. Do-It-Yourself kits flourish on the Internet, begging to be downloaded and promising to simplify your life. But what are you really getting with these DIY estate planning documents? The old adage is true: you get what you pay for.

In the United States, LegalZoom, a company that prepares DIY estate planning documents such as wills and powers of attorney, was sued in a class action lawsuit in California charging that the company engages in deceptive business practices and is practicing law without a license.

The case centred around the preparation of a will. Knowing that he had only a few months to live, Mr. Ferrantino asked Ms. Webster in July 2007 to help him use LegalZoom to execute a will and living trust. Based on LegalZoom’s advertising, Ms. Webster says she believed that the documents they created would be legally binding and that if they encountered any problems, the company’s customer service department would resolve them.

But after the living trust documents were created and signed, Ms. Webster could not transfer any of her uncle’s assets into the trust because the financial institutions that held his money refused to accept the LegalZoom documents as valid. Ms. Webster tried to get help from LegalZoom, with no success. The trust was still not funded when Mr. Ferrantino died in November 2007.

DIY estate planning, wills, power of attorney,Ms. Webster was forced to hire an estate planning attorney, who petitioned the court to allow the post-death funding of the trust. The attorney then had to convince the banks to transfer the funds — a more difficult task following Mr. Ferrantino’s death. The attorney also discovered that the will LegalZoom created for Mr. Ferrantino had not been properly witnessed. All this cost Mr. Ferrantino’s estate thousands of dollars.

The lawsuit claims that Ms. Webster and others like her relied on misleading statements by LegalZoom, including that LegalZoom carefully reviews customer documents, that it guarantees its customers 100 percent satisfaction with its services, that its documents are the same quality as those prepared by an attorney, and that the documents are effective and dependable.

“Nowhere in the [company’s] manual do defendants explain that using LegalZoom is not the same as using an attorney and that its documents are only ‘customized’ to the extent that the LegalZoom computer program inputs your name and identifying information, but not tailored to your specific circumstances,” the lawsuit states, adding that “the customer service representatives are not lawyers and cannot by law provide legal advice.”

Ms. Webster is suing not only on her behalf but on behalf of anyone in California who paid LegalZoom for a living trust, will, living will, advance health care directive or power of attorney. The lawsuit estimates this class embraces more than 3,000 individuals.

LegalZoom, and other DIY estate planning documents websites, operate by offering standard templated documents. The legal documents are prepared through LegalZoom’s website where, once the customer purchases the service, the customer is presented a questionnaire that the customer completes online.  LegalZoom transcribes the responses onto a form template that LegalZoom has determined appropriate for the customer’s legal document.  The customer is presented with a finished document that is represented to be legally sufficient for the customer’s needs without review or edit and has not been approved by an attorney.

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As the above case illustrates, this gives rise to any number of errors being made, simply because the person who fills out the form does not know the law.

A will is one thing – as in the above case, it may prevent probate being granted and the estate may suffer the financial consequences. What’s equally as troubling is that you can obtain a power of attorney in the same way. A financial power of attorney gives someone you name–known as your agent–extraordinary powers. This agent can step into your shoes, acting on your behalf when it comes to handling your bank accounts, filing your taxes, and possibly even changing the beneficiaries of your life insurance and retirement accounts. The potential to abuse such a document is enormous.

“People might get a false sense of security from DIY estate planning,” says Bryan Mitchell, an Accredited Specialist in Succession Law (wills and estates). Answering one question incorrectly or overlooking something such as appointing a guardian for children can lead to major problems down the road.

DIY estate planning, estate planning, will, power of attorneyAnother example of the failure of DIY estate planning is when assets or beneficiaries change, and people don’t realise you have to change your will to reflect this. A client who used an online do-it-yourself will failed to update the will 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 lawyer assist you with this process. We know the questions to ask, and we know the law,” says Bryan. If you don’t get the document properly witnessed or there are other problems, it may not even be deemed valid.

A third problem with do-it-yourself wills is the complicated world of taxes. Most people who aren’t lawyers don’t know the tax laws that govern estates, let alone how to minimise tax payable. Such strategies can save the estate thousands of dollars, but DIY estate planning simply doesn’t have the ability to account for this.

Some things to remember if you are thinking about using a document generation business that is not a law firm:

Laws change over time.  Laws change all the time as new legislation is passed or a judge reviews a case. These things are difficult to know about unless you have access to a lawyer.

Laws change from state to state. In some areas of law, state legislation or ruling by the Supreme Court in that state is binding. In such cases using a document or legal material that is valid in NSW when you are in WA can be a costly mistake.
Errors. If you file a form with an error, the online legal document provider cannot warn you of the mistake even if they know about it. In Australia, only a lawyer recognised by the State can provide legal advice of any sort.
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Complex matters. Legal documents such as wills and powers of attorney can be very complex. In areas such as estate planning, many factors influence the legal advice you receive. Do you know how to minimise the tax paid by the estate? Do you know what to do as the assets you own change over time? Do you know how to protect beneficaries’ inherited wealth from relationship breakdown? Do you know what effect does divorce or remarriage have on your will? Most people don’t. In such cases, filling out the wrong document or filling out a document incorrectly can have disastrous consequences for the family or individual concerned.
Fixing a mistake. Having to fix a mistake can often be much more expensive, complex and tiresome than getting a lawyer to do it all correctly in the first place.

At Mitchells Solicitors, we keep our estate planning process simple and easy to understand, to keep your costs down. At the same time, you’ll get peace of mind that you’ve received legal advice from a specialist in estate planning law. We offer a free, 10-minute phone consultation – contact us today!