With the advent of technology allowing for more and more self-service, we all love the ability to do tasks and transactions ourselves when possible. Hey, if I can avoid going to the DMV by renewing my license online, why not?
But there is a downside when it comes to handling really important financial matters. And that is what’s known as the “iceberg” effect. We’ve all heard about how most of an iceberg’s mass is below the waterline. In fact, it’s about 90% of the mass that you can’t see.
So let’s take the example of a do-it-yourself (DIY) will. You have the option of hopping online, picking one of the various templates, getting it witnessed and you’re done, right? But the problem with this approach is that unless someone takes the time to explain to you what your options are and to learn your objectives, the convenience and “savings” of doing it yourself could be dwarfed by a major problem you don’t foresee because it “lies below the waterline”.
Now let’s talk about estate taxes. While most people can “see” the possibility of federal taxes (only if you have over $11.58 million as of 2020), they often don’t know that they could be hit with state inheritance and estate taxes, and they don’t plan accordingly.
For example, take New Jersey, which is one of six states with an inheritance tax ranging from 11% to 16% and is paid by the beneficiary who receives the estate. Parents, a spouse, and kids are exempt from having to pay tax if they are the beneficiaries. But siblings only get a $25,000 exemption and there is no exemption for a niece or nephew! And this has implications for life insurance, too.
Let’s say Aunt Martha in New Jersey has a favorite niece, Rebecca, and does a will without an attorney’s help and leaves her $100,000. Aunt Martha also has a $100,000 life insurance policy that she names her local hospital as a beneficiary for the care they’ve provided her and her late husband, Frank.
Now, if she’d used an attorney, the attorney could have told Aunt Martha that if she named Rebecca as the beneficiary of her life insurance policy, her niece would have saved $15,000 in state inheritance taxes because life insurance proceeds are exempt from New Jersey’s inheritance tax. And Aunt Martha could have just named the hospital as the beneficiary of the $100,000 she was going to bequest to Rebecca, so the net result to the hospital is the same.
This is just one example of the kind of issues an attorney can help you avoid by having a conversation versus just drafting your own will online. And, it’s why as an independent insurance agent I engage my clients in a conversation to understand their whole situation. Don’t let your loved ones get shipwrecked because you saved a few minutes or a few bucks on DIY.