King & Wood, P.A.

Does a Will Supersede a Beneficiary Form?

“If you haven't reviewed your beneficiary designations recently, you may be setting your heirs and estate up for some unpleasant surprises.”

It’s a simple question: do you know who your retirement account beneficiaries are? These tax-deferred accounts are complex, with significant tax implications for heirs that become more challenging if key information is missing on beneficiary forms, which is often the case. According to this recent article from The Street, “Secure your IRA—Review Your Beneficiary Forms Now,” the SECURE Act was the biggest retirement law change in decades. As a result, there has never been a more important time to review beneficiary forms.

Start by requesting a copy of your beneficiary designation forms from all of the institutions that hold your IRAs, 401(k)s, 403(b)s, and any tax deferred savings accounts to check for errors and accuracy. Most people fill these forms out when the accounts are opened and never give them a second thought.

The courts see many cases where family dynamics changed, but beneficiary forms were never updated. The cost and stress of estranged or divorced spouses receiving a lifetime of retirement savings because no one thought to update the form cannot be overstated.

It is pretty easy for most of us to locate our wills, trusts and life insurance policies, but we tend not to keep copies of our retirement account beneficiary forms. This makes no sense, as these are the accounts where most people have saved the bulk of their wealth.

Account owners are generally unaware of how important the beneficiary document is, or the consequences of the information being out of date. These documents are more powerful than the will.

These assets pass outside of the will. No matter what your will says, the assets in the accounts pass to whoever is named on the beneficiary form.

If there is no beneficiary named on the form, the asset will likely be paid to your estate. When this happens, the account must be fully distributed within five years of the account owner’s death, if they died before their required beginning date of distributions. If there are no named beneficiaries and the account owner dies on or after the required beginning date, there may be less of a negative impact. An estate planning attorney will be able to help you and your heirs plan for this event.

The SECURE Act made this harder for anyone who dies after 2019. For retirement accounts inherited after December 31, 2019, there are classes of beneficiaries and each has their own distribution rules.

Many trusts named as beneficiaries of IRAs/retirement plans no longer work as planned. If your estate plan named a trust as a beneficiary for a tax-deferred account, speak with your estate planning attorney to make any necessary changes.

The SECURE Act eliminated the use of the “Stretch” IRA for most non-spouse beneficiaries. This means that most heirs will need to empty any inherited accounts within ten years of the death of the owner, rather than stretch the distributions over their own lifetimes. Failure to do so could lead to a 50% penalty of the amount not distributed plus taxes.

Your estate planning attorney may be able to create alternatives to the stretch IRA, but the first step to address this issue is to obtain your beneficiary forms. Once you have them in hand, you can make the necessary changes and begin to plan for the optimal distribution of your assets.

Reference: The Street (Dec. 28, 2020) “Secure your IRA—Review Your Beneficiary Forms Now”

SECURE Act has Changed Special Needs Planning

“An applicable multi-beneficiary trust can solve some--but not all--of the challenges that the new act presents.”

The SECURE Act eliminated the life expectancy payout for inherited IRAs for most people, but it also preserved the life expectancy option for five classes of eligible beneficiaries, referred to as “EDBs” in a recent article from Morningstar.com titled “Providing for Disabled Beneficiaries After the SECURE Act.” Two categories that are considered EDBs are disabled individuals and chronically ill individuals. Estate planning needs to be structured to take advantage of this option.

The first step is to determine if the individual would be considered disabled or chronically ill within the specific definition of the SECURE Act, which uses almost the same definition as that used by the Social Security Administration to determine eligibility for SS disability benefits.

A person is deemed to be “chronically ill” if they are unable to perform at least two activities of daily living or if they require substantial supervision because of cognitive impairment. A licensed healthcare practitioner certifies this status, typically used when a person enters a nursing home and files a long-term health insurance claim.

However, if the disabled or ill person receives any kind of medical care, subsidized housing or benefits under Medicaid or any government programs that are means-tested, an inheritance will disqualify them from receiving these benefits. They will typically need to spend down the inheritance (or have a court authorized trust created to hold the inheritance), which is likely not what the IRA owner had in mind.

Typically, a family member wishing to leave an inheritance to a disabled person leaves the inheritance to a Supplemental Needs Trust or SNT. This allows the individual to continue to receive benefits but can pay for things not covered by the programs, like eyeglasses, dental care, or vacations. However, does the SNT receive the same life expectancy payout treatment as an IRA?

Thanks to a special provision in the SECURE Act that applies only to the disabled and the chronically ill, a SNT that pays nothing to anyone other than the EDB can use the life expectancy payout. The SECURE Act calls this trust an “Applicable Multi-Beneficiary Trust,” or AMBT.

For other types of EDB, like a surviving spouse, the individual must be named either as the sole beneficiary or, if a trust is used, must be the sole beneficiary of a conduit trust to qualify for the life expectancy payout. Under a conduit trust, all distributions from the inherited IRA or other retirement plan must be paid out to the individual more or less as received during their lifetime. However, the SECURE Act removes that requirement for trusts created for the disabled or chronically ill.

However, not all of the SECURE Act’s impact on special needs planning is smooth sailing. The AMBT must provide that nothing may be paid from the trust to anyone but the disabled individual while they are living. What if the required minimum distribution from the inheritance is higher than what the beneficiary needs for any given year? Let’s say the trustee must withdraw an RMD of $60,000, but the disabled person’s needs are only $20,000? The trust is left with $40,000 of gross income, and there is nowhere for the balance of the gross income to go.

In the past, SNTs included a provision that allowed the trustee to pass excess income to other family members and deduct the amount as distributable net income, shifting the tax liability to family members who might be in a lower tax bracket than the trust.

Special Needs Planning under the SECURE Act has raised this and other issues, which can be addressed by an experienced estate planning attorney.

Reference: Morningstar.com (Dec. 9, 2020) “Providing for Disabled Beneficiaries After the SECURE Act”

How Can Estate Planning Address the Troubled Child?

“Every family has one–or maybe more–black sheep. They’re people who march to their own drum and handing them an inheritance could be problematic.”

Every family has unique challenges when planning for the future, and every family needs to consider its individual beneficiaries in an honest light, even when the view isn’t pretty. Concerns may range from adults with substance abuse problems, an inability to make good decisions, or siblings with worrisome marriages. These situations can be addressed through estate planning documents, says the article “Estate Planning for ‘Black Sheep’ Beneficiaries” from Kiplinger.

How can you prepare your estate, when a problem child has grown into an adult with problems?

You have the option of not dividing your estate equally to beneficiaries.

Disinheriting a beneficiary occurs for a variety of reasons and is more common than you might think. If you have already given one child a down payment on a home, while another has gone through two divorces, you may want to make plans for one child to receive their share of the inheritance through a trust to protect them.

A family member who is disabled may benefit from a more generous inheritance than a successful sibling—although that inheritance must be structured properly, if the disabled person is to continue receiving support from government programs.

No matter the reason for unequal distributions, discuss the reasons for the difference in your estate plan with your family, or if your estate planning attorney advises it, include a discussion of your reasons in a document. This buttresses your plan against any claims against the estate and may prevent hard feelings between siblings.

You can change your mind about your estate plan if your ‘wild child’ gets his life together.

A regular evaluation of your estate plan—every three or four years, or whenever big life events occur—is always recommended. If your wayward child finds his footing and you want to change how he is treated in your estate plan, you can do that.

Your estate plan can include incentives, even after you are gone.

Specific provisions in a trust can be used to reward behavior. An incentive trust sets certain goals that must be met before funds are distributed, from completing college to maintaining employment or even to going through rehabilitation. Many estate plans stagger the distribution of funds, so heirs receive distributions over time, rather than all at once. An example: 1/3 at age 25, 1/2 at age 30 and the balance at age 40. This prevents the beneficiary from squandering all of his inheritance at once. Ideally, his financial skills grow, so he is better equipped to preserve a large sum at age 40.

Trusts are not that complicated, and their administration is not overly difficult.

People think trusts are for the wealthy only or are complicated and expensive. None of that is true. Trusts are excellent tools, considered the “Swiss Army Knife” of estate planning. Your estate planning attorney can craft trusts that will help you control how money flows to heirs, protect a special needs individual, minimize taxes and create a legacy. For families who have one or more “black sheep,” the trust is a perfect tool to protect your loved ones from themselves and their life choices.

Reference: Kiplinger (Dec. 8, 2020) “Estate Planning for ‘Black Sheep’ Beneficiaries”

Trusts Make Sense Even When You Aren’t a Billionaire

“Done right by a lawyer, your heirs can avoid the expense and time of probating your will and may save on estate taxes, while easing the administration of your affairs while alive and after you have gone.”

Trusts are used to solve problems in estate planning, giving great flexibility in how assets are divided after your death, no matter how modest or massive the size of your estate, according to an article titled “3 Reasons a trust may make sense for your family even though your name isn’t Trump, Gates or Rockefeller” from Market Watch. Don’t worry about anyone thinking your children are “trust fund babies.” Using trusts in your estate plan is a smart move, for many reasons.

There are two basic types of trust. A Revocable Trust is flexible and can be changed at any time by the person who creates the trust, known as the “grantor.” These are commonly used because they allow a high degree of control, while you are living. It’s as if you owned the asset, but you don’t—the trust does.

Once the trust is created, homes, bank and investment accounts and any other asset you want to be owned by the trust are retitled in the name of the trust. This is a step that sometimes gets forgotten, with terrible consequences. Once that’s done, then any documents that need to be signed regarding the trust are signed by you as the trustee, not as yourself. You can continue to sell or manage the assets as you did before they were moved into the trust.

There are many kinds of trusts for particular situations. A Special Needs Trust, or “SNT,” is used to help a disabled person, without making them ineligible for government benefits. A Charitable Trust is used to leave money to a favorite charity, while providing income to a family member during their lifetime. A real estate trust can be used for real property.

Assets that are placed in trusts do not go through the probate process and can control how your assets are distributed to heirs, both in timing and conditions.

An Irrevocable Trust is permanent and once created, cannot be changed. This type of trust is often used to save on estate taxes, by taking the asset out of your taxable estate. Funds you want to take out of your estate and bequeath to grandchildren are often placed in an irrevocable trust.

If you have relationships, properties or goals that are not straightforward, talk with your estate planning attorney about how trusts might benefit you and your family. Here’s why this makes sense:

Reducing estate taxes. While the federal exemption is $11.58 million in 2020 and $11.7 million in 2021, state estate tax exemptions are far lower. New York excludes $6 million, but Massachusetts exempts $1 million. An estate planning attorney in your state will know what your state’s estate taxes are, and how trusts can be used to protect your assets.

If you own property in a second or third state, your heirs will face a second or third round of probate and estate taxes. If the properties are placed in a trust, there’s less management, paperwork and costs to settling your estate.

Avoiding family battles. Families are a bit more complicated now than in the past. There are second and third marriages, children born to parents who don’t feel the need to marry and long-term relationships that serve couples without being married. Trusts can be established for estate planning goals in a way that traditional wills do not. For instance, stepchildren do not enjoy any legal protection when it comes to estate law. If you die when your children are young, a trust can be set up so your children will receive income and/or principal at whatever age you determine. Otherwise, with a will, the child will receive their full inheritance when they reach the legal age set by the state. An 18- or 21-year-old is rarely mature enough to manage a sudden influx of money. You can control how the money is distributed.

Protect your assets while you are living. Having a trust in place prepares you and your family for the changes that often accompany aging, like Alzheimer’s disease. A trust also protects aging adults from predators who seek to take advantage of them. Elder financial abuse is an enormous problem, when trusting adults give money to unscrupulous people—even family members.

Talk with an estate planning attorney about your wishes and your worries. They will be able to create an estate plan and trusts that will protect you, your family and your legacy.

Reference: Market Watch (Dec. 4, 2020) “3 Reasons a trust may make sense for your family even though your name isn’t Trump, Gates or Rockefeller”

What are the Basic Estate Planning Documents?

“In a nutshell, an estate plan encompasses the accumulation, conservation and distribution of an estate. Done well, it will enhance and maintain the financial security of the next generation.”

Having a well-prepared estate plan means that you have a plan in place to distribute your home, assets and possessions. However, the estate plan does more, says the article “Trustee Tips: Estate Planning Basics” from Wilmington Biz Insights: it also gives your family the insight and legally enforceable directions to follow, so they may honor your wishes.

Estate planning eliminates uncertainty and maximizes the value of the estate, by streamlining the transfer of assets to beneficiaries and minimizing estate tax liability. In addition, estate planning protects your estate and your family from mismanagement, creditor claims or claims from people or companies outside of the family.

Many people equate estate planning with owning a large home and significant wealth, but that’s not true. An estate includes everything people own: their personal residence, retirement accounts, insurance policies, investments and possessions.

A case can be made that estate planning is more important for people with a modest estate to preserve and protect what assets they have, versus a large estate where the family enjoys a large cushion against poverty.

The basic estate planning documents are a last will and testament, trusts, financial power of attorney, health care power of attorney and a living will.

A Last Will and Testament provides instructions to the probate court of the decedent’s final wishes, including naming an executor to carry out the instructions. It also contains instructions on who will raise minor children by naming a guardian. This document, and any other documents filed with the probate court, become part of the public record, and can be accessed by anyone who wishes to see them.

A Revocable Trust also provides instructions but avoids probate. The trust creates a legal entity that owns assets (once they are retitled and placed in the trust). The individual who creates a revocable trust remains in control of the assets, as long as they are alive. The revocable trust can be changed at any time.

A Pour-Over Will is used with a revocable trust. It ensures that any assets not included in the Revocable Trust are “poured-over” into the trust upon death, protecting them from the probate process and keeping your wishes private.

A financial Power of Attorney and Health Care Power of Attorney are documents used to give control of legal and financial affairs and health care decisions, in the event of incapacity.

The Living Will provides directions to designated persons, usually family members, about what kind of medical care is desired in the event of an inability to communicate. This is a gift to loved ones, who would otherwise be left guessing what the person would wish. A HIPAA release should also be prepared to allow doctors to discuss medical matters with the Health Care Power of Attorney.

An estate plan is a way to protect the family’s well-being, not just distributing property and minimizing taxes. A well-crafted estate plan, created for the family’s unique situation, helps avoid family fights, litigation within and outside of the family and provides direction for the next generation.

Reference: Wilmington Biz Insights (Nov. 17, 2020) “Trustee Tips: Estate Planning Basics”

 

How Does Probate affect Real Estate Transactions?

 

“Is it better to transfer the title of the home to us, or to leave it as it is given her age and go through probate?”

For a family whose 91-year-old mother lives in her home, has a will and has appointed two sisters as Power of Attorney and executors of her estate, the question of handling the transfer of the home is explored in a recent article from the Herald Tribune, “Transfer title now or go through probate in the future?”

The family wasn’t sure if it made more sense to transfer the title to her two daughters and son while she was still living, or let the children handle the transfer as part of the estate. The brother may wish to purchase the home after the mother passes, as he lives with his mother.

If nothing is done, the house will be part of the probated estate. A case will have to be opened, a representative will be appointed by the court (usually the executor of the will) and then the executor can sell assets in the estate, close accounts and deal with the IRS and the Social Security Administration. The probate process can be time-consuming and expensive, depending on where the mother lives.

There are a number of steps that could be taken to simplify things. The mom’s assets can be held jointly, so they pass to the surviving owner, or a trust can be created, and her assets be titled to the trust, so they pass automatically to beneficiaries.

The issue of the house becomes a little more complicated because there are so many options. If the house has appreciated significantly over the years, keeping it in the estate will minimize taxes that have to be paid if and when it is sold.

For example, let’s say the house has increased in value by $250,000. Under current tax law, the mother can exclude up to $250,000 in profits from the sale of the home. This is the exclusion before the sale of a primary residence where the owner has lived in the home for two out of the last five years.

If she signs a quitclaim deed now to give the home to her three children, the IRS will consider this a gift to the three children. Her cost basis in the property (what she paid for the home, plus the cost of any material or structural improvements) will be transferred to the children. However, when the children go to sell the property, they won’t have that same $250,000 exclusion. The three siblings will have to pay federal income or capital gains tax on the same of the home.

However, if the home remains in the mother’s estate when she passes, the siblings inherit the home at the stepped-up basis. In other words, the value of the house (for estate tax purposes) will rise to the current market value at the time of her death, and not the value when she paid for the house. If the children decide to sell the house immediately, there won’t be any profit and there won’t be any taxes.

Depending on the state’s laws, the children might be able to use a transfer on death deed that would let the property transfer automatically to heirs upon the mother’s death. The siblings then inherit the property at the stepped-up value.

Here’s another question to consider: how does the cost of setting up trusts and transfer on death deeds compare to the estimated cost of probating the estate?

This family, and others in the same situation, should speak with an estate planning attorney to evaluate their options. The siblings in this case need to clarify whether their brother wants to buy the house and if he is able to do so. The mom then needs to make a decision, while she is still able to do so, because after all, it’s still her home.

Reference: Herald-Tribune (Nov. 7, 2020) “Transfer title now or go through probate in the future?”

What Is Purpose of an Irrevocable Life Insurance Trust?

“Death and taxes may be certainties of life, but how much tax your family pays upon your death is still within your control to a certain degree.”

Irrevocable Life Insurance Trusts, or “ILITs” are life insurance policies owned by irrevocable trusts used to manage taxes on estates. There are complexities to using an ILIT, but the benefits for some people could be big, according to the article “What Advisors Should Know About Irrevocable Life Insurance Trusts” from U.S. News & World Report.

What is the goal of an ILIT? The goal of an Irrevocable Life Insurance Trust is to own a life insurance policy, so the proceeds of the policy are left to heirs, who avoid estate tax. It’s a type of living trust but one that cannot be dissolved or revoked, unless the trust does not pay premiums and the insurance policy owned by the trust lapses.

The federal estate tax exemption is currently $11.58 million for individuals, and $23.16 for married couples. Most people don’t need to worry about paying federal estate taxes now, but this historically high level will not be around forever. The current law ends in 2025, cutting the exemption by half. If Congress needs to raise revenue before then, change could come sooner.

Who needs an ILIT?

The main advantage of an ILIT is providing immediate cash, tax free, to beneficiaries. The value of the ILIT is out of the estate and not subject to taxable estate calculations. The life insurance policy ownership is transferred from the insured to the trust. The insured does not own or control the insurance policy, but this is a small price to pay for the benefits enjoyed by heirs.

The grantor is the insured person, and the policy is purchased with the ILIT as the owner and the beneficiary. The insured cannot be the trustee of the trust. In most cases, the trustee is a family member, and the insurance premiums are paid through annual gifting from the insured to the trust. These are the details that should be explained by an estate planning attorney to maintain the trust’s legitimacy.

If all goes as planned, when the insured dies, the ILIT distributes the life insurance proceeds tax-free to beneficiaries.

How does an ILIT work?

Let’s say that you have assets worth $15 million. You buy a life insurance policy that will pay $5 million to your children. When you die, your taxable estate would be $20 million, which in 2020 would incur about $3.3 million in federal estate taxes. However, if you used an ILIT and the ILIT owned the $5 million policy instead of you, your taxable estate would be $15 million. Your federal estate tax in 2020 would be about $1.3 million. The estate would save $2 million simply by having the ILIT own the $5 million life insurance policy.

What if the estate tax exemption goes down before you die?

If the estate tax exemption goes down and you have already funded the ILIT, it remains safe from estate taxes. Here is another reason to consider an ILIT—as long as the funds remain in the trust, they are safe from beneficiary’s creditors.

Are there any downsides to an ILIT?

ILITs are not do-it-yourself trusts. They are complex and need to be structured so that the annual contributions used to pay the insurance premiums qualify for the $15,000 gift tax exclusion. To do this, an estate planning attorney will often include a “Crummy” power, which allows the insured to pay the trust for the premium, without reducing their lifetime gift tax exemption amount. However, it also means that beneficiaries need to be well-educated about the ILIT, so they don’t make any errors that undo the trust.

When a contribution is made, Crummey letters are sent to the beneficiaries, letting them know that a gift was made to the trust and they have the right to withdraw the money. However, if they withdraw the money, the insurance policy could collapse.

You’ll need to be committed to keeping this policy for the long run. You’ll need to be able to fund it appropriately.

There is also a three year look back for existing insurance policies that are moved into the ILIT, so the grantor must be alive for three years after the policy is given to the ILIT for it to remain outside of the estate. This does not apply when a new policy is established in the ILIT and does not apply if the ILIT buys the policy from the grantor.

Reference: U.S. News & World Report (Oct. 29, 2020) “What Advisors Should Know About Irrevocable Life Insurance Trusts”

 

What are the Responsibilities of a Trustee?

"A trustee is a manager of assets in a trust. The grantor creates the trust and appoints the trustee. A trustee has a ‘fiduciary duty’ to serve the grantor and not benefit personally.”

Before accepting the role of a trustee, it is important to have a thorough understanding of what you will need to do and for how long. Trustees are often appointed to manage trust assets for a child or adult with special needs. This responsibility could be for a lifetime, so be sure that you are up for the task. Trustee duties are outlined in a recent article, “Trustee responsibilities,” from InsuranceNewsNet.com.

When the person who set up the trust, known as the “grantor,” dies, the trustee is in charge of settling the trust. That includes tasks like:

1–Locating and reviewing all of the documents of the grantor, especially any funeral and burial instructions.

2–If the grantor owned a home or an apartment, changing the locks for security, notifying the homeowner’s insurance company, if the house will be unoccupied for an extended period of time, and checking on auto insurance policies, if there are cars or other vehicles.

3–Unless the executor is taking care of this task, the trustee needs to obtain multiple originals of the death certificate. These are usually ordered by the funeral director.

4–Listing all assets with the Date of Death (DOD) values of any assets. This determines the “cost basis” of assets that are to be transferred to beneficiaries. If assets are later sold and used to distribute proceeds, the cost-basis is used to determine income tax liability.

5–Consolidate multiple financial accounts into one account. The check register will become a register of trust activities and beneficiaries may inspect it. The trustee’s first responsibility is to protect the trust’s funds.

6–Pay outstanding bills and debts. The trustee may be personally liable, if this is not handled correctly.

7–Meet with an estate planning attorney to determine if the trust must file income tax returns or if the estate of the grantor must file income tax returns.

8–File claims for life insurance, IRAs and annuities.

9–Create an accounting for all trust financial activity from the grantor’s DOD to be distributed to the beneficiaries.

10–Transfer assets to beneficiaries according to the terms of the trust and have an estate planning attorney send each beneficiary a receipt, release and waiver for any further responsibility and liability.

The responsibilities of a trustee are similar to the responsibilities of an executor, except that wills are used in probate court and trusts are created to avoid probate court. Another benefit of trusts is that they can help avoid litigation between beneficiaries and keep the estate’s affairs private.

Reference: InsuranceNewsNet.com (Oct. 19, 2020) “Trustee responsibilities”

 

Despite Pandemic, Many Still Don’t Have an Estate Plan

“The Covid-19 has produced a rise in estate planning...but not a large enough one. Most Americans still do not have a last will and testament.”

It’s true—many people still believe that they don’t have enough assets so they don’t need a will, or that their money will automatically go to a next of kin. Both of these beliefs are wrong. While the title of this CNBC article is “More people are creating wills amid the pandemic,” the story’s focus is on the fact that most Americans don’t have a will. If you belong to this group, here’s what happens when you die.

The state you live in has laws about who will receive your assets if you die without a will, known as intestacy. Let’s say you live in New York. Your surviving spouse and children will receive your assets. However, in Texas, your assets will be entered into the state’s intestacy probate process, and your relatives will divide up your assets. Want to be in charge of who inherits your property? Have a will created with an experienced estate attorney.

Young adults think they don’t need a will, but Covid-19 has taken the lives of many healthy, young people. Every adult over age 18 needs a will. If you don’t have one, your loved ones—even if it’s your parents—will inherit a legal mess that will take time and money to fix.

If you have children and no will, there’s no way to be sure who will raise your children. The court will decide. Choose your guardians, name them in your will and be sure to name additional choices just in case the first guardian can’t or won’t serve. You should also appoint someone to be in charge of your children’s money.

What if you had a will created 10 or twenty years ago? That’s another big mistake. Your life changes, the law changes, and so do relationships. Life insurance policies, retirement plans, and transfer-on-death instruments are all legally binding contracts. The last will you made will be used, and if you haven’t updated your will or other documents, then the old decisions will stand. Remember that contracts supersede wills, so no matter how much you don’t want your ex to receive your life insurance proceeds, failing to change that designation won’t help your second spouse. You should review and update all documents.

Doing it yourself is risky. You won’t know if your will is valid and enforceable if you do it from an online template. Your heirs will have to fix things, which can be expensive. The cost of an estate plan depends on the complexity of your situation. You may only need a will, power of attorney, and advance directive. You may also need trusts to pass property along with minimal taxes. An estate planning attorney will be able to give you an idea of how much your estate plan will cost.

Talking about death and planning for it is a difficult topic for everyone, but a well-planned estate plan is one of the most thoughtful gifts you can give to your loved ones.

Reference: CNBC (Oct. 5, 2020) “More people are creating wills amid the pandemic”

Does Your Estate Plan Include Digital Property Protection?

“It’s difficult to go a few hours without interacting with a digital account. Whether that is email, online banking, or social media, many daily tasks involve  digital informational storage.”

One of the challenges facing estate plans today is a new class of assets, known as digital property or digital assets. When a person dies, what happens to their digital lives? According to the article “Digital assets important part of modern estate planning” from the Cleveland Jewish News, digital assets need to be included in an estate plan, just like any other property.
What is a digital asset? There are many, but the basics include things like social media—Facebook, Instagram, Snapchat—as well as financial accounts, bank and investment accounts, blogs, photo sharing accounts, cloud storage, text messages, emails, and more. If it has a username and a password and you access it on a digital device, consider it a digital asset.
Business and household files stored on a local computer or in the cloud should also be considered as digital assets. The same goes for any cryptocurrency; Bitcoin is the most well-known type, and there are many others.

The Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) has been adopted by almost all states to provide legal guidance on rights to access digital assets for four (4) different types of fiduciaries: executors, trustees, agents under a financial power of attorney and guardians. The law allows people the right to grant not only their digital assets but the contents of their communications. It establishes a three-tier system for the user, the most important part being if the person expresses permission in an online platform for a specific asset, directly with the custodian of a digital platform, that is the controlling law. If they have not done so, they can provide for permission to be granted in their estate planning documents. They can also allow or forbid people to gain access to their digital assets.

If a person does not take either of these steps, the terms of service they agreed to with the platform custodian governs the rights to access or deny access to their digital assets.
It’s important to discuss this new asset class with your estate planning attorney to ensure that your estate plan addresses your digital assets. Having a list of digital assets is the first step, but it’s just the start. Leaving the family to fight with a tech giant to gain access to digital accounts is a stressful legacy to leave behind.
Reference: Cleveland Jewish News (Sep. 24, 2020) “Digital assets important part of modern estate planning”