Cheapskate Estate Planning

Yesterday, I blogged about a recent Pearl River County probate case involving a father’s transfer of real estate to his daughter.  The father later sued his daughter to get the property back.  He claimed that he had conveyed it to her for asset protection purposes.  He was concerned that, with his declining mental health, another of his daughters would take advantage of him. He intended to convey the property to his daughter, have her keep it during his potential incapacity, then give it back to him when he was mentally able to deal with the situation.

To make a long story short, the daughter wouldn’t give it back and the father (and his estate) spent more than 10 years and no-telling-how-much in attorneys’ fees and court costs.  And in the end, he lost.   The tragedy is that this could so easily have been avoided with a little estate planning.  Instead, the father had one of his daughters draw up a few deeds, probably in an attempt to save the costs of going to a qualified estate planning attorney.  We see how that worked out.

I see this all the time in my practice.  I’ll get questions like this: What if I just deed everything over to my daughter, but have her not record the deeds until I die? Won’t that avoid probate and protect the property? Sure, that’s a great idea! Just deed it to your daughter.  That way (1) if she is sued, the creditor can seize the property; (2) if she divorces, her husband may get part of the property in equitable distribution; (3) if you need the property at a later date and she refuses to reconvey the property to you, you can sue her and spend thousands in litigation in an attempt to get the property back; (4) if she dies before you, there could be multiple probate issues in the chain of title; (5) if the recording laws change in the interim (as Mississippi’s recently did), the deed may not be recordable in the future, (6) you can create a huge rift in your family that may never be healed, and (7) if any number of a bunch of other things go wrong, you’ll undoubtedly spend way more than you hoped to save by using this cheapskate estate plan.

Or, you could go to a qualified estate planning lawyer and have an estate plan that will legally and effectively reach your goals without all of this huge risk.  It will cost you a little on the front end, but think of it as insurance.  You are paying a little now to protect against the risks that something will go wrong.  And you’ll be saving your family from a potential dispute that could destroy their relationship with one another.

This also comes up with taxable estates.  As I mentioned in Estate Planning for 2010 and in recent estate tax developments, the estate tax is currently set to come back in with a $1 million exemption amount and tax rates of over 55 percent of the taxable estate.  In other words, if you have more than $1 million of assets (including real estate and life insurance), you could lose over half of the value of the assets that exceed $1 million in estate taxes.  Is it really worth trying to scrimp on a few thousand dollars worth of planning costs to risk hundreds of thousands of dollars of estate taxes?

I know this sounds self serving.  But this really isn’t an attempt to hawk my services.  I have seen the disasters of do-it-yourself estate planning time and again.  In fact, I often get paid to clean them up.  With cheapskate estate planning, you get what you pay for and you pay for what you get.