An article in Consumer Reports’ latest issue caught my attention this week. It evaluated whether do-it-yourself legal documents created on popular websites LegalZoom, Nolo, and Rocket Lawyer met consumers’ needs. 

The conclusion: “Using any of the three services is generally better than drafting the documents yourself without legal training or not having them at all. But unless your needs are simple — say, you want to leave your entire estate to your spouse — none of the will-writing products is likely to entirely meet your needs.” As a result, “many consumers are better off consulting a lawyer.”

You can read the entire article here.

I would add a couple of points. First, if a low price is your top priority, a legal stationery store can provide forms for a few dollars each, far below the price of the on-line sites. But the same challenges remain: will you know what provisions you need, how to write or insert them properly, and how to make the document valid with proper execution?

Second, a danger not raised by Consumer Reports is the false sense of security people may feel with documents created by some entity that gives the appearance of expertise. That sense of security may prevent consumers from seeking the advice they need. They (or more likely their families) won’t discover the pitfalls until it is too late.

If you’re the executor of an estate, you want to be able to walk into the register of wills office, present the original will (along with other required materials), get sworn in, obtain the documents you need, and walk out ready to start settling the estate.

A “self-proved” or “self-proving” will is going to help.

If you are doing your estate planning now, make things easier for your executor by signing a will that is self-proved. (I will discuss how shortly.)

Background

To make a valid will in Pennsylvania, you must put it in writing and sign it at the end. If you can only make an “x” or some other mark instead of signing, two witnesses must be present and must also sign their names to the will in your presence. If you can’t sign or even make a mark, you can authorize someone else to sign for you, but again, you must have two witnesses who also sign their names to the will in your presence.

In order for the will to be accepted by the register of wills to open an estate, Pennsylvania law requires that the will be “proved by the oaths or affirmations of two competent witnesses.”

So if you had simply signed your will in front of two witnesses, those witnesses could appear at the register of wills office and swear under oath that they did indeed watch you sign that will. But what an inconvenience for the witnesses!

And what if you signed the will 30 years before you died? Will the witnesses still remember? Are they still alive? Can they be found? If not, can someone else swear that they recognize your signature on the will?

Self-proved will

A self-proved (sometimes called “self-proving”) will solves this problem.

If the will contains certain acknowledgements and affidavits, the register of wills shall accept the will without the need of witnesses to the signature.

Here is an example of an acknowledgement and affidavit that would be acceptable under Pennsylvania law:

When it won’t be accepted

There are three situations in which the register of wills would not accept a self-proved will:

1. When the validity of the will is being contested;

2. When the will is signed by mark; and

3. When the will is signed by someone else (as described above in the first paragraph under Background).

In these situations, you’ll need to have witnesses appear or submit sworn statements.

Execution

Finally, it’s important to remember that to make an effective self-proved will, the document must be executed correctly.

You’re not required to use the services of an attorney, but a qualified attorney can often help you make sure your will is drafted and executed properly.

Let’s suppose you are a doctor, or other similar health care provider. Every time you see your patient Joe his memory has worsened.

Joe struggles to recall whether he took his medications this morning, and if so, what they were. He used to ask about your children, but now he seems not to recognize you. Yesterday he left his coat – containing his wallet and keys – in the waiting room.

You believe Joe now needs someone to look after him.

Can you tell the family?

If a family member or friend of Joe’s calls to ask whether you think he needs a guardian, can you answer the question?

Thankfully, the regulations under HIPAA (the Health Insurance Portability and Accountability Act) provide an answer.

In certain circumstances, HIPAA allows a health care provider to furnish information relevant to a patient’s care to “a family member, other relative, or a close personal friend” of the patient, or to “any other person identified” by the patient for involvement in health care matters.

One circumstance appropriate for such disclosure is when the patient agrees to disclosure, or at least does not object when provided the opportunity. For example, if Joe brings his caregiver daughter to his appointment, he may agree to let you discuss his condition with her.

A health care provider may also make this type of disclosure if the patient is unable to agree to disclosure “because of the individual’s incapacity” and the provider determines that “disclosure is in the best interests of the individual.” In that case, disclosure may be made even if the patient is not present and has not agreed.

In either of these circumstances, the provider may “disclose only the protected health information that is directly relevant to the person’s involvement with the [patient]’s health care.”

(The regulation discussing these circumstances may be found in the Code of Federal Regulations at 45 C.F.R. §164.510(b).)

You can therefore tell an appropriate person in Joe’s life that you believe Joe can no longer make and communicate decisions effectively and is unable to manage his financial resources or meet essential requirements for his physical health and safety.

So HIPAA not only protects Joe’s patient information when he has all his mental faculties, but also allows his doctor to notify an appropriate person when Joe has lost capacity and needs guardianship.

When you see Joe next, you may have more peace of mind knowing that someone else is in charge of his finances and health care decisions.

A version of this blog post originally appeared in the Western Pennsylvania Hospital News.

You don’t have to be Leona Helmsley to set up a trust for a beloved pet.

After the billionaire Helmsley’s death, her white Maltese lived in the lap of luxury on its multi-million dollar trust fund. But Pennsylvania law allows people of even modest means to provide for a dog, cat, or other animal that is as dear as a family member (or, let’s face it, more dear than that nephew who drops by only when he needs help paying his bar tab).

Suppose you’re concerned about Fluffy, who greets you with wild tail-wagging each morning, listens attentively to everything you say, and never talks back. What will become of Fluffy when you die or go to a nursing home? Who will walk him and buy him his favorite smoked pig ears?

In recent years, Pennsylvania joined about 40 other states that have passed laws to make pet trusts valid and enforceable. Such statutes are important because pets (otherwise considered property by law) cannot inherit from their owners.

Under a pet trust, you give Fluffy, along with enough money to pay for his care, to a trustee. The trustee, usually a trusted friend or bank, has a duty to arrange for the proper care of the pet according to your instructions.

You can establish a pet trust for Fluffy during your lifetime (called an “inter vivos” trust), or by means of a clause in your will.

One advantage of an inter vivos trust is that it can go into effect as soon as you become unable to care for your pet. A clause found only in your will may not be discovered until after Fluffy has gone hungry or been given away.

Your pet trust should contain specific instructions about Fluffy’s care, such as the type and amount of food (and any specific brands) he eats, medical care (including preferred veterinarian), grooming needs, daily routine, favorite treats, toys, and so on.

Determine who the trust should name as Fluffy’s caretaker. The trustee will deliver Fluffy to the caretaker for care according to your instructions.

Check to make sure the caretaker you name is willing to take on the responsibility. That will put you one step ahead of Leona Helmsley, whose proposed caretaker reportedly had no interest in the post. Be sure to name a substitute caretaker in case your first choice dies, or is unable to provide care.

You can fund the trust up front, or provide for funding through a bequest in your will. The funds can come from your estate, or from some other arrangement such as life insurance, a “pay on death” account, annuity, or retirement plan. Depending on your pet’s needs, the trust may require as little as $200 to $2,000 a year.

If you set up an inter vivos trust, you may also need to change your will to make reference to the trust and perhaps provide additional funding.

Under Pennsylvania law, the trust lasts until the end of your pet’s lifetime. If you have set up the trust for more than one pet, it will last until the death of the last surviving animal. Any remaining funds will then return to you, if you’re still alive, or can pass to a beneficiary you name.

You will probably also want to leave instructions about disposition of the pet’s remains after its death, such as burial or cremation.

An attorney knowledgeable about estate planning, and pet trusts in particular, can help you set up a pet trust that complies with Pennsylvania’s trust laws.

Fluffy might not eat hand-fed meals from a silver serving set like the Helmsley dog, but you can rest easy knowing Fluffy will have his smoked pig ears even when you’re gone.

The third week in October is National Estate Planning Awareness Week, as designated by the U.S. House of Representatives. (H. Res. 1499 2008)

In its resolution, the House noted that “over 120 million Americans do not have up-to-date estate plans to protect themselves or their families in the event of sickness, accidents, or untimely death;

“…two-thirds of Americans over age 65 believe they lack the knowledge necessary to adequately plan for retirement, and nearly one-half of all Americans are unfamiliar with basic retirement tools, such as a 401(k) plan;

“…careful estate planning can greatly assist Americans in preserving assets built over a lifetime for the benefit of family, heirs, or charities;

“…careful planning can prevent family members or other beneficiaries from being subjected to complex legal and administrative processes requiring significant expenditure of time, and greatly reduce confusion or even animosity among family members or other heirs upon the death of a loved one;

“…the implementation of an estate plan starts with sound education and planning, and then may require the proper drafting and execution of appropriate legal documents, including wills, trusts, and durable powers of attorney for heath care…”

You can find out more about estate planning at this blog and at many other reputable sites, including Elder Law Answers and the National Academy of Elder Law Attorneys.

Let me tell you about my favorite book on individual retirement accounts (IRAs) and 401(k) plans: The Retirement Savings Time Bomb…and How to Defuse It by Ed Slott.

Here are the reasons I like it so much and refer to it often.

It makes a dry subject interesting

I’m continually amazed at how the author takes dull, technical rules and turns them into entertaining, informative advice. Reading the rules on IRA distributions and taxation could put a valium to sleep. Somehow Ed Slott explains them so that they make sense, while keeping the reader interested.

Now granted, I’m interested in this subject because it relates to what I do for a living. But I think even casual readers would enjoy reading this book.

It’s practical

By the time you’ve read the book, you’ll understand the important rules about rollovers, early distributions, required minimum distributions, designated beneficiaries, Roth plans, and so on.

Knowing the rules is useless, though, if you don’t know how they relate to you. That’s where Slott’s book really shines. He relates the rules to practical questions about whether you should roll over a 401(k) into an IRA, how and why to name a designated beneficiary, the consequences of early withdrawals, reasons to insure an IRA, and other issues that probably never occurred to you.

It gives great advice

As you might guess from the title, Slott believes that many people don’t do enough to protect the value of retirement plans from taxation, forced distributions, and other problems. He shows the reader the many ways things and go wrong and offers this observation about those with large IRAs who stand to lose much of it to estate and income taxation:

“Why do IRA owners let their savings fall into such an abyss? The reasons can be summed up in a single word: admiration.

“Rather than doing whatever it takes (even—oh, horror of horrors!—spending some money) to keep their accounts from being sacked and pillaged by the IRS after they’re gone, they just sit there admiring how much the balance is.”

He then presents different approaches to help you keep from losing the value of retirement accounts, and making sure that your beneficiaries can get the maximum benefit from it after you’re gone. The book offers five chapters devoted to protecting your retirement savings:

Step #1: Time It Smartly

Step #2: Insure It

Step #3: Stretch It

Step #4: Roth It

Step #5: Avoid the Death Tax Trap

If you have an IRA, 401(k), or 403(b) retirement plan, I highly recommend that you read this book. You’ll learn things you need to know about how to make the most of it and how to avoid mistakes that could rob it of its value. And you’ll enjoy the read.

Wise use of an irrevocable trust can be a powerful way to protect assets as one gets older. One use is to avoid the need to spend down assets in order to qualify for certain benefits, such as veterans benefits and Medicaid.

But why use a trust? Why not just give the money away?

If a client is trying to protect assets and still qualify for government benefits, one strategy is to gift away excess funds to someone outside the household, typically children or other family members. The client then applies for veterans benefits, or in the case of Medicaid, waits five years before applying for benefits.

That strategy poses a number of significant risks. The person to whom it is gifted could die, become divorced, spend the money, invest the money in an unwise way, lose the money to creditors, and so on.

Even if the person making the gift were healthy when the gift was made, a health crisis could bring about the need for nursing facility care during the five years following the gift. If the gifted funds have been lost or spent, there could be no way to cure the gift. Without Medicaid benefits, there may be no way to pay for care.

An irrevocable trust has a number of advantages over an outright gift.

Control

Simply having the funds in a trust provides a superior amount of control over an outright gift.

In addition, the person who creates and funds an irrevocable trust (called the “grantor”) can make a number of important decisions about how the funds are held, managed, and disbursed.  The grantor can name trustees, and decide whether to have a single trustee, followed by successor trustees, or co-trustees. The grantor can name beneficiaries and retain the right to change beneficiaries through a power of appointment in the grantor’s will.

A trust protector can be named, with the power to approve or disapprove distributions during the grantor’s lifetime. The grantor can decide whether there will be one trust or a number of trusts, and can stipulate what assets will be used to fund each trust.

Income

The grantor can decide to receive income from the trust, even if there is no access to principal. Having income makes grantors feel as if the money is still theirs in some way, thereby easing some concerns about establishing an irrevocable trust in the first place.

Income can also help the client make it through a five-year look-back period by providing a means to help pay for care.

Protection from loss

By far one of the biggest concerns about gifting away funds is that the recipient (or “beneficiary”) will lose it in some way. With the right drafting, though, the funds placed into an irrevocable trust will not be available to be lost in a beneficiary’s divorce or bankruptcy proceeding.

Using a trust avoids the risk that a beneficiary will die and that the funds will be distributed to the beneficiary’s heirs.

Spendthrift language can help prevent the money from going to a beneficiary’s creditors, or from being squandered by a beneficiary who cannot handle money due to bad decision-making, gambling problems, addictions, or other reasons.

Tax advantages

An irrevocable trust offers some tax advantages over an outright gift, primarily in the area of capital gains tax. If the trust is structured as a grantor-type trust, then appreciated assets, such as a stock portfolio, can receive a favorable step-up in basis upon the death of the grantor. If such an asset were merely gifted, the recipient would have the same basis as the donor, and in many cases owe much more in capital gains tax.

Using a grantor-type trust provides a similar tax advantage for a homeowner’s principal residence. The estate can take advantage of the grantor’s capital gains tax exclusion under 26 U.S.C. § 121, which would not be available to heirs if the residence were gifted during the lifetime of the owner.

Weighing the options

Whether to create an irrevocable trust in any particular situation requires a careful assessment of the client’s objectives, assets, income, health and care needs, family dynamics, and other considerations. It can work well in the right circumstances, but it’s always best to consult with experienced legal counsel to make an informed decision.

Amy Winehouse, the British soul singer who died recently and tragically at age 27, demonstrated the importance of preparing a will.

Under British law, her estate would have passed to her ex-husband, Blake Fielder-Civil, in the absence of a post-divorce will, according to Forbes. Fielder-Civil, who reportedly introduced Winehouse to hard drugs, is currently serving a 32-month sentence for burglary and possession of an imitation firearm.

Instead, Winehouse’s estate (estimated to be at least $16 million) will pass to her father, mother, and brother, msn.com reports.

Her father has announced plans to establish a foundation in Winehouse’s name to assist those struggling with addiction.

Winehouse’s will shows the truth of an old estate planning adage: if you don’t like the law’s default estate plan, prepare your own.