The following case study is on the pitfalls of using online software forestate planning. This is a situation that our office had to navigate. The names of the family have been changed but it could happen to anyone.

Mary was unmarried. She had 2 children. One of her children predeceased her. Her deceased child, named Joseph, had a child of his own (Mary’s first grandchild), named Gilbert. Mary’s one surviving child, Kevin, also had a child (Mary’s second grandchild) named Samantha.

Mary had a house, an IRA, an annuity and two bank accounts. 

Mary wanted her house to go to her granddaughter, Samantha. She wanted her IRA and annuity to go 50% to Samantha and 50% to Kevin her son. She wanted her two bank accounts to be split between Samantha, Kevin and her grandson Gilbert.

Mary wanted to avoid probate. Mary did not want to spend money on a lawyer for advice and to draft the necessary legal documents. Mary used an online drafting service to create a Trust. In her Trust, she left her house to Samantha, her IRA and annuity to Samantha and Kevin and her bank accounts to Samantha, Kevin and Gilbert. She signed the Trust in front of one witness and a notary. She attached a list of all of her assets to the Trust as “Schedule A”.

Mary discussed executing a Last Will and Testament with her family but told Samantha she didn’t want to do that because then the estate would have to go through probate.

Mary later passed away.

The house was in her name alone. The bank accounts were joint with Samantha. The IRA and Annuity named Gilbert as the sole beneficiary. What happened to Mary’s property?

Mary died without a Last Will and Testament, which is called, intestate. The intestate laws of the Commonwealth of Massachusetts determines who receives “probate” property when a person dies without a Last Will and Testament. Probate property was property owned by the decedent, Mary, without any joint owner or beneficiary named on the accounts or deeds.

Mary’s IRA and Annuity have a named beneficiary so those accounts are not probate property. Those accounts pass to the named beneficiary, which was her grandson, Gilbert. Although, Mary’s Trust said she wanted those accounts to go to her granddaughter Samantha and son Kevin. According to the intestate laws, it does not matter; the Trust is irrelevant because the beneficiary designation controls who receives those accounts at Mary’s death.

Mary’s bank accounts were owned jointly with Samantha. The bank accounts are not probate property. Jointly owned accounts pass to the surviving joint owner. Samantha became the sole owner of those accounts at Mary’s death. Mary’s Trust said she wanted those accounts to go to Samantha and Kevin. It does not matter; the Trust is irrelevant because the beneficiary designation controls who receives those accounts at Mary’s death.

Mary’s house is solely titled in her name alone on the Deed. It is probate property. Under the intestacy laws of Massachusetts, Mary’s son Kevin is her sole “Heir at Law.” This means Kevin inherits Mary’s house. Mary’s Trust said she wanted the house to go to Samantha. Again, this does not matter because the probate property passes under the intestacy laws of Massachusetts.   

What should Mary and her family have done differently?

If Mary had sought the advice of an experienced estate planning attorney, the Attorney would have explained to her how a Trust works to avoid probate and what needs to be done for the Trust to accomplish Mary’s goals. An attorney would have told Mary that listing her property on an attachment at the back of her Trust is not sufficient in transferring ownership legally to the Trust at her death. Mary would have also been told that she needed a Last Will & Testament to direct any property that must pass through probate to the Trust at her death. This way if something does have to go through probate the decedents, in this case Mary’s, wishes are still achieved by directing all property to be distributed through the directions stated in the Trust.

If Mary had signed a Last Will & Testament directing all probate property to her Trust, the house would have passed from her through her Will into her Trust and then to Samantha as she wanted.

An Attorney would have advised Mary to sign a deed transferring ownership of her house to her Trust. If Mary had deeded the home to the Trust, she would have avoided probate all together. At Mary’s death the house would have passed from the Trust to Samantha without the involvement of probate.

Next, if Mary had sought the advice of an experienced estate planning attorney, Mary would have been told that in order for the bank accounts to pass to Samantha and Kevin, she (Mary) should not have owned the accounts jointly with Samantha. The Attorney could have also offered several other methods of passing those accounts to Samantha and Kevin outside of probate.

If Mary had sought the advice of and Attorney, she would have been told that her IRA and annuity will pass directly to the named beneficiary regardless of what her Last Will and Testament or her Trust said. She would have been advised to change the beneficiary form on those accounts to Samantha and Kevin.

Can anything be done now to “correct” Mary’s mistake and have the assets pass as Mary wanted them too?

Gilbert, Kevin, and Samantha could decide to follow Mary’s wishes and reallocate the assets between themselves. However, this would be a strictly voluntary agreement between them. With regards to the IRA and annuity, if Gilbert does not want to give those accounts to Kevin and Samantha, they cannot force Gilbert to do so without needing to go to Court. Even then the Court may not decide in their favor. With respect to the bank accounts, if Samantha does not want to give up those accounts, Kevin and Gilbert cannot force her to share the monies with them without needing to go to Court. Even then the Court may not decide in their favor. As to the house, it will need to go through the probate court process. There is now no way to avoid it. If Samantha wants the house she may be able to convince the court that Mary did leave a Trust and the Court may use the Trust as evidence of Mary’s intended wishes, but again, the Court may decide to strictly adhere to the intestacy laws of the Commonwealth of Massachusetts.

While well intentioned, Mary did not know what she did not know. The drafting software did draft an adequate Trust. But without the knowledge of how a Trust works, and how assets pass at death Mary was unaware that her 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 possible that the online drafting service used to create a Trust won’t accomplish your intended goals. Worse, they could cause many problems for your loved ones, as well as create delays in distributions of assets, and cost more in Court costs than Mary saved by using the online drafting service.

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