Wednesday, September 24, 2014

Legal Zoom Effect

Did Legal Zoom replace estate planning attorneys? Not hardly, but they did make life difficult for them. I can remember about 10 years ago when attorneys were getting as much as $5,000 for a revocable living trust with all the ancillary documents. Today, I think most attorneys will charge somewhere in the $1,000 to $2,000 range for the same services. A lot of attorneys will not waste their time for anything less than $1,000. It is simply not worth it to them. Legal Zoom had a fee compression effect on attorneys' fees.

I have a story in my book, Meet Wally Street, The Reason You're Stupid about people who use online legal document preparation firms. What most people do not think about when they use these online legal document preparation firms is that all they are doing is part of the equation. Yes, they are creating the documents at a discounted price from most attorneys, but they are failing to consider a lot of factors in their decision. One of those being...

Is this going to work?

How do you know the documents that you created online are going to work in your state and county? You can never be sure until you actually try and use them in a legal situation. I cannot tell you how many times that I have seen people prepare legal documents via some online legal document preparation firm and fail to dot an "i" or cross a "t". Most all of the mistakes that I see are in two main areas.

1) They fail to give the trustee the right powers; and
2) They fail to update their legal documents due to their death or disability of their trustees, successor trustees or beneficiaries.

Let me give you an example to ponder as to why you should always use an estate planning and an elder law attorney to draft and update your legal documents. This is an example of a lady who only had a will that she created online and never updated it.

In this example, an elderly man's unmarried adult daughter passes away with only a will that she created online. Her beneficiaries included her elderly father in addition to her two siblings. At the time the will was written, the elderly father was in good health. Fast forward a few years and the adult daughter gets ill with cancer and eventually succumbs to it and dies. While she was dying of cancer, her elderly father goes into a nursing home with dementia. The elderly father had a will leaving everything to his three children one of which just passed away. Now what?

Well, since the elderly father is now not legally competent and he doesn't have someone appointed by the court to handle his affairs, then someone has to go hire an attorney for him to obtain his share of his adult daughters estate which will have to go this route to get back to the two living siblings. Since the elderly father is in the nursing home with dementia, he is burning through all of his cash and runs out of all his cash. He didn't believe in Long Term Care Insurance. He sure could use the proceeds from his adult daughter's estate to help pay his nursing home costs, but unfortunately he has to have a legal guardian or conservator appointed first.

Meanwhile, while that is going on, the elderly father suddenly passes away. So, now the money from the adult daughter cannot be paid until her elderly father's estate goes through the probate process. The nursing home had to advise the family that they needed an attorney to get him qualified for Medicaid towards the end of his life. Nursing homes cost around $6,000 to $7,000 per month. If Medicaid pays it, then they want their money back when they can get it. In this case, Medicaid wanted their share of the proceeds of the adult daughter's estate! You see the elderly father ran out of funds while he was in the nursing home and had to go on Medicaid for about a year.

Now, the other siblings who thought they were the beneficiaries of their sister's and their elderly father's estates are going to get nothing from their father's estate. It is all going to pay back Medicaid and the probate attorney who had to step in and clean up this mess. Plus, they had to use some of the money that they inherited from their sister to pay for the attorney for their dad's guardianship, then later his estate and his burial, too. He didn't believe in life insurance either.

The moral of this story is that there are several things that could have happened to preserve family assets. The adult daughter could have hired an attorney to update her legal documents with a revocable living trust and keep them updated. In that document, it would have provided for contingencies. Anytime someone gets a serious illness, then those legal documents should be reviewed immediately. In addition, an elder law attorney could have saved most of the elderly father's estate with proper planning in advance. Further, the money from the sister's estate could have bypassed her elderly father's estate entirely once he went into the nursing home and gone directly to the two remaining siblings instead. However, one-third of their sister's estate which should have ended up with the two surviving siblings was gone like the wind to Medicaid.

Like I say in my book, estate planning and elder law attorneys are worth every single cent you pay them. The same cannot be said for doing your legal documents online and never updating them.

Do you realize that I may have just saved your family tens if not hundreds of thousands of dollars by telling you this? And, you thought that I was just another financial advisor.