will

5 Things to Know Before Adding Someone to the Deed

Denise Hill — Mon, 22 Mar 2021 09:00:10 +0000

Sharing is caring — at least that's what has been drilled into our minds. And for the most part, it's true.

However, if you're contemplating making the ultimate step in sharing — adding someone to the deed on your home — it's a good idea to consider the consequences. It's important to understand that when you add someone to your deed, you are entitling them to the same "bundle of rights" — control, enjoyment, possession, exclusion and disposition — that you have as a property owner. Before adding a loved one to your deed, it's important that you speak to an estate attorney and your mortgage lender to ensure you understand your rights, and to determine if this is the right move for you.

Here are five things you should consider before adding someone to your deed.

1. You can't take it back

When you add someone to the deed, all or a portion of your ownership is transferred to that person. Once it's done, you can't take it back unless the person you've added provides consent to be removed from the deed. He or she can take out a loan on the property, tear it down, or even sell their share of the property. And in some cases, there's nothing you can do about it.

Even if you transfer only a portion of your interest in the property, that person will have full control of their portion and may be able to force a sale of the property. If you want to refinance or sell your home, you must get permission from the individual you've added. This can lead to time consuming and costly legal battles that can tie up the property for years. Make sure you fully understand the implications and consequences before you sign on the dotted line.

2. You need permission from the lender

The law doesn't forbid adding people to a deed on a home with an outstanding mortgage. Mortgage lenders are familiar and frequently work with deed changes and transfers. Most lenders incorporate a loan "due-on-sale clause," which gives them the ability to call in the loan if the deed is transferred or if the home is sold. When you "deed" your home to someone, you've effectively transferred part ownership, which could activate the "due-on-sale" clause.

It is imperative that you understand the rules governing your particular situation. And you should obtain permission from your mortgage lender before adding someone to the deed. (See also: Why You Should Call Your Mortgage Lender Every Year)

3. Exposure to additional liability

Let's say you decide to add your brother to the deed. If he fails to pay taxes and incurs a tax lien, has problems with creditors, or goes through a nasty divorce, the IRS, his creditors, or his ex-spouse can lay claim to your home, or at least to his portion. In that situation, the entity owed can place a lien on your property and attempt to force a sale to collect the debt or tie up the property and prevent you from selling.

Adding someone to the deed of your home can also generate income tax liabilities when the residence is sold in the future.

4. IRS gift taxes may apply

When you add someone to your deed, the IRS sees it as a gift. That person becomes subject to IRS regulations concerning gifts. As of 2018, the IRS allowable gift limit is $15,000 annually, per person. Gifts that exceed this amount are subject to the gift tax.

The important take away here is that you should ensure you consult a tax attorney or Certified Public Accountant (CPA) before you add someone to your deed to ensure that you understand all of the implications and don't run into any surprises down the road. Your good intentions can be costly if not accompanied by due diligence. (See also: 4 Things You Need to Know About Gift Tax)

5. It can get complicated

There are so many hidden risks and pitfalls to adding someone to the deed. Remember, you become a joint owner rather than the exclusive owner. This change can impact your eligibility to sell or refinance. And for older homeowners near retirement age, transferring assets can adversely affect Medicaid eligibility.

Another thing to consider is that adding someone to the deed does not make them responsible for the debt. Unless the original loan agreement is modified, you are still solely responsible for repayment and the other person has ownership rights.

Like this article? Pin it!

This article is from Denise Hill of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Ask the Readers: Do You Have a Will?

Ashley Jacobs — Tue, 22 Jan 2019 09:30:06 +0000

Editor's Note: Congratulations to Tabathia, Jen, and Randy for winning this week's contest!

Thinking about death at all can be tough, let alone planning for your own. But to ensure that your estate is handled to way you want, with as little strife to your loved ones as possible, you need to have a will.

Do you have a will? What do you think is the most important reason for having one — and what do you think is the most important part of yours? How often do you update your will?

Tell us whether or not you have a will and we'll enter you in a drawing to win a $20 Amazon Gift Card!

Win 1 of 3 $20 Amazon Gift Cards

We're doing three giveaways — here's how you can win:

Follow us on Twitter
Tweet about our giveaway for an entry.
Visit our Facebook page for an entry.

Use our Rafflecopter widget for your chance to win one of three Amazon Gift Cards:

a Rafflecopter giveaway

Giveaway Rules:

Contest ends Monday, January 28th at 11:59 p.m. Pacific. Winners will be announced after January 28th on the original post. Winners will also be contacted via email.
This promotion is in no way sponsored, endorsed or administered, or associated with Facebook or Twitter.
You must be 18 and U.S. resident to enter. Void where prohibited.

Good Luck!

Tell us whether or not you have a will and we'll enter you in a drawing to win a $20 Amazon Gift Card!

This article is from Ashley Jacobs of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Estate Planning Questions Everyone Should Ask

Dan Rafter — Mon, 05 Mar 2018 09:00:07 +0000

There are no guarantees when it comes to the number of years everyone gets on this earth. You may plan to live well into your 90s, but circumstances — and your health — can change very quickly. This is why it's important not to put off the uncomfortable but necessary work of planning your estate.

Not sure where to start? Ask yourself these five key estate planning questions.

1. Why haven't I created a will?

You might not be rich, or even old, but that doesn't mean you don't need a will. A will is for anyone who wants to leave behind assets to loved ones or specify who should raise their children if they die.

That last point is especially important. If you are a parent of young children, you need to spell out in a will who should take guardianship of your sons or daughters should you unexpectedly pass away. If you don't, the courts will make that decision for you. Don't leave this up to chance. Draft a will and include these instructions. If you already have a will but you've had a major life change since you wrote it, it's probably time to update your will.

It's best to work with a legal professional when drafting your will. A professional can help you list clearly who gets what assets. If you want to leave your home to a loved one after you die, you might need to take the extra step to create a trust, too. This can get complicated, so again, it's best to work with an attorney. (See also: Here's What Happens If You Don't Leave a Will)

2. Do I have enough life insurance?

Life insurance is a necessary financial protection for your loved ones. If you should pass away unexpectedly, would your spouse be able to afford the monthly mortgage payments? Would your children be able to remain in the home in which they've grown up?

Life insurance can help ensure that your loved ones don't have to worry about paying their bills after you die. Upon your death, your life insurance will give an agreed-upon payment to your beneficiary, who can use that money to cover anything from mortgage payments to college tuition.

There are two main types of life insurance: term and whole. Term life insurance is less expensive but still provides solid coverage. With this type of insurance, you pay a premium for a certain number of years, perhaps 20 or 30. If you die during this time, your policy pays out. Once that term expires, you'll need to buy a new policy if you want to maintain life insurance coverage.

Whole life insurance is usually more expensive, but you don't have to worry about renewing after a term ends. Instead, you pay a premium every month — or every year — for the rest of your life. There is no end limit on the premium. The policy will pay out when you die.

How much life insurance do you need? That depends on your situation. Do you have young children dependent on your income? Does your spouse work? Are all your children young adults who are earning livings of their own? You'll want more life insurance coverage the younger and more dependent on your income your loved ones are. Your life insurance payout should at least cover the debt you owe for your mortgage, car, credit cards, and education. (See also: Term vs Whole Life Insurance: Here's How to Choose)

3. What do I want to do with my home?

One of the biggest assets you might have is your home. A home, though, can be a problem after you die.

If you've paid off your home and own it, you'll have to determine what you want your survivors to do with that residence. Do you want to leave your home to a child? That can be a tough decision if you have more than one child. Or do you want your children to sell the home and split the proceeds? Make sure you specify in your will what your preference is for dealing with your home. This can help prevent tension among your survivors.

If you haven't finished paying off your house, your options may be more limited. Funds from your estate may be used to pay off the debt you owe to your mortgage lender. But if your estate doesn't have enough money to cover this, your home might have to be sold, especially if none of your survivors want to take on your remaining mortgage payments. (See also: Why You May Need a Revocable Living Trust)

4. Will anyone know how to find my key documents?

Where do you keep your most important financial documents? Do you have a designated place for everything, from your will, to your tax returns and bank statements, to instructions for your funeral?

Wherever that place is, you need to make sure that your loved ones know where to find these important papers. Having a will doesn't help if no one can find it. And making sure that your next of kin know exactly where your checkbook, bank account statements, and past tax returns are stored can ease the burden they'll face when trying to move on from your death. (See also: 9 End-of-Life Cost Savings Your Survivors Will Thank You For)

5. Who will care for your pets?

Do you share your home with a beloved pooch, cat, or parakeet? What would happen to these companions if you should pass away?

If you want to make sure that your pets are cared for after you pass, leave instructions. You can include this information in a will, especially if you are going to leave your pets to a family member. You might want to also set up a savings account or leave a sum of money that will help cover the costs of caring for your pets, as a way to ease any burden on family members.

If you have no one to care for your pets after you die, you might specify in your will that you'd like your animals donated to a pet-care organization. (See also: 6 Reasons You Need to Include Pets in Your Will)

Like this article? Pin it!

This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Don't Make These 5 Common Mistakes When Writing a Will

Christa Avampato — Tue, 19 Sep 2017 08:30:10 +0000

It's a task no one likes to think about: With everything going on in our lives, do we really want to add our own mortality to the list of our concerns? As unpleasant as it may be to consider, having a will is a critical way to take care of your family should you pass away. It will also ensure that your wishes are carried out in a way that aligns with your values. (See also: What You Need to Know About Writing a Will)

For most of us, it's a fairly straightforward process. We have the options of free online kits, using a service like LegalZoom, or consulting with an attorney. No matter which option you choose, here are some common mistakes to avoid when creating a will.

1. Not giving anyone responsibility

When a will is executed, there must be a person assigned to settle the will when the time comes. This person is known as an executor, and that person makes sure that your wishes are carried out exactly as you intended. It's very important for you to select a responsible person you trust, and get that person's permission to name them as the executor. This is not something you want to be a surprise.

Also, you may want to strongly consider naming a second executor in the event that something happens to the first person you name, or if he or she is unable to serve as executor for any reason. (See also: The Fair Way to Split Up Your Family's Estate)

2. Not taking care of the kids

If you have children, it's critical that you select who will become their guardian(s) and communicate that to the named guardians as well as to other family members. I have seen this become a bone of contention before and after someone's passing, and it's a heartbreaking ordeal for everyone involved. Unfortunately, the people who suffer most in the battle are the children. It can be a difficult thing to communicate these wishes to your family, but it is far easier to deal with that difficulty now than to have a potential custody battle unfold after you're gone.

You must also consider how to give your assets to your children if they are still minors. This is a very complicated financial and legal issue, though there are a number of different options that you can put in place to properly take care of it. Creating trusts or accounts under what's known as the Uniform Transfers to Minors Act (UTMA) are avenues worth exploring.

3. Not knowing your state laws

Wills are state-specific and different states have different laws for them. The state that executes your will should be the state where you claim legal residence even if you have homes or spend significant amounts of time in different states. FindLaw provides a clear overview of laws that govern wills in the different states.

4. Not signing the will or having a witness

You've done all of the work to create a will. Make sure to sign it and have a witness sign it in accordance with your state's specific laws. If a will is left unsigned by you or a witness, there is a high risk that it won't be honored. Also bear in mind that you must be of sound mind and body, and you must create this will without being threatened or pressured by someone else to do so. If either of these points could be disputed, a legal battle could ensue before the will is executed.

5. Not making it accessible

Make sure your completed and signed will is easily accessible when the time comes, particularly by your executor. There are a few options for this. You can keep it in a secure location such as a safe in your home or a safe-deposit box. You may also choose to provide a copy of your will to your attorney, accountant, or financial adviser if you feel comfortable doing so. Though you are not required to file your will with the court or place it into public record, some courts may provide the option to store it for you. This last possibility is a good option if the court in your local jurisdiction allows it.

Like this article? Pin it!

This article is from Christa Avampato of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Money Moves to Make Before You Remarry

Damian Davila — Wed, 15 Mar 2017 11:00:15 +0000

Every year, about three per 1,000 Americans divorce from their spouse. Since about seven per 1,000 Americans marry every year, there is a chance that some divorcees will eventually tie the knot again with a new partner.

But before you remarry, you should evaluate your finances. Let's review eight money moves that will set you both up for financial safety and success.

1. Make Amendments to Your Will (or Make One!)

The joy of finding love again can make you look at everything through a rosy filter. While no one likes thinking about their mortality, especially close to a big wedding day, the reality is that not updating your will could leave your new partner (and potential dependents) with a messy court battle for your estate. Review your current will and update it as necessary. For example, you may redistribute your estate to include your new dependents and choose a different executor — a person who will manage your estate and carry out the orders in your will.

If you don't have a will, then setting one up should become the top priority of all money moves before you remarry. In the absence of a will, a judge will appoint an administrator who will execute your estate according to your state's probate laws. What is legal may not be the ideal situation for your loved ones, so plan ahead. (See also: What You Need to Know About Writing a Will)

2. Update Beneficiaries Listed on Your Retirement Accounts

Even after setting up or updating your will, you still need to update the list of beneficiaries listed for your retirement accounts. This is particularly important for 401K plan holders. The Employee Retirement Security Act (ERISA) stipulates that a defined contribution plan, such as a 401K, must provide a death benefit to the spouse of the plan holder.

Your beneficiary form is so important that it can supersede your will under many circumstances. When updating your beneficiary form before you remarry, there are three best practices to follow:

Get written consent from your previous spouse, if applicable, to make changes;
Second, designate only children who are of legal age so they can actually carry out their wishes;
Third, find out the tax implications for beneficiaries other than your spouse as a large windfall could unintentionally create a financial burden.

3. Consider Setting Up a Trust

Since we're talking about potential financial burdens, many of them could come out of an estate with lots of valuable assets being divided among many beneficiaries, many of them very young.

When you have accumulated a lot of wealth over the years, you could be better served by a trust than by a will for several reasons, including keeping your estate out of a court-supervised probate, maintaining the privacy of your records, and allowing you to customize estate distribution. While the cost of setting up a trust can be up to three times that of setting up a will, it can be a worthwhile investment to prevent costly legal battles. (See also: Should You Set Up a Trust for Your Child?)

4. Be Aware of Potential Spousal Benefits From Social Security

If your previous marriage ended on very unfriendly terms, you and your spouse may feel that you don't want to leave a penny to each other. Regardless of how you feel, the Social Security Administration (SSA) may still legally entitle your ex-spouse some benefits under certain circumstances.

If your former marriage lasted at least 10 years, your previous spouse can receive benefits on your SSA's record as long as he or she:

Remains unmarried;
Is age 62 or older;
Is entitled to Social Security retirement or disability benefits; and
Has an entitled benefit based on his or her own work that is less than the one that he or she would receive based on your work history.

Even when you have remarried, your ex-spouse could receive a check from the SSA based on your record. This is a conversation that you should have with your new partner before you tie the knot so that you're both on the same financial page.

5. Set Up Mail Forwarding With USPS

Depending on how long ago you got divorced and whether or not you kept the same home from your previous marriage, you could still receive some correspondence addressed to your ex's name. While getting a letter from an aunt isn't a big deal, receiving a large monetary gift, important bill, or legal notice could create discussions that you don't want to have.

To avoid such issues, spend $1 to set up mail forward with the USPS so that all correspondence under your married name (and maiden name, if applicable) is forwarded to a new address. Chances are that your ex-spouse already did this, but it's better to be safe than sorry. This service costs $1 per name, so you would need to spend $1 for a married name, and another $1 for a maiden name.

6. Put Your Debts on the Table

Transparency is a pillar in any relationship. No matter how large your financial obligations may be, your new spouse will truly appreciate finding out now rather than when you're struggling to cover monthly bills, applying for a mortgage, or trying to finance a new car.

Sit down with your soon-to-be spouse and go through your debt payments, such as student loans, credit card balances, mortgages, car loans, and installment plans. Going over your debts will allow you to have an idea of where the money is going every month, start talking about the potential commingling of finances, and be aware of each other's liabilities. (See also: What Happens to Your Debt After You Die?)

7. Disclose Any Alimony and Child Care Payments

Whether you're the issuer or recipient of court-mandated spousal support, spousal maintenance, or child care, make sure to disclose those moneys to your spouse and the corresponding expenses that they cover. Failing to help cover certain expenses while making large payments somewhere else could cause tensions between you and your new partner when not previously discussed.

Be upfront with your partner and tell the whole story. It helps you establish clear expectations about your joint financial future.

8. Evaluate a Prenuptial

Depending on your own financial plans, you may want to fully combine your finances — or not at all. For example, you may have accumulated some serious joint credit card debts from your previous marriage and you wouldn't want to transfer that responsibility to your new spouse or start a new string of similar debts. Evaluating a prenup before tying the knot is a necessary conversation for any couple with large differences in individual net worths, levels of retirement savings, and stakes in businesses. (See also: 5 Ways to Protect Your Business During a Divorce)

While thinking that your second marriage may fail like your first one did may sound a bit pessimistic, the reality is that it does happen. In 2013, four out of 10 new marriages involved remarriage.

Consult with your financial adviser, lawyer, or accountant about your unique financial situation and determine whether or not you need to present a prenup agreement to your soon-to-be spouse. Keep a positive attitude, and remember that this is a time for celebration. Once you've done your homework, you'll be able to fully enjoy your marriage without any financial worries holding you back.

This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Reasons You Need to Include Pets in Your Will

Brittany Lyte — Thu, 02 Mar 2017 10:30:33 +0000

Our pets give us love. They share our beds. We even buy them birthday presents. And though you might consider Fido to be a bona fide member of the family, the law has a different perspective. Your dog is your personal property — no different from your car or the silver china.

But unlike your other personal property, there's good reason to include your pet in your estate plan. Here's why your pet deserves a place in your will.

1. Your Pet Could End Up Lonely, Or Worse

Though pets have shorter life spans than people, many pet owners will die before their animals do. And those who fail to make arrangements for their furry friend's future care take on the risk that their beloved animal could be condemned to an ownerless life in an animal shelter — or worse. Often, pets without owners are euthanized when there are no immediate options to find them a new home.

2. You Can Designate Funds for Pet Care

Funding is optional, but a future pet care fund is recommended for pet owners who want to ensure that their pet receives a certain quality of care in the event that they're no longer around to see to it themselves. You can designate a fixed amount or a percentage of a bank account, insurance policy, retirement fund, or even a portion of the sale of a home.

If you do decide to designate funding for pet care, you need to figure out how much. Consider that pets are more expensive as they age. How long is your pet expected to live? Do you plan to compensate a person or organization to see your pet care wishes through, or are you only interested in setting aside funding for the actual pet care services?

It's also important to determine who or what organization will be in charge of the funds. In a pet trust, the person who manages the funds is called the trustee. It's smart to consider a backup trustee in case your first choice becomes unwilling or unable to do the job.

3. You Can Keep Bonded Pets Together

If you have multiple pets that were raised together or developed a close bond, you can save them from the emotional trauma of separation by including instructions to keep them together in your will.

4. You Can Name a Pet Guardian

Sometimes friends or family members vow to take in a cat or parrot in the event of a pet owner's death. Yet many of these informal promises, however well-intentioned, fail to play out as planned. This is why it's beneficial to designate a pet guardian.

A pet guardian is any person or organization who will become responsible for your pets and for the task of carrying out your pet care instructions. This can include the role of monitoring any funding set aside for pet care, or you may instead designate a completely different person or organization to assume the role of trustee. If a pet organization assumes the role of pet guardian, you should be sure to include directions about adoption. It's also vital that you research whether the pet organization has a fee for pet guardianship. If it does, you must factor in this fee when deciding how to disburse your funds.

5. You Can Name a Successor Pet Guardian

The goal is to ensure that your pet is cared for when you're no longer around to see to this end yourself. So it only makes sense that a successor pet guardian should be named to take the guardianship duties over in the event that your primary pet guardian becomes unable or unwilling to do the job.

6. A Cautionary Tale: Wild Wishes Could Be Ignored

The instructions you leave for the care of your pet should be sensible and legal. Just because you write it in your will doesn't necessarily mean it will be carried out. In fact, a will cannot enforce far-fetched demands when there's no one willing or legally able to uphold them. At its core, estate planning is solely intended to distribute property. Wild wishes can be ignored.

In perhaps the most extreme cautionary tale, billionaire real estate heiress Leona Helmsley famously left 12 million dollars for the care of her white Maltese, Trouble. "I direct that when my dog, Trouble, dies, her remains shall be buried next to my remains in the Helmsley mausoleum," Helmsley wrote in her will. But very few of the instructions she left in her will were followed. Millions of dollars that Helmsley intended to be spent on the dog went to other purposes because she never specified how all of the money should be spent, and the cemetery where Helmsley was buried refused to ignore a legal policy that forbids the interring of nonhuman remains at human cemeteries.

Like this article? Pin it!

This article is from Brittany Lyte of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Things I Learned About Money From Famous People's Wills

Carrie Kirby — Wed, 04 Nov 2015 16:15:36 +0000

I've always been fascinated by William Shakespeare's will. Specifically, by the way he left his wife his "second-best bed," especially since historians are at odds over what he meant by it. Was this an insult to a spouse he didn't get along with, or a tender gesture? After all, since everything was handmade, furniture was much more valuable back in the 1600s than it is today.

Thinking about Shakespeare's seemingly odd bequests made me realize that what people list in their wills says a lot about what they value.

So when Ancestry made a searchable database of 170 million will and probate documents available to its subscribers, I eagerly dove in. Of course, most Ancestry members use this information to learn more about their family members; the site touts these records' value in particular for African Americans searching for family history, since wills from the slavery era may name their ancestors as property.

In fact, when I started searching well-known names, the first one I found was a slave owner: George Washington, whose will calls for the freeing of his slaves after Martha's death. (He also called for one, named William Lee, to be freed as soon as he died, which makes sense because Lee was Washington's personal valet.)

What can we learn from the wills of notable dead people? Here's what famous people's taught me about money and finances.

1. Furniture Was Really Valuable

Like Shakespeare, Paul Revere made specific plans for his household furniture after his death; he left it all to his only unmarried daughter — but only if she was still single by the time he died. Revere no doubt figured that if his daughter had already established her own household, she'd have no room for dad's tables, chairs, and beds, second best or otherwise.

2. Families Held Onto Silver No Matter What

Louisa May Alcott's family often went hungry in her childhood; in fact, poverty drove Alcott to start writing. Yet, they never became desperate enough to sell the "family silver" — Alcott left her share to a niece in her will.

Alcott's will also made me wonder if the famous author, who never married, had a love affair or some other skeleton in her closet to cover up, because she called for all her letters and manuscripts to be burned upon her death.

3. Intellectual Property Has Been Valuable for Hundreds of Years

Shakespeare's will makes no mention of his plays, because with no copyright law, intellectual property was not a thing yet. Shakespeare might not have even had copies of his own works.

Not so for Nathaniel Hawthorne, who died intestate in 1864. An inventory of his estate includes copyrights estimated at a $2,500 value — much more than his $200 book collection, his $800 worth of household goods, or any of his investments, which included 10 shares in Boston National Bank ($1,020) and two shares of Jamaica Plain Gas Company ($200).

4. The Price of Property in Florida Has Gone Way Up

Harriet Beecher Stowe was an early snowbird, buying property in Mandarin, Florida, where she enjoyed wintering with her husband. An inventory of her estate at her death in 1896 values a six-acre orange grove in Mandarin at $0.

Nowadays, according to Zillow, a lot of similar size in the area is listed for $799,000.

By the way, Stowe, whose book Uncle Tom's Cabin was a record-breaking bestseller, also had nearly $2,000 cash on hand when she died — more than $50,000 in today's dollars.

5. Parents Love Their Kids Equally — Except for Their Favorite

Booker T. Washington left his three children the future royalties from his books to "share and share alike." But he also left his gold watch and chain to his namesake, Booker T. Jr., while failing to bequeath any personal effects to the other two.

6. Ernest Hemingway Wrote a Tight Will

In life, Papa was known for short and meaty sentences, and his books are no longer than they need to be. So I guess we shouldn't be surprised that Hemingway's will, written from Finca Vigia, his house in Cuba, six years before he took his own life, is only one page long and contains a minimum of legalese.

Hemingway left everything to his spouse, designating nothing for his children, merely saying, "I repose complete confidence in my beloved wife Mary to provide for them according to written instructions I have given her."

What does your will say about you?

This article is from Carrie Kirby of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Don't Get Screwed: 3 Surprising Times When You Need a Lawyer

Damian Davila — Wed, 05 Nov 2014 18:00:08 +0000

Lawyers get a bad rap.

From films such as My Cousin Vinny to TV shows such as Ally McBeal, you get the idea that lawyers don't know half the time what they're doing. This is why it seems that taking legal matters in your own hands or using an online legal service is just as good as hiring a lawyer. (See also: 7 Occasions When You Should Definitely Hire a Financial Advisor)

However, there are times that the opportunity cost is too high to tackle the job yourself. And some of them — like the three listed below — might surprise you.

1. Executing an Estate or Administer a Will

Let's imagine that your Uncle Joe passes away and Aunty Jude calls to ask if you could serve as executor of your uncle's estate or administrator of his will. If Uncle Joe meant a lot to you and you feel that is your duty to accept either task, it is a good idea to call a lawyer.

Executing an estate requires a lot of steps and forms. The three primary responsibilities of a person appointed to administer an estate are:

To collect and inventory the assets of the estate of the deceased;
To pay applicable debts, taxes, and liabilities of the estate; and
To distribute the remaining estate to the persons entitled to receive them.

If you have neither the time nor the expertise to do a thorough job, you may miss necessary state estate tax returns or notices (e.g. Notice of Proposed Action). Even worse, you become liable for any potential mismanagement of your uncle's estate. But that's not all. The estate's beneficiaries are most likely your relatives as well. So, you would get sued by your own relatives if you were to perform any wrongdoing, even if unintentional. Do you really need that drama in your life?

A lawyer would guide through the entire process and point out any potential pitfalls. For example, depending on the applicable estate laws, you may not be entitled to serve as an administrator for your uncle's will. A lawyer would check the statutes of descent and distribution to determine the next of kin entitled to serve as administrators.

However, probate attorney's fees are not cheap. The total fee for a "routine" estate with a gross value of $400,000 is about $20,000. You have three options for billing: hourly (ranging from $150 to $200 per hour), flat fee, or percentage of estate (only in certain states, such as California and Florida). Most legal professionals recommend to avoid percentage fees and to get the fee agreement in writing.

2. Forming a Corporation

Given that there are close to 3 million corporations in America, you would think that forming a corporation is a pretty straightforward process. However, forming a corporation is more complicated than setting up an LLC or business partnership. This is another time to pick up the phone and call a lawyer.

While many of the necessary forms are available online, such as the ones for the State of Delaware, you may not have the necessary skills to consider the tax and legal ramifications of how you form the corporation. There are important requirements, such as filing annual reports, filing bylaws, and requesting permission to operate outside the state of incorporation, that only a corporate attorney would know about. After all, you want your corporation to make headlines, but not for making a major legal blunder.

The rates of corporate lawyers to form a corporation fluctuate a lot. They can start as low as $300 and go all the way up to $5,000. Hiring an ultimate pro can run you over $1,000 per hour. Of course, these estimates don't include fees, such as the IRS fee for tax exempt nonprofit corporations.

It's important to shop around and get several quotes to make an informed decision. However, don't rely solely on price. Make sure that the lawyer specializes in corporate law, ask her for recommendations, and check her background with your state and local bar associations. By investing the time in finding the right corporate lawyer, you have completed the necessary legwork when the need rises again for one.

3. Filing a Patent

There are plenty of websites claiming that you can file a patent for just a couple hundred dollars and in under one hour.

But if you truly have a billion dollar idea, you shouldn't risk it going it on your own. When you have the golden goose, the patent trolls will try their best to take a bite out of it. For example, Apple faced 92 patent lawsuits over a three year period, and Google has faced over 140 patent lawsuits since 2009.

Several inventors recommend that you seek advice from a registered patent attorney or agent when filing your provisional patent application. A professional provides expert advice on what language to use to:

Meet the requirements of 35 U.S. Code 112 for inventions and their connections;
Avoid unnecessary restrictions to your provisional patent;
Provide counsel on additional registration systems (e.g. trademark); and
Achieve the right balance between broad and specific descriptions.

The total cost for a provisional patent application for a mechanical or electrical device is about $2,500 or less. The portion for the cost of attorney time is at least $2,000 and the remaining is for filing fees and applicable expenses, such as drawings. If your product development is successful and you're ready to file a nonprovisional patent application, be ready to spend over $10,000 in legal cost and fees.

Better safe, than pillaged by a patent troll!

What are other times when you need a lawyer? Please share in comments.

This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: