“Legally Valid” is Not a Tough Threshold to Meet
These days it’s hard to listen to the radio, watch television or go on-line without being inundated by ads pitching the latest and greatest do-it-yourself, on-line, estate plan documents: who needs those money grubbing lawyers anyway? One thing all of these pitches have in common is the assurance that the forms are legally valid and binding. Truth be told, “legally valid” is not a tough threshold to meet. If the person signing the Will (or trust, or, you name it) has the requisite mental capacity under the laws of the state where the document is being signed, and the document is signed, witnessed, or notarized in accordance with the laws of the state, it is legally valid. Legal validity, however, is only part of the story. Imagine the shock years down the road when it is discovered that an estate plan put in place by well meaning parents, intending to provide for each other and their children upon their disability and eventual deaths, does nothing of the sort.
I recently had the opportunity to help a young couple with very small children, where one spouse was facing a life threatening illness. They were referred to me to review their revocable living trust. I was under the impression that it had been drafted by another lawyer, and, therefore, my initial review was not clouded or prejudiced in any way. As I went through the document I was appalled at what I perceived to be the utter incompetence of a fellow practitioner, and, quite frankly, dumfounded as to why and how any attorney could pass something like this off on unsuspecting clients. The document was grossly deficient in a number of particulars, and, more importantly, would not have accomplished the desired result of providing for the surviving spouse and children upon the disability or death of one of the parents. It was then that I learned that in their haste to insure that the surviving spouse and children would be provided for, the couple turned not to a lawyer, but to one of the popular on-line sites for their estate planning needs, which included a revocable living trust (for which they paid a fairly sizeable sum I might add).
To enumerate and explain the deficiencies in the document would exceed the space allowed here, so I’ll only touch upon three, specifically:
- form
- concept, and
- substance.
First, from the standpoint of form, although touted by the website to be a Michigan specific document, the terminology used was not consistent with, or reflective of, Michigan law. This past April 1, 2010, the Michigan Trust Code went into effect, changing many aspects of Michigan trust law. Those changes had not found their way into the document.
Second, the document was premised upon property law concepts that are not followed in Michigan. Admittedly, this is where the explanation can get technical and complicated, so I’ll convey only the basics. Insofar as property ownership between a husband and wife is concerned, 40 states follow concepts derived from, and based upon, English common law. There are 10 states, however, that characterize property owned by a husband and wife pursuant to concepts that can be traced to French and Spanish civil law. Those states are said to be “community property” states. And, even within these groupings of common law and community property law jurisdictions, there are many variations. The salient fact remains, however, that property owned by a husband and wife is treated differently in community property and common law jurisdictions. Michigan is not a community property state. Yet, this document, although touted to be a Michigan specific document, employed community property terminology and concepts.
Lastly, there are many reasons why people need estate plans, and trusts in particular, ranging from tax savings to probate avoidance. For people with children, the primary need for a trust is to provide for the children upon the death or incapacity of one or both parents. Without a trust, minor children will receive their inheritance when they turn 18; all of it. Because that is rarely a good idea, trusts are the means of providing a method for holding property and administering it for the benefit of the children according to a detailed plan of distribution determined by the parents, in advance. The trust document I was asked to review contained none of these provisions. Although this couple had a number of children, upon the death of the second spouse to die, the trust assets would simply be held for distribution to each child as he or she turned 18. The document contained no provisions for the administration and distribution of the trust property for the care of the children while they were young.
Was this a legally valid and binding trust? It was. Would this trust have fulfilled the intentions and desires of this young couple and the needs of their family? Not even close. The problem is that they had no way of knowing that. For users of these on-line documents, it will be years or decades before the ultimate beneficiaries will learn just how bad the documents are. Merely filling in the blanks on a form is no substitute for the expertise of an experienced estate planning attorney. There is a reason why we dedicate our working lives and energy doing what we do.
Duane L. Reynolds