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Tuesday, September 22, 2009

Home-made wills - common mistakes people make

We are all entitled to write our own Wills without asking a lawyer for help. The problem is that people who are not trained in the law almost always make mistakes and they never find out about them. Their families left behind after the person dies are the ones who find out about the mistakes.

I estimate that 90% of the clients I've met over the years start off their conversations with me by saying that their affairs are simple and they want simple Wills. In some cases it's true that they only need simple Wills. But in most cases they only think they need simple Wills because they don't know what needs to be in a Will.

There are some basic elements that must be in every Will. They are:
  • appoint an executor
  • appoint a guardian for minor children
  • describe a distribution of assets
  • give the executor the powers he or she needs to carry out your instructions
Sounds simple doesn't it? But let's look at that third element for a moment. Describe a distribution of assets seems easy enough. Most people who write their own Wills will say something like "I leave everything to my wife." But what happens if your wife dies before you do? Who gets your estate then? The children? Do they get equal shares or have you helped one of them a lot during your lifetime? Does "children" include step-children? Did you know that it automatically includes illegitimate children? How old do the children have to be to inherit? Who looks after the money for minors? Can they use any of the money on an emergency basis? What if you leave everything to your wife but you were married before and have children from that marriage? How do you plan to deal with that?

A very common mistake in home-made Wills is to think that everything will be exactly as it is today when you pass away. People don't think about whether someone else will die first or that they will have grandchildren etc.

Tied into that is the common mistake of making things too simple, as in the example of "I leave everything to my wife". That's fine if your wife survives you and you do not have minor children of a previous relationship, but it just doesn't cover enough possibilities.

Another issue with home-made Wills is that people, again keeping things too simple, do not properly describe either the gifts they want to leave, or the people they want to leave it to. They just aren't clear enough. For example, a person might say in his Will that "I leave my wristwatch to Joe." The person who wrote the Will knows who Joe is. But what if that person has an uncle named Joe who has a son named Joe Jr who in turn has a son named Joey? Who gets the watch? And what if the person actually owns two watches? One might be worth $25 while the other is worth $2,500. Which one did he mean to give to Joe? Will there be an argument over it? This kind of description lands estates in courtrooms to clarify what was meant.

An even bigger problem is that of giving the executor enough power and authority to carry out your instructions. Say you own a house, and the house is sold so that the money can be shared among all of the beneficiaries of your estate. Did you know that the sale has to be approved by all of the beneficiaries? What if one of the beneficiaries is a minor? Do you know who has to sign on behalf of the minor? And did you know that you can eliminate this whole issue by putting one short, specific power in your Will?

Home-made Wills almost never contain any powers at all, never mind a full set that would allow smooth administration of the estate. Your executor must call on helpers such as accountants, realtors, lawyers and appraisers. Your executor has to complete tax returns in a way that is in the best interest of the estate. Your executor has to invest the money in the estate, either for a short time while the estate is administered or for a long time until minors reach legal age. There are dozens of responsibilities attached to being an executor and your Will should contain all the powers the executor will need to do the job without resorting to asking the court for permission or clarification.

Finally, a mistake that is often made with home-made Wills is that they are not properly executed. There are laws that set out the requirements for signatures and witnesses and people who are not lawyers don't always know what those laws are. For example, if one of your witnesses is also a beneficiary, that beneficiary can't inherit anything from you.

When clients ask "Can I do this?", I always respond that in estate planning, that's not the question. The question is "Should I do this?" So while you can write your own Will without legal advice, should you?

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