How to Handle Digital Assets in a Will

Now that cryptocurrency has become almost commonplace, it is necessary to incorporate it into estate plans and their administration, according to the article “Estate planners want to keep the crypt out of cryptocurrency” from Roll Call.

One advantage of using cryptocurrencies in estate planning is the ease of transference—if all parties know how crypto works. Unlike a traditional bank, which typically requires executors to produce an original death certificate and other documents to take control of accounts in the estate, cryptocurrency only requires the fiduciary to have passcodes to gain access to accounts.

The passcode is a complex, multicharacter code appearing to be a long string of unrelated numbers and letters. It is stored in a digital wallet, which can only be accessed through the use of the 64-digit passcode, also known as a key.

While the passcode is simple, it is also very vulnerable. If the key is lost, there is no way to retrieve it. The executor must know not just where the key is physically located if it has been written down on paper, or if it is kept in a digital wallet, but how to access the digital wallet. There are also different kinds of digital wallets.

People do not usually share their passwords with others. However, in the case of crypto, consider storing it in a safe but accessible location and telling a trusted person where it may be found.

People who own cryptocurrency need to give someone access info. If someone is named an executor at one point in your life and they have the information about digital assets, then at some point you change the executor, there is no way to guarantee the former executor might not access the account.

How do you protect digital assets? Using “cold storage,” an account passcode is stored and concealed on a USB drive or similar device, allowing the information to be shared without the user needing to learn the passcode to access the account. The cold storage USB drive can be given from one fiduciary to the successor fiduciary without either knowing the passcode.

Many bills have been introduced in Congress addressing cryptocurrency and blockchain policies. The IRS has issued a number of notices and publications regarding taxes on digital currency transactions. Crypto is no longer an “invisible” asset.

In addition to policies and regulations, litigation concerning estates and cryptocurrency is still relatively new to the judiciary. Planning for these assets to ensure they are passed to the next generation securely is very important as their use and value continues to grow.

Reference: Roll Call (Feb. 22, 2022) “Estate planners want to keep the crypt out of cryptocurrency”

Does the Executor Control Bank Accounts?

Executors administering probate assets usually have to deal with several different financial institutions. If good planning has been done by the decedent, the executor has a list of assets, account numbers, website addresses and phone numbers. Otherwise, the personal representative or successor trustee starts by gathering information and identifying the accounts, as described in a recent article “Dealing with the back offices of banks and brokerages” from Lake Country News.

The accounts must be identified, retitled to become part of the estate, or liquidated and moved into the estate account.

If the decedent had a financial advisor who handled all of their investments, the process may be easier, since there will only be one person to deal with.

If there is no financial advisor who can or will personally manage the assets, the executor starts by contacting the back office department of the institution, often referred to as the “estates department.” The contact info can usually be found on the institutions’ website or on the paper statements, if there are any.

Expect to spend a lot of time on hold, especially in the beginning of the week. It may be better to call on a Wednesday or Thursday.

The first call is to introduce the executor, advise of the death of the decedent and learn about the company’s procedures for transferring, retitling, or otherwise gaining control of the account. The bank usually assigns a case number, to be used on all future communications.

If possible, obtain their name, direct dial, and direct email of whoever you speak with. It may only be with one assigned representative, or a different person every time. It depends upon the organization. Take careful notes on every interaction. You may need them.

Some of the documents needed to complete these transactions include an original death certificate, a court certified letter of administration or trustee’s certification of trust and a letter of authorization signed by the client to allow the institution to communicate with the executor or successor trustee.

Financial institutions will often only accept their own forms, which then need to be prepared for completion and signature. Expect to be asked to notarize some documents. In many cases, the institution will require a new account be opened and the assets transferred to the new account.

Be organized—you may find yourself needing to submit the documents multiple times, depending on the financial institution. If hard copy documents are sent, use registered or express mail requiring a signature on delivery. If documents are sent by email, they should only be sent via an encrypted portal to protect both estate and executor.

This is not a quick process and requires diligent follow up, with multiple emails and phone calls. If the value of the estate is large and the assets are complex, it may be better to have the estate planning attorney handle the process.

Reference: Lake Country News (Jan. 15, 2022) “Dealing with the back offices of banks and brokerages”

What Power Does an Executor Have?

Being asked to serve as an executor is a big compliment with potential pitfalls, advises the recent article “How to Prepare to Be an Executor of an Estate” from U.S. News & World Report. You are being asked because you are considered trustworthy and able to handle complex tasks. That’s flattering, of course, but there’s a lot to know before making a final decision about taking on the job.

An executor of an estate helps file paperwork, close accounts, distribute assets of the deceased, deal with probate and any court filings and navigate family dynamics. Some of the tasks include:

  • Locating critical documents, like the will, any trusts, deeds, vehicle titles, etc.
  • Obtaining death certificates.
  • Overseeing funeral arrangements and memorial services, if any.
  • Filing the will in probate court.
  • Creating an estate bank account, after obtaining an estate tax number (EIN).
  • Notifying organizations, including Social Security, pension accounts, etc.
  • Paying creditors.
  • Distributing assets.
  • Overseeing the sale or transfer of real estate
  • Filing estate tax returns and final tax returns.

If you are asked to become the executor of an estate for a loved one, it’s a good idea to gather as much information as possible while the person is still living. It will be far easier to tackle the tasks, if you have been set up to succeed. Find out where their estate planning documents are and read the documents to make sure you understand them. If you don’t understand, ask, and keep asking until you do. Similarly, obtain information about all assets, including joint assets. Find out if there are any family members who may pose a challenge to the estate.

Today’s assets include digital assets. Ask for a complete list of the person’s online accounts, usernames and passwords. You will also need access to their devices: desktop computer, laptop, tablet, phone and smart watch. Discuss what they want to happen to each account and see if there is an option for you to become a co-owner of the account or a legacy contact.

Many opt to have an estate planning attorney manage some or all of these tasks, as they can be very overwhelming. Frankly, it’s hard to administer an estate at the same time you’re grieving the loss of a loved one.

As executor, you are a fiduciary, meaning you’re legally required to put the deceased’s interests above your own. This includes managing the estate’s assets. If the person owned a home, you would need to secure the property, pay the mortgage and/or property taxes and maintain the property until it is sold or transferred to an heir. Financial accounts need to be managed, including investment accounts.

The amount of time this process will take, depends on the complexity and size of the estate. Most estates take at least twelve months to complete all of the administrative work. It is a big commitment and can feel like a second job.

A few things vary by state. Convicted felons are never permitted to serve as executors, regardless of what the will says. A sole executor must be a U.S. citizen, although a non-citizen can be a co-executor, if the other co-executor is a citizen. Rules also vary from state to state regarding being paid for your time. Most states permit a percentage of the size of the estate, which must be considered earned income and reported on tax returns.

Be very thorough and careful in documenting every decision made as the executor to protect yourself from any future challenges. This is one job where trying to do it on your own could have long-term effects on your relationship with the family and financial liability, so take it seriously. If it’s too much, an estate planning attorney can help.

Reference: U.S. News & World Report (Dec. 22, 2021) “How to Prepare to Be an Executor of an Estate” 

What are the Responsibilities of a Trustee?

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”

What Does a Successor Trustee Do?

This is a common concern of people when they learn they have been named as a successor trustee, says nwi.com in the article “Estate Planning: The role of a successor trustee.” The first thing to do? Verify that you are a successor trustee and what authority and powers you have. If the settler is disabled, rather than deceased, you’ll need to be sure that you have complied with any requirements to take the position.

The trust that names you as a successor trustee is likely where you will find details of what you must obtain to assume the authority. For example, you may need to have a letter from a physician stating that the settler is incapacitated and can no longer manage his own affairs.

If the settlor is deceased, establishing your authority as successor trustee is easier. Usually, all you’ll need is a death certificate.

Once this has been established, you’ll need to be able to prove that you have this role. Usually this is done through the use of an Affidavit of Trust and Acceptance and Oath. An estate planning attorney will be able to help you with these documents. Some affidavits affirm until the “pain and penalty of perjury that the affiant is the successor trustee” and that you are accepting the designation and agree to serve under the terms of the trust and the laws of your state.

Different estate planning attorneys may approach this differently. Some may use a “certificate of trust,” while others will simply rely on the trust agreement. The important thing is that the successor trustee’s authority is demonstrable.

Once the successor trustee has established that he is appointed properly, he can start administering the trust.

What about selling the family home? Real estate transfers are handled through the local government. To sell a home, you’ll need to transfer the deed, so you will need the deed to the home.

When a successor trustee transfers real estate, a copy of the affidavit of his appointment as the successor trustee and relevant documents could be recorded with the transfer documents. The transfer needs to be approved by a title examiner, and the examiner will want proof that the person in charge of the transaction has the legal authority to do so.

Other assets are transferred in a similar fashion. The asset holder is contacted, a copy of the affidavit and proof of designation as a successor trustee will be needed.

Some estate planning attorneys will add a letter of instruction to the successor trustee providing them with helpful information and tips about estate administration.

Reference: nwi.com (Jan. 12, 2020) “Estate Planning: The role of a successor trustee”