The following case study is on the pitfalls of using online software forestate planning. This is a recent situation that Attorney Michelle Beneski and our office had to navigate. The names of the family have been changed but it could happen to anyone.
Bob was unmarried. He had 2 children. One of his children predeceased him. His deceased child had a child of their own (Bob’s grandson), named Mark. Bob’s one living child, Jeff, also had a daughter named Sally.
Bob had a house, an IRA, an annuity and two bank accounts.
Bob wanted his house to go to his granddaughter, Sally. He wanted his IRA and annuity to go 50% to Sally and 50% to Jeff his son. He wanted his two bank accounts to be split between Sally, Jeff and his grandson Mark.
Bob wanted to avoid probate. Bob did not want to spend money on a lawyer for advice and to draft documents. Bob used an online drafting service to create a Trust. In his trust, he left his house to Sally, his IRA and annuity to Sally and Jeff and his bank accounts to Sally, Jeff and Mark. He signed the Trust in front of one witness and a notary. He attached a list of all of his assets to the trust as “Schedule A”.
Bob discussed executing a Last Will and Testament but told Sally he didn’t want to do that because then the estate would have to go through probate.
Then Bob died.
The house was in his name alone. The bank accounts were joint with Sally. The IRA and Annuity named Mark as the sole beneficiary. What happens to his property?
Bob died without a Will, which is called. The state law determines who receives “probate” property of an intestate person. Probate property is property owned by the decedent without any joint owner or beneficiary named to the account.
Bob’s IRA and annuity have a named beneficiary so those accounts are not probate property. Those accounts pass to the named beneficiary, which was his grandson, Mark. Although, Bob’s Trust said he wanted those accounts to go to his granddaughter Sally and son Jeff. It does not matter. The Trust is irrelevant because the beneficiary designation controls who receives those accounts at his death.
Bob’s bank accounts were owned jointly with Sally. The bank accounts are not probate property. Jointly owned accounts pass to the surviving joint owner. Sally became the sole owner of those accounts at Bob’s death. Bob’s Trust said he wanted those accounts to go to Sally and Jeff. This does not matter. The Trust is irrelevant.
Bob’s house is in his name alone. It is probate property. Under the intestacy law in Massachusetts, Bob’s son Jeff is his sole “Heir at Law.” This means Jeff inherits Bob’s house. Bob’s Trust said he wanted the house to go to Sally. Again, this does not matter because the probate property passes under the intestacy law.
What could Bob and his family have done differently?
If Bob had sought the advice of an experienced estate planning attorney, they would have explained to him how a trust works to avoid probate and what needs to be done for the trust to accomplish his goals. An attorney would have told him that listing his property on an attachment at the back of his Trust does not legally make the Trust the owner of his property. Bob would have also been told that he needed a Last Will & Testament to direct any property that must pass through probate to the Trust at his death. This way if something does have to go through probate the decedents wishes are still achieved by directing all property to be distributed through the directions in the Trust.
If Bob had signed a Last Will & Testament directing all probate property to his Trust, the house would have passed from him through his Will into his Trust and then to Sally.
A lawyer would have advised Bob to sign a deed transferring ownership of his house to his Trust. If Bob had deeded the home to the Trust, he would have avoided probate all together. At Bob’s death the house would have passed from the Trust to Sally without a probate.
Next, if Bob had sought the advice of an experienced estate planning attorney, Bob would have been told that in order for the bank accounts to pass to Sally and Jeff, he (Bob) should not have owned the accounts jointly with Sally. The lawyer could have offered several other methods of passing those accounts to Sally and Jeff outside of probate.
If Bob had sought the advice of a lawyer, he would have been told that his IRA and annuity will pass directly to the named beneficiary regardless of what his Will or Trust said. He would have been advised to change the beneficiary form on those accounts to Sally and Jeff.
Can anything be done now to “correct” Bob’s mistake and have the assets pass as Bob wanted them too?
Mark, Jeff and Sally could decide to follow Bob’s wishes and reallocate the assets between themselves. This would be a strictly voluntary agreement between them, of course. In regards to the IRA and annuity, if Mark does not want to give those accounts to Jeff and Sally, they cannot force him. With respect to the bank accounts, if Sally does not want to give up those accounts, Mark and Jeff cannot force her to share it with them. As to the house, it will need to go through the probate process. There is no way to avoid it. If Sally wants the house she may be able to convince the court that Bob did not die intestate. Bob’s Trust meets the statutory requirements for a Will. If she can prove to the court through evidence that Bob intended the Trust to act as his Last Will and Testament then the Court could say Bob died Testate – ie. with a Will. In that case, the house would pass through the provisions of the Trust.
While well intentioned, Bob did not know what he did not know. The drafting software drafted an adequate trust. But without the knowledge of how a trust works, how assets pass at death he was unaware that his plan wouldn’t work. Estate planning is more than creating and signing documents. It involves understanding complex laws about what those documents do and don’t do. It involves understanding the impact of your plan on yourself and family. It involves making decisions that have tax, privacy, asset protection, efficiency and many other consequences. Without the help of a well versed estate planning attorney to guide you, it is likely your documents won’t accomplish your goals. Worse they could cause many problems for your loved ones.