Self-Help and Estate Planning Does Not Mix
With the pervasiveness in our society of do-it-yourself everything and the promise of fast, cheap and easy legal documents created at the click of a mouse, the public needs to beware. WebMD.com is no replacement for a Doctor. Self help and estate planning does not mix. When it comes to legal matters, the question is NOT “Is it legal?” The question IS “What are the legal consequences?”
Let us look at a very simple example to illustrate. Recently, we had a client who came in to the office with an internet driven Will. He thought it accomplished his objectives. On the surface it appeared to . . . but as we began to talk, I learned that one of his chief objectives was to ensure that there would be peace and harmony among his children after he and his wife passed. In his case, he had a Will alone which meant most of his and his wife’s assets would eventually go through probate. Thus, a hefty fee to the Treasurer was likely. As we talked, I was perusing the Will and I explained to him that “reasonable fees” in South Carolina to the executor could mean 5% of the probate estate. He did not want his children to fight. This provision could frustrate his objectives to ensure that there would be peace and harmony among his children after he and his wife passed. Why?
Well, let’s ask the proper question. So, in the above case, what are the legal consequences of providing an executor is entitled to reasonable fees?
1. Additional fees to the Treasurer because of Will alone planning.
2. Potential tension and conflict among his children with regard to the fees.
3. Would these fees be subject to income tax? Yes, it would be earned income to the executor. Would they be subject to income tax if the attorney was paid to do all the work? No, they would create an income tax deduction for the estate.
4. Is it fair for the executor to be paid a fee other than reimbursement? Not if the executor hires an attorney to do the work and gets paid anyway.
5. Is this what the client would have wanted? Probably not.
6. Will this cause conflict among the children? Maybe.
7. Is this what the client wanted? No.
Okay, let’s assume it is 1 million going through probate on second death. The result is a fee of nearly $2,000 to the probate Court, extra legal fees because of rigid procedural requirements, $50,000 to the child executor. Oh and this $50,000 is subject to income tax. Also, perhaps, this causes a conflict among the children. If all this happens, the original objective (peace among the children) was not accomplished. It was not accomplished in large part because certain questions were not addressed.
In every case, these types of questions should be posed. Without proper representation, these questions may never even be considered. There are a myriad of other examples and issues that need to be considered in every case. These issues are both tax and non-tax related. Remember, when it comes to legal documents, the real question should be “What are the legal consequences?” And so, the moral of this story is that self help and estate planning does not mix.
Mark F. Winn
Attorney at Law, PLLC