What Assets are in an Estate?

January 24, 2022

Estate planning attorneys are often asked what assets are included in an estate, from life insurance and real estate to employment contracts and Health Savings Accounts. The answer is explored in the aptly-titled article, “Will It (My Home, My Life Insurance, Etc.) Be in My Estate?” from Kiplinger.

When you die, your estate is defined in different ways for different planning purposes. You have a gross estate for federal estate taxes. However, there’s also the probate estate. You may also be thinking of whether an asset is part of your estate to be passed onto heirs. It depends on which part of your estate you’re focusing on.

Let’s start with life insurance. You’ve purchased a policy for $500,000, with your son as the designated beneficiary. If you own the policy, the entire $500,000 death benefit will be included in your gross estate for federal estate tax purposes. If your estate is big enough ($12.06 million in 2022), the entire death benefit above the exemption is subject to a 40% federal estate tax.

However, if you want to know if the policy will be included in your probate estate, the answer is no. Proceeds from life insurance policies are not subject to probate, since the death benefit passes by contract directly to the beneficiaries.

Next, is the policy an estate asset available for heirs, creditors, taxing authorities, etc.? The answer is a little less clear. Since your son was named the designated beneficiary, your estate can’t use the proceeds to fulfill bequests made to others through your will. Even if you disowned your son since naming him on the policy and changed your will to pass your estate to other children, the life insurance policy is a contract. Therefore, the money is going to your son, unless you change this while you are still living.

However, there’s a little wrinkle here. Can the proceeds of the life insurance policy be diverted to pay creditors, taxes, or other estate obligations? Here the answer is, it depends. An example is if your son receives the money from the insurance company but your will directs that his share of the probate estate be reduced to reflect his share of costs associated with probate. If the estate doesn’t have enough assets to cover the cost of probate, he may need to tap the proceeds to pay his share.

Another aspect of figuring out what’s included in your estate depends upon where you live. In community property states—Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin—assets are treated differently for estate tax purposes than in states with what’s known as “common law” for married couples. Also, in most states, real estate owned on a fee simple basis is simply transferred on death through the probate estate, while in other states, an alternative exists where a Transfer on Death (TOD) deed is used.

This legal jargon may be confusing, but it’s important to know, because if property is in your probate estate, expenses may vary from 2% to 6%, versus assets outside of probate, which have no expenses.

Speak with an experienced estate planning attorney in your state of residence to know what assets are included in your federal estate, what are part of your probate estate and what taxes will be levied on your estate from the state or federal governments and don’t forget, some states have inheritance taxes your heirs will need to pay. If you would like to read more about placing assets in an estate plan, please visit our previous posts.

Reference: Kiplinger (Dec. 13, 2021) “Will It (My Home, My Life Insurance, Etc.) Be in My Estate?”

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Estate Planning Documents Everyone Needs

January 18, 2022

This is the time of year when people start thinking about getting piles or files of paperwork in order in preparing for a new year and for taxes. There are certain estate planning documents everyone needs. A recent article “How to Prepare, Organize and Store Estate-Planning Documents” from The Street gives useful tips on how to do this.

First, the most important documents:

Estate Planning documents, including your Will, Power of Attorney (POA), Healthcare Proxy, Living Will (often called an Advance Care Directive). The will is for asset distribution after death, but other documents are needed to protect you while you’re alive.

The POA is used to name someone to act on your behalf, if you cannot. A POA can be created to be specific, for example, to have someone else pay your bills, or it can be general, letting someone do everything from paying bills to managing the sale of your home. Be cautious about using standard POA documents, since they don’t reflect every situation.

A Healthcare Proxy empowers someone you trust to make medical decisions on your behalf. The Living Will or Advance Care Directive outlines the type of care you do (or don’t) want when at the end of your life. This alleviates a terrible burden on your loved ones, who may not otherwise know what you would have wanted.

Add a Digital POA so someone will be able to access and manage your online accounts (subject to the terms and conditions of each digital platform).

Your Last Will and Testament conveys how you want your estate—that is, everything you own that does not have a surviving joint owner or a designated beneficiary—to be distributed after death. Your will is also used to name a guardian for minor children. It is also used to name an executor, the person who will be in charge of carrying out the instructions in the will.

A list of all of your assets, including bank accounts, retirement accounts, investments, savings and checking accounts, will make it easier for your executor to identify and distribute assets. Don’t forget to check to see which accounts allow you to name a beneficiary and make sure those names are correct.

Both wills and trusts are used to convey assets to beneficiaries, but unlike a will, “funded” trusts don’t go through the probate process. An experienced estate planning attorney can create a trust to distribute almost any kind of property and follow your specific directions. Do you want your children to gain access to the trust after they have reached a certain age? Or when they have married and had children of their own? A trust allows for greater control of your assets.

Finally, talk with your family members about your estate plan, your wishes for end-of-life medical care and what you want to happen after you die. Write a letter of intent if it’s too hard to have a face-to-face conversation about these topics, but find a way to let them know. The documents listed above are the bare minimum estate planning documents everyone needs to acquire. Your estate planning attorney has worked with many families and will be able to provide you with suggestions and guidance. If you would like to learn more about estate planning, please visit our previous posts.

Reference: The Street (Dec. 20, 2021) “How to Prepare, Organize and Store Estate-Planning Documents”

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Avoid Password Problems in Estate Planning

January 11, 2022

Barron’s recent article entitled “How to Ensure Heirs Avoid a Password-Protected Nightmare” explains that even financial planners may not consider until too late, how difficult it can be to recover and access a loved one’s accounts after they pass away. Since we are much more paperless with our finances, getting access to these accounts can be extremely hard for heirs, if they don’t have the right information. That’s because digital accounts are protected by encryption, multifactor authentication and federal data privacy laws. There are ways to avoid password problems in your estate planning.

Create a list of digital accounts and instructions on how to access them. The list should include not only financial assets but social media and other accounts. Digital accounts that loved ones or advisors may need to access following a death include:

Traditional financial accounts
Cryptocurrency accounts
Home payment and utilities accounts
Health insurance benefits
Email accounts
Social media
Smartphone accounts
Storage and file-sharing
Photo, music and video accounts
E-commerce accounts
Subscriptions to streaming services, such as Netflix, newspapers, music services; and
Loyalty/rewards programs for airlines and hotels.

Create a list of accounts, passwords and access information, keeping it up to date as information changes and letting a trusted person, such as an executor or estate planning attorney, know its location. Without a password list, it can be a nightmare.

Note that with every digital account, there’s a specific process that heirs must undertake to gain access, which should then be communicated clearly in your estate plan. Make a list of all digital assets and their access information, but don’t include this in the will itself, since the document is part of the public record in probate.

Being prepared well ahead of time in your estate planning can help your family avoid password problems that may cause undue stress and delays as they probate your estate. It also ensures that they don’t forfeit significant financial assets concealed behind an impenetrable digital wall. If you would like to read more about protecting digital assets, please visit our previous posts.

Reference: Barron’s (Dec. 15, 2021) “How to Ensure Heirs Avoid a Password-Protected Nightmare”

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How to Protect your Digital Life

December 15, 2021

Today there is a new kind of asset class requiring attention when creating or reviewing your estate plan: digital assets. A recent article, titled “Everything you need to know about digital estate planning” from the Daily Herald, describes how to protect your digital life.

Let’s start by defining a digital asset. These include social media, email accounts, online subscription services, personal images (photos and videos) stored online, blogs, online businesses, cryptocurrency, websites, web domains, gaming accounts and gambling websites, to name a few.

Signing up for any of these accounts involves a lengthy terms of service agreement (TOSA), which we all scroll past without reading and click “Agree.” What we don’t realize is our agreement is a legally-binding contract with the platform or service provider agreeing to whatever terms they have created. Many of these TOSAs include provisions stating when the original owner passes, the company may terminate their account, regardless of the value of the digital property or the wishes of the owner.

Most states have adopted legislation of some kind to address digital assets after the person has passed. Generally speaking, they grant the traditional executor or representative access to digital information. However, here’s the problem: the tech companies stand by their contracts. Protection of the original owner’s privacy is often cited as the reason contents cannot be shared with another person. Even if the executor knows the username and password, they may find the account and its content deleted. The executor may only find a small portion of the online information or be accused of committing fraud for logging on using the decedent’s username and password.

Big tech companies take the position the data and accounts were owned by one person. As a result, they have a responsibility to protect the person’s privacy. Therefore, they are not legally permitted to share data or content. The headlines of heirs trying to get family photos or police departments attempting to get evidence represent a tiny portion of the many people trying to access their loved one’s digital property. There are also millions lost in cryptocurrency from actual owners who forget their keys, or owners who never shared information with their heirs about accessing crypto wallets.

What can you do to protect your digital assets?

Appoint a digital executor in your will and provide them with the necessary materials to access your digital assets.

Create a digital asset inventory. There are online programs for this purpose, or you can use paper and pen. If you create a spreadsheet on a computer, you should encrypt it. Otherwise, you can expect it to be hacked and stolen. The only question is when, not if!

Keep the inventory up to date every time you change a password or username.

Decide what you want to happen to each digital asset after your death. Do you want your Facebook account changed to a “memorialized” account for a period of time? Or would you prefer it to be shut down, immediately?

Certain digital platforms have a process for assigning an executor—not many, but some. Find out what the policies are for all of your accounts.

Don’t share any digital asset information in your last will. The last will and testament becomes a public document when it is filed in the court. Anyone can gain access to it. Protect it the same way you would protect any major traditional asset.

Talk with your estate planning attorney about your state’s digital assets laws and how to protect your digital life. This is still a relatively new asset class, but one that deserves the same level of protection as other assets. If you are interested in learning more about digital assets, please visit our previous posts.

Reference: Daily Herald (Nov. 10, 2021) “Everything you need to know about digital estate planning”

Cryptocurrency should be Considered in Estate Plans

December 1, 2021

Cryptocurrency accounts are not like any traditional investment accounts. However, their growing prevalence and value means cryptocurrency should be considered in more and more estate plans, especially when they take an enormous leap in value. These accounts are more vulnerable, according to the recent article “Millennial Money: What happens to your crypto if you die?” from The Indiana Gazette, and in most cases, there’s no way to name a beneficiary for your crypto accounts.

If you store your cryptocurrency on a physical device at home and a few friends know your key—the crypto password that grants access to a crypto wallet—one of those friends could very easily wander into your home and steal your crypto without you even noticing.

On the flip side, if you don’t share your key with anyone and become incapacitated or die, your crypto assets could be lost forever. Knowing how to store these assets safely and communicate your wishes for loved ones is extremely important, more so than for traditional assets.

How is crypto stored? Crypto “wallets” are digital wallets, managed on an app or a website, or kept on a thumb drive (also known as a memory stick). How you store crypto depends in part on how you intend to use it.

A “Hot Wallet” is used to buy and sell crypto. They are usually free and convenient but may not be as secure as other methods because they are always connected to the internet.

“Cold Wallets” are used to store crypto for a longer period of time, like a deep freezer.

The Hot Wallet is more like a checking account, with money moving in and out. The Cold Wallet is like a savings account, where money is kept for a longer period of time. You can have both, just as you probably have both a checking and savings account.

Whoever holds the “keys” to the wallets—whoever has custody of the password, which is a series of randomly generated numbers and letters—has access to your cryptocurrency. It might be just you, a third-party crypto exchange, or a hybrid of the two. Consider the third-party exchange a temporary and risky solution, as you don’t have control of the keys and exchanges do get hacked.

Naming a beneficiary in your will and adding a document to your estate plan containing an inventory of cryptocurrency and any passwords, PINs, keys and instructions to find your cold wallet is part of an estate plan addressing this new digital asset class.

Do not under any circumstances include any of the crypto information in your will. This document becomes part of the public record when filed in court and giving this information is the same as sharing your checking, saving and investment account information with the general public.

Some platforms, like Coinbase, have a process in place for next of kin, when an owner dies. Others do not, so it’s up to the crypto owner to make plans, if they want assets to be preserved and passed to another family member.

Cryptocurrency should be considered in your estate plans if you plan to trade heavily in it. Preparing for cryptocurrency is much the same as preparing for the rest of your planning. Keep the plan updated, especially after big life events, like marriage, divorce, birth, or death. Keep instructions up to date, so the executor and beneficiaries know what to do. Bear in mind that crypto wallets need occasional updates, like every other kind of digital platform. If you would like to learn more about cryptocurrency and estate planning, please visit our previous posts.

Reference: The Indiana Gazette (Nov. 7, 2021) “Millennial Money: What happens to your crypto if you die?”

Using Cryptocurrency in your Estate Planning

September 27, 2021

Cryptocurrency is a digital currency that can be used to buy online goods and services, explains Forbes’ recent article entitled “Cryptocurrency And Estate Planning: What Digital Investors Should Know.” Part of cryptocurrency’s appeal is the technology that backs it. Blockchain is a decentralized system that records and manages transactions across many computers and is very secure. If you are intent on using cryptocurrency in your estate planning, there are things you need to know.

As of June 24, the total value of all cryptocurrencies was $1.35 trillion, according to CoinMarketCap. There are many available cryptocurrencies. However, the most popular ones include Bitcoin, Ethereum, Binance Coin and Dogecoin. Many believe cryptocurrency will be a main currency in the future, and they’re opting to buy it now. They also like the fact that central banks are not involved in the process, so they can’t interfere with its value.

In addition, NFTs or non-fungible tokens, are also gaining in popularity. Each token is one of a kind and they’re also supported by blockchain technology. They can be anything digital, such as artwork or music files. NFTs are currently being used primarily as a way to buy and sell digital art. An artist could sell their original digital artwork to a buyer. The buyer is the owner of the exclusive original, but the artist might retain proprietary rights to feature the artwork or make copies of it. The popularity of NFTs is centered around the social value of fine art collecting in the digital space.

Here are three reasons to have an estate plan, if you buy bitcoin:

No probate. Even if your loved ones knew you were using cryptocurrency, and even if they knew where you stored your password, that wouldn’t be enough for them to get access to it. Without proper estate planning, your cryptocurrency assets may be put through a lengthy and expensive probate process.
Blockchain technology. You must have a private key to access each of your assets. It’s usually a long passcode. A comprehensive estate plan that includes this can help you have peace of mind knowing that your investments can be passed on to loved ones’ if anything were to happen to you unexpectedly.
Again, central banks don’t play any part in the process, and it’s secure because its processing and recording are spread across many different computers. However, there’s no governing body overseeing the affairs of cryptocurrency.

Using cryptocurrency in your estate planning could have benefits and consequences. Speak with your estate planning attorney to make sure you have a full grasp on how it works.

If you would like to read more about cryptocurrency and other digital assets, please visit our previous posts.

Reference: Forbes (July 21, 2021) “Cryptocurrency And Estate Planning: What Digital Investors Should Know”

How to Organize Digital Assets

December 28, 2020

Did you ever wonder what happens to old emails, videos, or photos when people die? Some family stories become headlines, when families battle with big tech firms to get their loved one’s photos or business records. Today, you need to plan for how to organize digital assets, as explained in a recent article “Don’t leave grieving relatives searching for your passwords: Here’s how to organize your digital life before you die” from USA Today.

Your digital life includes far more than your photos or business records. It includes financial accounts, like PayPal or Venmo, websites, videogames, online investment portfolios, social media, online video games and anything for which you need a password.

Social media accounts that are not closed down or deleted when someone dies, are at risk of being taken over by cybercriminals, who use the accounts to get access to financial accounts and use the decedent’s identity to commit crimes across the internet.

Start by making a list of all of your accounts, including account numbers, usernames and passwords. If the account has two-factor authentication, you’ll need to include that information as well. If the account uses biometrics, like a facial scan, you’ll need to find out from the platform itself how you can create a directive to allow another person to gain access to the account.

Your will needs to reflect the existence of digital assets and name a person who will be your digital executor. Many states have passed legislation concerning how digital assets are treated in estate planning, so check with your estate planning attorney to learn what your state’s requirements are.

In many cases, the best option is to use the platform’s own account tools for digital assets. Google, Facebook, PayPal, and a number of other sites offer the ability to name a legacy contact who will be able to gain some access to an account, to access the information and to delete the account in the event of your death.

One big issue in digital estate planning is that some platforms automatically delete accounts and their contents, if the account is inactive for a certain amount of time. Content may be lost forever, if the proper steps are not taken.

Some financial advisors maintain online portals, where their clients may store important documents that can be accessed from anywhere in the world. This may be an option, in addition to keeping an organized list of digital assets in the same location where you keep your estate planning documents.

We all live in a digital world now, and when a person dies, it’s challenging to locate all of their accounts and gain access to their contents. Your grandchildren may be able to figure out some workarounds, but it would be much easier if you organize digital assets and make them a part of the conversation you had with your children when discussing your estate plan.

If you would like to learn more about digital assets and how to protect them, please visit our previous posts.

Reference: USA Today (Nov. 25, 2020) “Don’t leave grieving relatives searching for your passwords: Here’s how to organize your digital life before you die”

Digital Assets Need To Be Included

October 20, 2020

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? Digital assets need to be included in an estate plan, just like any other property, according to the article “Digital assets important part of modern estate planning” from the Cleveland Jewish News.

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.

Digital assets need to be included in your planning. 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 a 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.

If you would like to learn more about digital assets and how they are regulated in different states, please visit our previous posts.

Reference: Cleveland Jewish News (Sep. 24, 2020) “Digital assets important part of modern estate planning”

A Letter of Instruction is a Good Addition

October 8, 2020

A letter of instruction, or LOI, is a good addition to your estate plan. It’s commonly used to express advice, wishes and practical information to help the people who will be taking care of your affairs, if you become incapacitated or die. According to this recent article “Letter of instruction in elder law estate plan can help with managing important information” from the Times Herald-Record, there are many different ways an LOI can help.

In our digital world, you might want to use your LOI to record website names, usernames and passwords for social media accounts, online accounts and other digital assets. This helps loved ones who you want to have access to your online life.

If you have minor children who are beneficiaries, the LOI is a good way to share your priorities to the trustee on your wishes for the funds left for their care. It is common to leave money in trust for HEMS—for “Health, Education, Maintenance and Support.” However, you may want to be more specific, both about how money is to be spent and to share your thoughts about the path you’d like their lives to take in your absence.

Art collectors or anyone who owns valuable items, like musical instruments, antiques or collectibles may use the LOI as an inventory that will be greatly appreciated by your executor. By providing a carefully created list of the items and any details, you’ll increase the likelihood that the collections will be considered by a potential purchaser. This would also be a good place to include any resources about the collections that you know of, but your heirs may not, like appraisers.

Animal lovers can use an LOI to share personalities, likes, dislikes and behavioral quirks of beloved pets, so their new caregivers will be better prepared. In most states, a pet trust can be created to name a caregiver and a trustee for funds that are designated for the pet’s care. The caregiver and the trustee may be the same person, or they may be two different individuals.

For families who have a special needs member, an LOI is a useful means of sharing important information about the person and is often referred to as a “Letter of Intent.” It works in tandem with a Special Needs Trust, which is created to leave assets to a person who receives government benefits without putting means-tested benefits in jeopardy. If there is no Special Needs Trust and the person receives an inheritance, they could lose access to their benefits.

Some of the information in a Letter of Intent includes information on the nature of the disability, daily routines, medications, fears, preferred activities and anything that would help a caregiver provide better care, if the primary caregiver dies.

The LOI can also be used to provide basic information, like where important documents are kept, who should be notified in case of death or incapacity, which bills should be paid, what home maintenance tasks need to be taken care of and who provides the services, etc. A letter of instruction is a useful document and a good addition to your estate plan. It will help those you leave behind to adjust to their new responsibilities and care for loved ones.

If you would like to learn more about what should be included in your estate planning, please visit our previous posts.

Reference: Times Herald-Record (Sep. 8, 2020) “Letter of instruction in elder law estate plan can help with managing important information”

Digital Asset Laws Are Now More Common

September 22, 2020

More and more of our lives are lived online. However, what happens when we become disabled or die and our executor or a fiduciary needs to access these accounts? Digital asset laws are now more common than ever. Pennsylvania recently joined many states that have passed a law intended to make accessing these accounts easier, reports the Pittsburgh Post-Gazette in the article “New Pa. law recognizes digital assets in estates.”

The official name of the law is the Revised Uniform Fiduciary Access to Digital Assets Act, or RUFADAA. Pennsylvania is one of the last states in the nation—48^th—to adopt this type of legislation, with the passage of Act 72 of 2020. Until now, the Keystone state didn’t allow concrete authority to access digital information to fiduciaries. The problem: the ability to access the information is still subject to the agreement that the user has with the online provider. That’s the “yes” we give automatically, when presented with terms of service agreement every time we open a new app on our phones.

Online service providers give deference to “legacy” contacts that a user can name, if authority to a third party to access their accounts is given. However, most people don’t name a successor to have access, and most apps don’t have a way to do this.

It’s worse than dying without a will. If you die with no will, the state has a process to identify legal heirs and distribute your estate. However, with digital assets, first you have to locate the person’s digital assets (and chances are good you’ll miss a few). There’s no shoebox of old receipts, or letters and bills coming in the mail to identify digital property. The custodians of the online information (Facebook, Instagram, TikTok, Google, etc.) still rely on those contracts between the user and the digital platform.

However, with the adoption of the new digital asset law, if the user does not make use of the online tool to name a successor, or if one is not offered, then the user can dictate the terms of access or non-access to the online accounts through estate planning documents, including a will, trust or power of attorney.

Here are some tips to clarify your wishes to disclose (or not) digital assets:

Make a list of all your online accounts, their URL address, usernames and passwords. Share the list only with someone you trust. You will be surprised at just how many you have.

Review the terms of service for each account to see if you have the ability to provide a name for a person who is authorized to access the account on your behalf.

Make sure your estate planning documents are aligned with your service contract preferences. Does your Power of Attorney mention access to your digital accounts? Depending on the potential value, sentimental and otherwise, of your digital assets, you may need to revise your estate plan.

Remember to never put anything in your will, like account numbers, URLs, usernames or passwords, since your will becomes a public document once it is probated. Now that digital asset laws are more common nationwide, you need to work with an estate planning attorney. They will know how to best accomplish documenting your digital assets, while protecting them.

If you would like to learn more about digital assets and other vital parts of an estate plan, please visit our previous posts.

Reference: Pittsburgh Post-Gazette (Aug. 24, 2020) “New Pa. law recognizes digital assets in estates.”

Category: Digital Assets

What Assets are in an Estate?

Estate Planning Documents Everyone Needs

Avoid Password Problems in Estate Planning

How to Protect your Digital Life

Cryptocurrency should be Considered in Estate Plans

Using Cryptocurrency in your Estate Planning

Digital Assets Need To Be Included

A Letter of Instruction is a Good Addition

Digital Asset Laws Are Now More Common

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