DIY, outdated estate plans and what you don't know
September 1, 2022 | View PDF
I meet a lot of people who try to “do it themselves,” putting together their own wills, trusts or other estate planning documents from some website or kit, or just by copying something a friend had. Nine times out of 10 (okay, maybe 5 out of 7) there is something in that paperwork which is completely contrary to what the client actually wanted. They didn’t realize there was an issue.
The problem is, they didn’t understand the boilerplate. There was some legalese in there, which they thought was just some routine, throwaway stuff, but which actually would have had serious consequences if it hadn’t been caught.
Occasionally, people who use another attorney bring their paperwork to me for revisions or just to get a second opinion. Sometimes I find things in what that attorney did, which are contrary to what the client wanted. And it isn’t that the attorney was incompetent or malevolent. They just misunderstood that particular client’s wishes.
Which tells me something else: that attorney did not go through the paperwork with the client, to explain it to them. I always do that, especially with something as complex as a living trust, but not everyone does.
So my first point today is: Use an attorney for your estate planning, and insist that he or she go through the documents with you. Granted, you probably don’t want to have him or her walk you through it line-by-line. That would take a long time and end up being pretty expensive. After all, there is a lot of boilerplate stuff in these documents, and you don’t need to know all of it. But at least get a general explanation.
Now to my second point. Let’s say it has been a while since you had the estate planning done. It may have done exactly what you wanted at the time. However, if you don’t understand it well enough, you may not recognize when you need to make a change.
And as Exhibit One, I present to you the “A/B trust”.
Until about 2013, it was very common, when drafting a trust for a married couple, to have the trust automatically split in two when the first spouse died. It was necessary to do that, in order to preserve the deceased spouse’s estate tax exclusion. And it was often a very good thing to do, because back in the day, anything over $600,000 was subject to a federal estate tax which could go as high as 55%. It was a huge issue, and these A/B trusts were, for many people, a good way to save their families a lot of money in taxes.
But there was a tradeoff. In order for this to work, some of the assets had to be restricted after the first spouse died. In other words, the surviving spouse could not just have carte blanche to do whatever he or she wanted with those assets. The money could be used to support them, but part of it would have to be limited.
Which is sometimes what a couple wants anyway, especially in situations involving blended families, or in which one spouse received a significant inheritance, or when the parties each had a fair amount of assets before they got married. But most of the time, that is not what they want.
The good news is that very few people need to have that kind of limitation anymore, at least not for tax reasons. Very few estates are subject to federal estate tax, now that the tax only applies to estates over about $12 million.
But the bad news is, if your attorney put those restrictions into your trust because, at the time, they were needed for tax purposes, those restrictions are still there. And they can cause big problems for the surviving spouse, even though they might not have accomplished anything in terms of estate taxes.
Those trusts are complicated, though, and you might not be able to decipher the terms well enough to realize whether it is an A/B trust.
So here is a quick cheat to help you figure out whether your old trust might have a problem: If it has words like “Trust A and Trust B,” or “Marital Trust and Survivor’s Trust,” or “Spouse’s Trust and Family Trust,” or “Credit Shelter Trust and Marital Bypass Trust,” or anything like that, you may very well have a problem.
So if you have an older trust, take a look at it, and if you are not sure about it, hie yourself down to someone who can understand the boilerplate.
Because what you don’t know may hurt you.
Kenneth Kirk is an Anchorage estate planning lawyer. Nothing in this article should be taken as legal advice for a specific situation; for specific advice you should consult a professional who can take all the facts into account. And if the word ‘hie’ is too old-fashioned for you, just go.