What Happens to Digital Assets After Death?

What is a digital asset? This is the question asked in a recent article “Estate Planning for Digital Assets” from Westchester & Fairfield County Business Journals. Any type of electronic data you have the right to access is considered a digital asset, although they come in a variety of forms.

A digital asset now includes email accounts, social media, online banking, online subscriptions, e-commerce, photo stream, cell phone apps, gaming accounts and everything having to do with cryptocurrency. Don’t leave out airline miles or other loyalty program points.

When so much of our lives is online, we need to address estate planning for this new class of assets.

They are as important, and some might argue, even more important than traditional assets. They may have financial or sentimental value. If neglected, they are an easy entryway for hackers prying into financial accounts.

Consider your family photos. Most of us have these stored on the cloud, hoping they never disappear. However, when they do, they can be gone forever. The same could easily happen for accounts of gamers who are spending traditional money on games and building up online assets with monetary value.

Can you protect and organize digital assets?

Yes, absolutely. Start with a list of all digital accounts including URLs, usernames and passwords. You should also note whether access requires third-party authentication—a verification code from a phone number or an email address to log in.

Create some kind of list, whether on a spreadsheet (encrypted for security), using an online password manager or a digital asset app. Paper also works, as long as it’s kept in a secure location.

How do digital assets get incorporated into my estate plan?

In most states, your executor can be given the right to access online accounts through your will, or you can include digital asset access in a Power of Attorney. However, it’s not that simple. Certain digital platforms only allow the original user access, even with passwords and authentication codes. Each has a Terms of Service Agreement to protect your privacy and the platform.

Some platforms offer the ability to name a legacy contact who can gain access to your account and either delete it or memorialize it after you die. However, not all do. You’ll need to go through all of your digital accounts to determine which ones permit a legacy contact and the limitations given to the legacy contact.

To support any litigation arising from a platform refusing to allow access, leave specific instructions in for your executor or agent instructing them as to what you want done with your digital assets. This directive may give your executor or agent the support they need to go up against big data. Your estate planning attorney will know the laws in your state and help create a plan.

Reference: Westchester & Fairfield County Business Journals (July 18, 2022) “Estate Planning for Digital Assets”

Who Should Be Your Executor?

While the executor is usually a spouse or close family member, you can name anyone you wish to be your executor. A bank, estate planning attorney, or professional trustee at a trust company may also serve as the executor, according to a recent article from Twin Cities-Pioneer Press titled “Your Money: What you need to know about naming an executor.”

Regardless of who you select, the person has a legal duty to be honest, impartial, financially responsible and to put your interests ahead of their own. This person and one or two backup candidates should be named in your will, just in case the primary executor declines or is unable to serve.

How does someone become an executor? When your will is entered into probate, the court checks to be sure the person you name meets all of your state’s legal requirements. Once the court approves (and usually the court does), then their role is official and you executor can get to work.

The executor has many responsibilities. You can help your executor do a better job by making sure that financial and personal business documents are organized and readily available. Here are some, but not all, of the executor’s tasks:

  • Making an inventory of all assets and liabilities
  • Giving notice to creditors: credit card companies, banks, mortgage companies, etc.
  • Filing a final personal tax return and filing the estate tax return
  • Paying any debts and taxes
  • Distributing assets according to the directions in the will and in compliance with state law
  • Preparing and submitting a detailed report to the court of how the estate was settled

If there is no will, or if no executor is named in the will, or if the executor can’t serve, the court will appoint a professional administrator to settle your estate. It won’t be someone you know. Your family may not like all of the decisions made on your behalf, but there won’t be any options available.

Does an executor get paid? A family member may or may not wish to be paid. However, given how much time it takes to settle an estate, you might feel it’s fair for them to be compensated. The amount varies depending on where you live, but you can leave the person between 1% to 8% of your total estate. A professional administrator will likely cost considerably more.

How do you document your estate to help out the executor? If you think this task is too onerous, imagine how a family member will feel if they have to conduct a scavenger hunt to identify assets and debts. If a professional administrator ends up doing this work, it will take a bigger bite out of your estate and leave loved ones with a smaller inheritance.

Start by making a list of all of your assets and liabilities, plus a list of all advisors who help with the business side of your life. Recent tax returns will be helpful, as will contact information for your estate planning attorney, CPA and financial advisor. You should include retirement accounts, life insurance policies and any assets without beneficiary designations.

Reference: Twin Cities-Pioneer Press (June 25, 2022) “Your Money: What you need to know about naming an executor”

Do You Want to Be an Executor?

Taking on the role of executor should be considered carefully before accepting or refusing. These decisions are usually made based on relationships and willingness to help the family after a loved one has died. Knowing certain processes are in place and many are standard procedures may make the decision easier, according to the useful article “Planning Ahead: Should you agree to serve as an executor?” from Daily Local News.

A family member or friend is very often asked to serve as executor when the surviving spouse is the only or primary beneficiary and not able to manage the necessary tasks. In other instances, estates are complex, involving multiple beneficiaries, charities and real estate in several states. The size of the estate is actually less of a factor when it comes to complexity. Small estates with debt can be more challenging than well-planned large estates, where planning has been done and there are abundant resources to address any problems.

Prepare while the person is alive. This is the time to learn as much as you can. Ask to get a copy of the will and read it. Who are the beneficiaries? Speak with the person about the relationships between beneficiaries and other family members. Do they get along, and if not, why? Be prepared for conflict.

Find out what the person wants for their funeral. Do they want a traditional memorial service, and have they paid for the funeral already? Any information they can provide will make this difficult time a little easier.

What are your responsibilities as executor? Depending on how the will is prepared, you may be responsible for everything, or your responsibilities may be limited. At the very least, the executor is responsible for:

  • Locating and preparing an inventory of assets
  • Getting a tax ID number and establishing an estate account
  • Paying final bills, including funeral and related bills
  • Notifying beneficiaries
  • Preparing tax returns, including estate and/or inheritance tax returns
  • Distributing assets and submitting a final accounting

If the person has an estate planning attorney, financial advisor and CPA, meeting with them while the person is alive and learning what you can about the plans for assets will be helpful. These three professional advisors will be able to provide help as you move forward with the estate.

These tasks may sound daunting but being asked to serve as a person’s executor demonstrates the complete trust they have in your abilities and judgment. Yes, you will breathe a sigh of relief when you complete the task. However, you’ll also have the satisfaction of knowing you did a great service to someone who matters to you.

Reference: Daily Local News (June19, 2022) “Planning Ahead: Should you agree to serve as an executor?”

Senior Second Marriages and Estate Planning

For seniors enjoying the romance and vitality of an unexpected late-in-life engagement, congratulations! Love is a wonderful thing, at any age. However, anyone remarrying for the second, or even third time, needs to address their estate planning as well as financial plans for the future. Pre-wedding planning can make a huge difference later in life, advises a recent article from Seniors Matter titled “Your senior parent is getting remarried—just don’t ignore key areas.”

A careful review of your will, powers of attorney, healthcare proxy, living will and any other advance directives should be made. If you have new dependents, your estate planning attorney will help you figure out how your children from a prior marriage can be protected, while caring for new members of the family. Failing to adjust your estate plan could easily result in disinheriting your own offspring.

Deciding how to address finances is best done before you say, “I do.” If one partner has more assets than the other, or if one has more debts, there will be many issues to resolve. Will the partner with more assets want to help resolve the debts, or should the debts be cleared up before the wedding? How will bills be paid? If both partners own homes, where will the newlyweds live?

Do you need a prenuptial agreement? This document is especially important when there are significant assets owned by one or both partners. One function of a prenup is to prevent one partner from challenging the other person’s will and trusts. There are a number of trusts designed to protect loved ones including the new spouse, among them the Qualified Terminable Interest Property Trust, known as a QTIP. This trust provides support for the new spouse. When the spouse dies, the entire trust is transferred to the persons named in the trust, usually children from a first marriage.

Most estate planning attorneys recommend two separate wills for people who wed later in life. This makes distribution of assets easier. Don’t neglect updating Powers of Attorney and any health care documents.

Before walking down the aisle, make an inventory, if you don’t already have one, of all accounts with designated beneficiaries. This should include life insurance policies, pensions, IRAs, 401(k)s, investment accounts and any other property with a beneficiary designation. Make sure that the accounts reflect your current circumstances.

Sooner or later, one or both spouses may need long-term care. Do either of you have long-term care insurance? If one of you needed to go into a nursing home or have skilled care at home, how would you pay for it? An estate planning attorney can help you create a plan for the future, which is necessary regardless of how healthy you may be right now.

Once you are married, Social Security needs to be updated with your new marital status and any name change. If a parent marries after full retirement age and their new spouse’s benefit is higher than their own, they may be able to increase their benefits to 50% of the new spouse’s benefits. If they were receiving divorced spousal benefits, those will end. The same goes for survivor benefits, if the person marries before age 60. If they’re disabled, they may still receive those benefits after age 60.

Setting up an appointment with an estate planning attorney a few months before a senior wedding is a good idea for all concerned. It provides an opportunity to review important legal and financial matters, while giving both spouses time to focus on the “business” side of love.

Reference: Seniors Matter (April 29, 2022) “Your senior parent is getting remarried—just don’t ignore key areas”

Can Grandchildren Receive Inheritances?

Wanting to take care of the youngest and most vulnerable members of our families is a loving gesture from grandparents. However, minor children are not legally allowed to own property.  With the right strategies and tools, your estate plan can include grandchildren, says a recent article titled “Elder Care: How to provide for your youngest heirs” from the Longview News-Journal.

If a beneficiary designation on a will, insurance policy or other account lists the name of a minor child, your estate will take longer to settle. A person will need to be named as a guardian of the estate of the minor child, which takes time. The guardian may not be the child’s parent.

The parent of a minor child may not invest and grow any funds, which in some states are required to be deposited in a federally insured account. Periodic reports must be submitted to the court, and audits will need to be done annually. Guardianship requires extensive reporting and any monies spent must be accounted for.

When the child becomes of legal age, usually 18, the entire amount is then distributed to the child. Few children are mature enough at age 18, even though they think they are, to manage large sums of money. Neither the guardian nor the parent nor the court has any say in what happens to the funds after they are transferred to the child.

There are many other ways to transfer assets to a minor child to provide more control over how the money is managed and how and when it is distributed.

One option is to leave it to the child’s parent. This takes out the issue of court involvement but may has a few drawbacks: the parent has full control of the asset, with no obligation for it to be set aside for the child’s needs. If the parents divorce or have debt, the money is not protected.

Many states have Uniform Transfers to Minors Accounts. In Pennsylvania, it is PUTMA, in New York, UTMA and in California, CUTMA. Gifts placed in these accounts are held in custodianship until the child reaches 18 (or 21, depending on state law) and the custodian has a duty to manage the property prudently. Some states have limits on the amount in the accounts, and if the designated custodian passes away before the child reaches legal age, court proceedings may be necessary to name a new custodian. A creditor could file a petition with the court if there is a debt.

For most people, a trust is the best option for placing funds aside for a minor child. The trust can be established during the grandparent’s lifetime or through a testamentary trust after probate of their will is complete. The trust contains directions as to how the money is to be spent: higher education, summer camp, etc. A trustee is named to manage the trust, which may or may not be a parent. If a parent is named trustee, it is important to ensure that they follow the directions of the trust and do not use the property as if it were their own.

A trust allows the assets to be restricted until a child reaches an age of maturity, setting up distributions for a portion of the account at staggered ages, or maintaining the trust with limited distributions throughout their lives. A trust is better to protect the assets from creditors, more so than any other method.

A trust for a grandchild can be designed to anticipate the possibility of the child becoming disabled, in which case government benefits would be at risk in the event of a lump sum payment.

There are many options for leaving money to a minor, depending upon the family’s circumstances. In all cases, a conversation with an experienced estate planning attorney will help to ensure any type of gift is protected and works with the rest of the estate plan.

Reference: Longview News-Journal (Feb. 25, 2022) “Elder Care: How to provide for your youngest heirs”

What Does Estate Plan Include?

The will, formally known as a last will and testament, is just one part of a complete estate plan, explains the article “Essential components of an estate plan” from Vail Daily. Consider it a starting point. A will can be very straight-forward and simple. However, it needs to address your unique situation and meet the legal requirements of your state.

If your family includes grown children and your goal is to leave everything to your spouse, but then make sure your spouse then leaves everything to the children, you need to make sure your will accomplishes this. However, what will happen if one of your children dies before you? Do you want their share to go to their children, your grandchildren? If the grandchildren are minors, someone will need to manage the money for them. Perhaps you want the balance of the inheritance to be distributed among the adult children. What if your surviving spouse remarries and then dies before the new spouse? How will your children’s inheritance be protected?

Many of these questions are resolved through the use of trusts, another important part of a complete estate plan. There are as many different types of trusts as there are situations addressed by trusts. They can be used to minimize tax liability, control how assets are passed from one generation to the next and protect the family from creditor claims.

How a trust should be structured, whether it is revocable, meaning it can be easily changed, or irrevocable, meaning it is harder to change, is best evaluated by an experienced estate planning attorney. No matter how complicated your situation is, they will have seen the situation before and are prepared to help.

A memorandum of disposition of personal property gives heirs insight into your wishes, by outlining what you want to happen to your personal effects. Let’s say your will leaves all of your assets to be divided equally between your children. However, you own a classic car and have a beloved nephew who loves the car as much as you do. By creating a memorandum of disposition, you can make sure your nephew gets the car, taking it out of the general provisions of the will. Be mindful of state law, however.

Note that some states do not allow the use of a memorandum of disposition, let alone permit such “titled” assets to be transferred by such an informal memorandum. Consequently, you must clarify how this situation will be handled in your state of residence with your estate planning attorney.

You will also need a Power of Attorney, giving another person the right to act on your behalf if you should become incapacitated. This is often a spouse, but it can also be another trusted individual with sound judgment who is good with handling responsibilities. Make sure to name a back-up person, just in case your primary POA cannot or will not serve.

A Medical Power of Attorney gives a named individual the ability to act on your behalf regarding medical decisions if you are incapacitated. Make sure to have a back-up, just to be sure. Failing to name a back- up for either POA will leave your family in a position where they cannot act on your behalf and may have to go to court to obtain a court-appointed guardianship in order to care for you. This is an expensive, time-consuming and stressful process, making a bad situation worse.

A Living Will is a declaration of your preference for end-of-life care. What steps do you want to be taken, or not taken, if you are medically determined to have an injury or illness from which you will not recover? This is the document used to state your wishes about a ventilator, the use of a feeding tube, etc. This is a hard thing to contemplate, but stating your wishes will be better than family members arguing about what you “would have wanted.”

Reference: Vail Daily (Feb. 15, 2022) “Essential components of an estate plan”

What Should Not Be Included in Trust?

Whether you have a will or not, assets may go through the probate process when you die. People use trusts to take assets out of their probate estate, but they don’t always understand the relationship between wills and trusts. This is explored in a recent article “What Assets Should be Included in Your Trust?” from Kiplinger.

Probate can be a long and expensive process for heirs, taking from a few months to a few years, depending on the size and complexity of the estate. Many people ask their estate planning attorney about using trusts to protect and preserve assets, while minimizing the amount of assets going through probate.

Revocable trusts are used to pass assets directly to beneficiaries, under the directions you determine as the “grantor,” or person making the trust. You can set certain parameters for assets to be distributed, like achieving goals or milestones. A trust provides privacy: the trust documents do not become part of the public record, as wills do, so the information about assets in the trust is known only to the trustees. If you become incapacitated, the trust is already in place, protecting assets and fulfilling your wishes.

Estate planning attorneys know there’s no way to completely avoid probate. Some assets cannot go into trusts. However, removing as many assets as possible (i.e., permitted by law) can minimize probate.

Once trust documents are signed and the trusts are created, the work of moving assets begins. If this is overlooked, the assets remain in the probate estate and the trust is useless. Assets are transferred to the trust by retitling or renaming the trust as the owner.

Assets placed in a trust include real estate, investment accounts, life insurance, annuity certificates, business interests, shareholders stock from privately owned businesses, money market accounts and safe deposit boxes.

Funding the trust with accounts held by financial institutions is a time-consuming process. However, it is necessary for the estate plan to achieve its goals. It often requires new account paperwork and signed authorizations to retitle or transfer the assets. Bond and stock certificates require a change of ownership, done through a stock transfer agent or bond issuer.

Annuities already have preferential tax treatment, so placing them in a trust may not be necessary. Read the fine print, since it’s possible that placing an annuity in a trust may void tax benefits.

Certificates of Deposit (CDs) are usually transferred to a trust by opening a new CD but be mindful of any early termination penalties.

Life insurance is protected if it is placed in a trust. However, there are risks to naming the living trust as a beneficiary of the insurance policy. If you are the trustee of your revocable trust, all assets in the trust are considered to be your property. Life insurance proceeds are included in the estate’s worth and could create a taxable situation, if you reach the IRS threshold. Speak with your estate planning attorney to determine the best strategy for your trust and your insurance policy.

Should you put a business into a trust? Transferring a small business during probate presents many challenges, including having your executor run the business under court supervision. For a sole proprietor, transfers to a trust behave the same as transferring any other personal asset. With partnerships, shares may be transferred to a living trust. However, if you hold an ownership certificate, it will need to be modified to show the trust as the shareowner instead of yourself.  Some partnership agreements also prohibit transferring assets to living trusts.

Retirement accounts may not be placed in a trust. Doing so would require a withdrawal, which would trigger income taxes and possibly, extreme penalties. It is better to name the trust as a primary or secondary beneficiary of the account. Funds will transfer upon your death. Health or medical savings accounts cannot be transferred to a living trust, but they can be named as a primary or secondary beneficiary.

Careful consideration needs to be made when determining which assets to place within a trust and which should remain as part of your probate estate. Your estate planning attorney will know what is permitted in your state and what best suits your situation.

Reference: Kiplinger (Jan. 16, 2022) “What Assets Should be Included in Your Trust?”

What Is Elder Law?

WAGM’s recent article entitled “A Closer Look at Elder Law“ takes a look at what goes into estate planning and elder law.

Wills and estate planning may not be the most exciting things to talk about. However, in this day and age, they can be one of the most vital tools to ensure your wishes are carried out after you’re gone.

People often don’t know what they should do, or what direction they should take.

The earlier you get going and consider your senior years, the better off you’re going to be. For many, it seems to be around 55 when it comes to starting to think about long term care issues.

However, you can start your homework long before that.

Elder law attorneys focus their practice on issues that concern older people. However, it’s not exclusively for older people, since these lawyers counsel other family members of the elderly about their concerns.

A big concern for many families is how do I get started and how much planning do I have to do ahead of time?

If you’re talking about an estate plan, what’s stored just in your head is usually enough preparation to get the ball rolling and speak with an experienced estate planning or elder law attorney.

They can create an estate plan that may consists of a basic will, a financial power of attorney, a medical power of attorney and a living will.

For long term care planning, people will frequently wait too long to start their preparations, and they’re faced with a crisis. That can entail finding care for a loved one immediately, either at home or in a facility, such as an assisted living home or nursing home. Waiting until a crisis also makes it harder to find specific information about financial holdings.

Some people also have concerns about the estate or death taxes with which their families may be saddled with after they pass away. For the most part, that’s not an issue because the federal estate tax only applies if your estate is worth more than $12.06 million in 2022. However, you should know that a number of states have their own estate tax. This includes Connecticut, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington, plus Washington, D.C.

Iowa, Kentucky, Nebraska, New Jersey, and Pennsylvania have only an inheritance tax, which is a tax on what you receive as the beneficiary of an estate. Maryland has both.

Therefore, the first thing to do is to recognize that we have two stages. The first is where we may need care during life, and the second is to distribute our assets after death. Make certain that you have both in place.

Reference: WAGM (Dec. 8, 2021) “A Closer Look at Elder Law“

Can You Refuse an Inheritance?

No one can be forced to accept an inheritance they don’t want. However, what happens to the inheritance after they reject, or “disclaim” the inheritance depends on a number of things, says the recent article “Estate Planning: Disclaimers” from NWI Times.

A disclaimer is a legal document used to disclaim the property. To be valid, the disclaimer must be irrevocable, in writing and executed within nine months of the death of the decedent. You can’t have accepted any of the assets or received any of the benefits of the assets and then change your mind later on.

Once you accept an inheritance, it’s yours. If you know you intend to disclaim the inheritance, have an estate planning attorney create the disclaimer to protect yourself.

If the disclaimer is valid and properly prepared, you simply won’t receive the inheritance. It may or may not go to the decedent’s children.

After a valid qualified disclaimer has been executed and submitted, you as the “disclaimor” are treated as if you died before the decedent. Whoever receives the inheritance instead depends upon what the last will or trust provides, or the intestate laws of the state where the decedent lived.

In most cases, the last will or trust has instructions in the case of an heir disclaiming. It may have been written to give the disclaimed property to the children of the disclaimor, or go to someone else or be given to a charity. It all depends on how the will or trust was prepared.

Once you disclaim an inheritance, it’s permanent and you can’t ask for it to be given to you. If you fail to execute the disclaimer after the nine-month period, the disclaimer is considered invalid. The disclaimed property might then be treated as a gift, not an inheritance, which could have an impact on your tax liability.

If you execute a non-qualified disclaimer relating to a $100,000 inheritance and it ends up going to your offspring, you may have inadvertently given them a gift according to the IRS. You’ll then need to know who needs to report the gift and what, if any, taxes are due on the gift.

Persons with Special Needs who receive means-tested government benefits should never accept an inheritance, since they can lose eligibility for benefits.

A Special Needs Trust might be able to receive an inheritance, but there are limitations regarding how much can be accepted. An estate planning attorney will need to be consulted to ensure that the person with Special Needs will not have their benefits jeopardized by an inheritance.

The high level of federal exemption for estates has led to fewer disclaimers than in the past, but in a few short years—January 1, 2026—the exemption will drop down to a much lower level, and it’s likely inheritance disclaimers will return.

Reference: NWI Times (Nov. 14, 2021) “Estate Planning: Disclaimers”

Is It Better Not to Have a Will?

When a person dies, estate and probate law govern how assets are distributed. If the person who has died has a properly prepared will, they have set up a “testate inheritance.” Their last will and testament will guide the distribution of their assets. If they die without a legitimate will, they have an “intestate estate,” as explained in a recent article titled “Testate vs. Intestate: Estate Planning” from Yahoo! Finance.

In an “intestate estate,” assets are distributed according to the laws of inheritance in the specific legal jurisdiction. The decedent’s wishes, or the wishes of their spouse or children, are not considered. The law is the sole determining power. You have no control over what happens to your assets.

Having a will prepared by an experienced estate planning attorney who is familiar with the law and your family’s situation is the best solution. The will must follow certain guidelines, including how many witnesses must be present for it to be executed property. A probate court reviews the will to ensure that it was prepared properly and if there are any doubts, the will can be deemed invalid.

Having a will drafted by an attorney makes it more likely to be deemed valid and enforced by the probate court. It also minimizes the likelihood of illegal or unenforceable provisions in the will.

Debts become problematic. If you owned a home and had unpaid property taxes or a mortgage and gave the house to someone in your will, they must pay the property taxes and either take over the mortgage or get a new mortgage and pay off the prior mortgage before taking ownership of the property. Otherwise, the executor may sell the home, pay the debts and give any remaining money to the heir.

Liabilities reduce inheritances. If someone has a $50,000 debt and very kindly left you $100,000, you’ll only receive $50,000 because the debt must be satisfied before assets are distributed. If the debt is higher than the value of the estate, heirs receive nothing.

Note that a person may use their will to distribute debts in any way they wish. Family members erroneously believe they are “entitled” by their blood relationship to receive an inheritance. This is not true. Anything you own is yours to give in any manner you wish—if you have a will prepared.

Another common problem: estates having fewer assets than expected. Let’s say someone gives a donation of $500,000 to a local charity, but their entire estate is only worth $100,000. In that case, the $100,000 is distributed in a pro-rata basis according to the terms of the will. The generous gift will not be so generous.

If there is no will, the probate code governs distribution of assets, usually based on kinship. Close relatives inherit before distant relatives. The order is typically (but not always, local laws vary) the spouse, children, parents of the decedent, siblings of the decedent, grandparents of the decedent, then nieces, nephews, aunts, uncles and first cousins.

Another reason to have a will: estranged or unidentified heirs. Settling an estate includes notifying all and any potential heirs of a death and they may have legal rights to an inheritance even if they have never met the decedent. Lacking a will, an estate is more vulnerable to challenges from relatives. Relying on state probate law to distribute assets is hurtful to those you love, since it creates a world of trouble for them.

Reference: Yahoo! Finance (Sep. 22, 2021) “Testate vs. Intestate: Estate Planning”