A Do It Yourself Will Gone Bad – Part 1

I recent call I received from Mary illustrates the risks of do it yourself estate planning.  In this case  Mary and john, her husband prepared their wills using Quicken’s Willmaker software which can be purchased online for less than $100.  It couldn’t be easier, right?  Hiring an estate planning attorney could cost several hundred to a few thousand dollars, depending on the particular plan and what it includes, so just comparing the two costs it would appear that the smart and less expensive move would be to go with the software program.

As I always point out, however, this way of viewing a will – as a fill in the blanks document – is dangerous.  A last will and testament is a legal document the product of proper legal advice, which requires understanding the laws of wills and trusts and then tailoring that knowledge to the particular client’s needs and desires.

Mary called me because John had recently died and she needed to probate his will.  When I examined it, however, I found a number of troubling mistakes.  First, the will contained a paragraph specifically referencing IRAs and 401ks and the wish that those assets be left to Mary.  I explained that for tax purposes these accounts typically have beneficiary designations upon death which override any instructions contained in a will.

Mary told me that John had previously been married.  Upon further inquiry I learned that one of the IRA accounts listed his child from a previous marriage as the beneficiary.  Although John wanted all IRAs to be distributed to his second wife, I told Mary that John should have changed the designation before he died.  This mistake cost her about $100,000, the IRA account balance. As bad as that mistake was it gets worse.  Next week I’ll share with you the bigger mistake that John made.