Reader Question: Should I Use an Online Estate Planning Tool?

Estate planning is most people’s least favorite personal finance topic.  It’s not just that it brings up uncomfortable thoughts of mortality.  You have to get lawyers involved (and who likes dealing with lawyers!). As a result, 60% of people don’t have an estate plan. Even Prince, who was worth millions of dollars, didn’t bother to get one done.

Basic estate plans should cost anywhere from $1,000 to $3,000 depending on your needs and where you live. That sounds like a lot, doesn’t it?  Especially since you hope you won’t need the plan for many, many years.

That’s why estate planning software from companies like Legal Zoom and one of my favorite people Suze Orman are so attractive.  Legal Zoom pricing starts at $149. In addition, the site offers “an independent attorney who knows your state’s laws” that “will guide you every step of the way.”

Similarly, Suze Orman’s Will Trust Kit starts at $90 and offers “easy to answer” questions and audio visual explanations: “It’s like your own financial planner and personal trust attorney at your finger tips!”

Sounds great.  Why wouldn’t you use these products? A few readers and clients have asked this very question lately. Today I’ll explore situations where you might use these products and when you want to avoid them.


When an online approach may work for you

As a tax lawyer, people would often ask me similar questions about saving money by doing their taxes themselves or using online tools to represent themselves before the IRS.  Could they save thousands of dollars on representation by using an online program?  If they got audited, surely they “could just talk to the IRS ourselves.” Well, yes and no.  It depends on the complexity of each person’s specific situation.

So, sure, you can create an estate plan yourself or with the help of an online tutorial. However, the more complex your situation (and I’m not talking about being a Rockefeller, just owning a home, being married or having kids makes things complicated), the more opportunities you have to mess things up.  A mistake might cost you or your loved ones even more money than a professionally prepared estate plan down the line.

Because most of my clients have some sort of complexity — usually unusual assets or children — I always recommend using an attorney. When I asked my attorney friends and estate planners that I work with, their answer was very similar.

However, if you’re a younger couple, on your first marriage, with no kids or substantial assets, these online tools may work for you.  That was me and Ben in 2009. We did our first will through the Suze Orman Will and Trust kit. It was fairly straightforward.  We didn’t own much at the time, and we were leaving everything to each other. The only cumbersome part was making sure we had the right amount of witnesses and getting everything notarized.

After we got married and bought our house, I wanted to update everything with a lawyer. When she reviewed our previous documents, she said there wasn’t anything wrong with them for our initial plan. They were just in a different format than the Illinois courts are used to seeing. While not a huge deal, that could extend probate proceedings and cost us more money.  Plus, we now needed to change the wording on the will and the title on our house since we were married.

Even couples with children may still be able to get away with online forms, if they want to leave everything first to each other, then in equal shares to their children. If that scenario varies even a little bit, though, you want to give doing it on your own serious thought.

It’s buyer beware in these types of situations. You will likely be the person ultimately responsible for mistakes, even if the online program offers “a lawyer review.” Before signing up for any of these programs, make sure you understand who’s ultimately responsible for the accuracy of the documents and any recourse you or your beneficiaries have for insufficiencies.


When to see a lawyer

If there’s any sort of nuance to your situation, like you own unusual assets or want to divide up your assets unequally or include people outside your immediate family in your will, I suggest seeing a lawyer. At least talk to one to see if you’re situation is complex enough to need legal help. Most estate planning attorneys give a free initial consultation.

There are a few situations, in which you should automatically see a lawyer:

  • You or someone in your family has a disability
  • There’s any possibility of a will contest (e.g., family in fighting, unequal distributions, etc.)
  • You want to disinherit a spouse or you’re apart of blended family
  • You own assets outside of your state of residence
  • You need a trust

Remember that even simple mistakes like improper wording or lack of certain formalities can invalidate a document altogether. Also keep in mind that your estate plan doesn’t just consists of a will and/or a trust. You’ll need things like health care directives and durable Powers of Attorney for it to be complete.

One lawyer I spoke with has seen online forms leave incomplete residuary beneficiaries or leave off witnesses entirely. Even if these mistakes aren’t fatal (witnesses can go to court to testify), it could end up costing you much more in time and money than seeing a lawyer in the first place.

And, yes, lawyers can make mistakes too. But in that situation you also can sue for compensation for any damages caused by negligence.


Final thoughts

A good estate plan will make things easier for you or your loved ones during one of the saddest, most stressful times a family can weather.  Why cut corners? Also bear in mind that most often, you won’t know if you’ve made a mistake until it’s too late. So if you’re thinking about going with the online approach, ask yourself a few questions first:

  • Do I have a lot of assets?
  • Do I want to distribute my assets to several people?
  • Do I need to leave assets to a minor or establish guardianship for someone?

If the answer to any of these questions is “yes,” I suggest at least having a free consultation with a lawyer.

Lastly, while the upfront, out-of-pocket expenses are high, you’ll likely only have to pay them once. You may have to update the document when your life changes, like when you get married or have a child.  Most lawyers suggest reviewing your plan every five years.  But if you’re using the same lawyer, many of them will update the documents for a discounted hourly rate or will only need a short amount of time to change things.

I want to hear from you. Have you seen online estate planning go horribly wrong? Or have you used the online programs with success? Let me know at the links below.