Another reason to see a lawyer about a will

Several posts back, I questioned the wisdom of using online will and trust forms, or the celebrity will and trust devices (like the Suze Orman documents). Here's a story out of New York in case you're still convinced that you don't need a lawyer to prepare your will.

Harry Wu served as one of two witnesses to his sister's will. Though he was not named as a beneficiary under the will, he was named as a beneficiary under a life insurance policy that his sister had. The will had a common clause that said that taxes, such as estate taxes, should be paid out of the "residuary estate," and not apportioned among those receiving property under the will. Despite this clause, the executor of the will challenged Harry's right not to have to share in payment of estate taxes because of a New York law that prohibits a witness of a will from benefitting from a distribution under the will. The court in New York agreed with the executor and Harry had to pay a share of the estate taxes on the $3 million estate.

It's little things like this New York law that the average person doesn't know about that make using an online form or one you got on a CD that comes with a book so dangerous. Yes, paying a lawyer to draw up your will is much more expensive than $29.95 for a book or a form you download from the Internet, but ask Harry Wu about hidden traps.

Family Limited Partnerships

You may have heard of a family limited partnership, or FLP, as an estate planning device. A FLP is just a limited partnership formed for the benefit of family members. Limited partnerships have several benefits over general partnerships, the greatest of which is that limited partners are shielded from liability beyond the extent of their investment or contribution to the limited partnership. In addition, because a separate legal entity, the FLP, owns the assets that are transferred to it, those assets are out of the estate of the individuals, and need not pass through probate, nor be subjected to an estate tax, upon death. For these reasons, FLPs have gained popularity in recent years.

However, as an estate planning tool, FLPs are only for the wealthy. They require expertise to create, involve complex issues of valuation of property that is contributed, and they must be managed as long as they are in existence. In short, unless there are assets of around $1 million that can be put into the FLP, their cost and effort do not justify the benefits. For most people, a FLP is neither necessary nor desirable.

Debt Settlement Agencies

You hear it on the radio or even late-night TV informercials: "Don't file bankruptcy; settle your debt for pennies on the dollar. Call us -- we know the secrets the credit card companies don't want you to know." Some of them even tell you that you have the "right" to settle for less. Do these work?

I can't speak for every such agency. Some are non-profit organizations that really do help SOME people. But most are nothing more than scams. They want you to send them money up front, and then they'll contact your creditors and work their magic. It almost never works. In the meantime, you stop paying your bills, your interest rates go up because you're in default, you start getting calls (if you weren't already), and eventually you get sued and your wages are garnished. Finally the debt settlement agency tells you they tried, it just didn't work.

Does this mean you should never try to work something out with your creditors? Absolutely not. By all means, if you can work out a settlement, do so. But before you pay someone to do it for you, look into it closely.