Elder and special needs, and estate planning attorney Vance Parker discusses why good elder caregiving begins in childhood, in his new opinion essay “Who Will Help Me to Age in Place,” published on March 5, 2019 in the Winston-Salem Journal.
To read Vance’s essay in the Journal, please click the following link:
In the Jan 24, 2019 article “Scamming Grandma: Financial Abuse of Seniors Hits Record,” the Wall Street Journal states that U.S. banks reported a record 24,454 suspected cases of elder financial abuse to the Treasury Department last year, more than double the amount five years earlier. Although it is hard to obtain an exact figure because so much elder financial abuse goes unreported, the AARP frames elder financial abuse as a $40 billion to $50 billion problem within the U.S. Trusts can help.
The United States reports higher rates of elder financial abuse than other industrialized nations. In Europe, seniors’ retirement funds are mostly doled out to them gradually, in monthly payments from government or other pension funds, where they are used to pay monthly expenses. In the United States, because of insufficient monthly Social Security and pension payments, workers are encouraged to save a great deal of their retirement funds themselves, held in potentially large IRAs or other accounts which they control. In fact, according to the Wall Street Journal article and the American Bankers Association, people over 50 represent only one third of the population, but account for 61% of bank accounts, and 70% of bank deposits.
In the U.S., these large pots of money in the hands of seniors (who also exhibit higher rates of illness and cognitive decline) are irresistible to thieves–who can be local door to door scammers, local or long distance romance scam artists, household workers or care providers, nefarious family members, or international financial scam and con artists who reach seniors through telephones, computers, and cell phones. Recent scientific studies reported by the National Institutes of Health tell us that as brains age, they undergo physiological changes that diminish older people’s ability to identify threats and assess the trustworthiness of potential predators. Thieves, of course, discovered these weaknesses long ago.
An elder law or estate planning attorney can create a trust for a senior who is still competent, which figuratively creates a “vault” holding the seniors’ assets, and gives the vault key to a responsible family member or institution. Only this “trustee” can make financial transactions on the senior’s behalf. When predators, such as telephone scam artists, figure out that the senior does not have the key to the vault holding his or her assets, they often quickly lose interest in continuing the scam.
Trusts may also be set up much earlier in life, so that as long as the owner of the assets is mentally competent and not susceptible to predators, the asset owner can act as his or her own trustee and account manager. As the asset owner ages, a co-trustee may be added to help watch the accounts and help the account owner when needed. If the asset owner later becomes susceptible to financial abusers or is no longer mentally competent to manage assets, another responsible family member or an institutional corporate trustee may become sole trustee and manager of the senior’s accounts.
Because trusts may contain detailed, legally enforceable instructions for how a senior’s money is to be used, but financial or durable power of attorney documents typically do not, a trust may be a safer vehicle for managing a senior’s money than a power of attorney. In addition, trusts are more complex, and frequently put together in a lawyer’s office where the trustee can potentially be screened by the drafting attorney. A power of attorney document is often easily downloaded from the Internet, and used by a thief or dishonest family member very quickly, without an attorney’s involvement, to scam a senior.
As banks and financial institutions see higher rates of fraud with powers of attorney, and because trusts are often associated with more affluent clientele, a trustee managing a senior’s assets may be treated with more deference by financial institutions, and experience fewer hassles, than an agent on a power of attorney document.
An elder law or estate planning attorney can help a family determine if a trust is right for their needs.
When you choose beneficiaries for your IRA account, you insure out-of-probate transfers to those beneficiaries when you die.
But picking proper beneficiaries can be tricky. Here’s a list of the best and worst IRA beneficiary choices:
BEST IRA BENEFICIARIES
- Your Spouse
If you are married, it’s likely that the first person you want to benefit is your spouse. Your spouse is the only person that the Internal Revenue Service allows to “rollover” the IRA participant’s IRA to their own IRA account. The rollover will allow your spouse to then control your IRA assets, and to invest them as he or she likes.
If your spouse does not need the IRA funds immediately, he or she can keep them growing tax-deferred until April 1 following the year he or she reaches age 70 1/2. At that time, annual taxable Required Minimum Distributions (RMD) will begin. The remainder of the account not required to be distributed can continue tax-deferred growth.
- Your Children, Grandchildren, or Younger Individuals
With the exception of your spouse, choosing an individual (or individuals) as your IRA beneficiary allows that beneficiary (following your death) to receive the money as an inherited IRA.
With the inherited IRA, Required Minimum Distributions (RMDs) will begin in the year following the original account owner’s death. These RMDs are calculated based on the beneficiary’s age-based actuarial life expectancy. The IRS provides a worksheet for calculating RMDs at https://www.irs.gov/publications/p590b/index.html
The younger beneficiary can pull out more funds than the annual RMD requires if needed, but the additional withdrawals will also be taxed.
If the younger beneficiary can afford to let the IRA principal continue to grow tax-deferred, the younger beneficiary’s longer life expectancy can lower the annual RMD, and stretch the IRA’s tax-deferred growth over a longer lifetime. Intentionally using this strategy to grow the IRA’s tax-deferred principal from one generation to the next is called the “stretch IRA” concept.
When used properly, growing your IRA by leaving it to a younger individual(s) who can afford to stretch out the inherited IRA’s tax-deferred growth can provide significant returns to the beneficiary. Assuming a 7% return with only the annual RMD withdrawn, a $100,000 IRA left to a 20 year old child or grandchild can provide $1,765,731 in income over that child’s expected 63 year lifetime. Please see the chart below:
|TOTAL INCOME FROM IRA OVER BENEFICIARY’S LIFETIME
||Value of IRA When Inherited by Beneficiary
- A See-Through Trust
A trust which qualifies as a “see-through” trust under IRS regulations can be an appropriate beneficiary for your IRA. There may be many practical reasons to employ a trust instead of giving IRA assets directly to a beneficiary. For example, a father wanting to leave a $250,000 IRA account to his 14 and 16 year old children would be wise to protect the proceeds with a trust instead of directing the funds to his children directly.
In general, leaving an IRA to a non-human entity like an estate or a trust ruins “stretch IRA” optimization, because such beneficiaries must withdraw all funds within five years (instead of 63 years for a 20 year-old individual, for example.)
But under IRS regulations, the “see-through” trust is able to “see through” the trust entity to the individual life expectancy of the oldest beneficiary of the trust.
To qualify as a see-through trust, the trust must meet the following IRS rules:
- The trust must be valid under state law;
- The trust must be irrevocable following the IRA participant’s death;
- Trust beneficiaries must be identifiable;
- The IRA plan administrator must be provided with proper documentation regarding the trust beneficiaries and/or the trust by October 31 of the year following the participant’s death;
- All trust beneficiaries must be individuals.
Typical testamentary trusts (found in wills) or revocable living trusts become irrevocable after the death of the will testator or trust grantor. If properly drafted, and with proper beneficiaries, such trusts may qualify as see-through trusts under the above IRS rules.
- A Charity
A tax-deferred account may be appropriate to give to a charity, if none of your human beneficiaries need the funds. You can transfer the full tax-deferred IRA value to the charity because the charity will pay no income taxes when it receives the money, and the account will not be included in your taxable estate when you die (reducing the amount that your family will have to pay in estate taxes, if applicable.)
WORST IRA BENEFICIARIES
- Your Estate
Naming your estate as your IRA beneficiary is a bad idea. This insures that the IRA funds must now go through probate, increasing the time, complexity, and expense of your probate estate. The IRA’s creditor protection will be lost, making your IRA funds newly eligible to pay estate debts. Your intended beneficiaries will no longer be able to stretch out their Required Minimum Distributions over their lifetimes (and save tax dollars) because the IRA funds will now be required to be fully withdrawn (and taxes paid on the withdrawals) within five years.
- An Individual and an Entity
In order for tax-saving stretch IRA provisions to be available to your human beneficiaries, all of your IRA assets must go to human beneficiaries following your death.
For example, you may intend for your two children to be able to stretch out their Required Minimum Distributions over their lifetimes, leaving 95% of your IRA to them and 5% of your IRA to your church. But even this small bequest of your IRA funds to your church will trigger the five-year IRA distribution rule for your children. Having to fully distribute all of your IRA proceeds (and pay the associated taxes) over a short five-year period can greatly reduce the stretch IRA tax savings available to your children.
- A Person who has Problems Managing Money or who is in Debt
A person who cannot manage money would withdraw the inherited IRA funds very rapidly, with income tax having to be paid on every withdrawal, negating the potential stretch IRA tax savings of an inherited IRA.
In addition, unlike with a traditional IRA, a 2014 U.S. Supreme Court decision held that the proceeds from an inherited IRA are fully available to creditors. Thus if you leave your IRA outright to someone in debt, they may lose all of that money to creditors in a short amount of time.
To protect your IRA assets directed to a beneficiary with money management problems, or with creditor or debt problems, consider setting up a see-through discretionary trust for the beneficiary. You could then choose another responsible family member to serve as trustee to manage the IRA funds, and to make the spending decisions on behalf of the encumbered beneficiary.
- An Older Individual
Leaving an IRA to an older person frequently insures that the Required Minimum Distributions will be accelerated, leading to increased taxes. If the beneficiary really needs the funds, however, and there are no alternative assets to transfer, the increased taxation rate may be less important than taking care of the beneficiary.
Daniel A. Timins, Who Should You (Not) Leave Your IRA To, Kiplinger (August 2016), http://www.nasdaq.com/article/who-should-you-not-leave-your-ira-to-cm660234
Understanding the Stretch IRA Strategy: Preserving Assets for Your Heirs, T Rowe Price Investor (March 2011), https://individual.troweprice.com/staticFiles/Retail/Shared/PDFs/StretchIRA.pdf
Natalie B. Choate, Life and Death Planning for Retirement Benefits, (7th ed. 2011).
Understanding Who Should Be Beneficiary of Your IRA, Estate Planning.com, https://www.estateplanning.com/Beneficiary-of-Your-IRA/
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Even though Prince, the master showman and electric guitar virtuoso, appreciated the big stage, he probably would not have liked the drama following his death becoming a stadium spectacle. Following his tragic death, hundreds of claimants, including his own half-siblings, their smiling lawyers, lovers that no one ever knew about, and love children of lovers that no one ever knew about, have come forth, seeking a part of Prince’s potential $500 million estate. The claims have gotten so out-of-hand in Minnesota that a judge has ordered Prince’s blood to be genetically sequenced, in order for the courts to start eliminating some of the false heirs.
A half-billion dollar payoff will bring out a lot of lottery contestants. So why did Prince, who was very comfortable using lawyers to protect his recording assets and his professional image, neglect to complete his estate planning? The answer may be pretty mundane. One of Prince’s lawyers, who had worked with him for many years, remarked: “I really don’t think that Prince thought that he was going to die just yet.”
Like many of us, it seems that Prince may have simply looked away from something fundamental to his life here on Earth: even The Artist (Formerly Known as Prince) would pass.
Prince remains in good company, however: many wealthy celebrities have been caught short, dying without wills.
Pioneering African-American professional quarterback Steve McNair, of the Tennessee Titans, was unexpectedly murdered in his Nashville hotel room at age 36, leaving a $90M estate and no will. When Sonny Bono died without a will after hitting a tree while snow skiing, a man claiming to be his illegitimate son later showed up, making a claim on his estate. Rock guitarist Jimi Hendrix died without a will, leaving an estate battle that burned on for over 30 years. The legendary reggae singer Bob Marley died in 1981 with a $30M estate and no will, with dozens of claimants arguing for possession. And artist Pablo Picasso died without a will in 1973, leaving 45,000 works of art, and an estate now several billion dollars in size, but not completely settled.
Prince was known to be both philanthropic and generous. But he may lose over half of his estate to government estate taxes. Assuming a $500M estate (which music intellectual property experts have estimated), the 2016 federal estate tax individual exemption amount at $5.43M, and the 2016 federal estate tax rate at 40%, Prince may lose approximately $198M to the federal government. And with Minnesota’s estate tax exemption amount at $1.6M, and with its upper estate tax rate at 16%, Prince’s estate may lose an additional $80M to Minnesota estate taxes, for a total $278M in funds lost to the government.
For a lesson in estate planning, it’s too bad that Prince did not model another celebrity, Hillary Clinton. Clinton, a lawyer by training, and her husband Bill, have shielded millions of dollars of personal assets within the Clinton Foundation, in a way that has magnified their influence and shielded these funds from estate taxes.
If Prince had established his own large charitable foundation, that organization could have additionally benefitted the people in his home state of Minnesota so greatly that they surely would have added the color purple to their state flag.
Those with smaller estates can learn from the Prince case, because without a will, the same behavior may repeat on a smaller scale. In 2015, I was attending a family business event, when a father I met there told me a story about how important a will could have been to his family. The father told me that his oldest son did very well in school, and eventually came to work in Washington, DC. While in DC, his son was successful enough to purchase a home in the prestigious Georgetown area. But his son then died young, without a will.
After that, unwelcome family members emerged from three different states, trying to get a piece of the son’s Georgetown real estate. The matter had to be litigated over a several year period, at a great cost, and causing significant stress to the son’s close family.
Planning ahead by enacting proper estate documents remains the best way to prevent such family disasters.
Singles must plan carefully for retirement, because they do not typically have another income-earner in the family who can help out.
Here Are 5 Retirement Savings Tips For Singles
- Complete Your Estate Plan. Even if you do not have a family to inherit your assets, completing your estate plan is critically important. Your estate plan includes advance directive documents where you set up agents to make your medical decisions, take care of your finances, and take care of your legal affairs should illness render you unable to help yourself.
- Set Up An Emergency Reserve Fund. Married families typically include an additional breadwinner to fall back on financially in case of emergencies, but a single adult typically does not have such a backup. You should keep at least 6 months normal household expenses reserved in a liquid savings account. You can start with 1 month’s reserve savings at first, then build up to six months as your savings habits improve.
- Build Up Your Credit Score. A single adult typically faces more difficulty purchasing large-ticket items like a home or a car on credit than a married person who may have more income streams to rely on. So it is important to build up your credit score.Credit rating agencies like Equifax typically sell FICO (Fair Issac Corporation) and other monitoring products which can help you learn to improve your credit scores. To improve your score, reduce your credit card accounts to no more than 5, keep your credit card balances as low as possible, pay your bills on time, and try to keep your overall debt as low as possible.
- Purchase Disability Insurance. If you are single, particularly if you have no children or do not plan to have children, becoming disabled or acquiring serious long term health problems in your later years can decimate you financially. You need to make up for your lack of a family safety net should you become seriously ill.It is easier to acquire essential disability insurance or long-term care insurance while you are young and healthy. Talk to a trusted insurance provider about finding a disability insurance policy to meet your needs.
- Continually Save For Retirement. Particularly because as a single you have no other financial backup, start early and give as much as you can afford every paycheck to your 401(k), IRA, or other retirement savings account.
SOURCE: Grant Webster, Saving for Retirement Tips for Singles, USA Today (December 26, 2015), http://www.usatoday.com/story/money/personalfinance/2015/12/26/adviceiq-retirement-tips/77853804/
As Amazon.com gains market share each holiday season, we keep observing the Internet offering faster, better, and cheaper solutions for the goods and services that we purchase.
But some Internet purchases remain unwise. Consumers who purchase wills, trusts, and other estate documents online in an attempt to save money frequently risk their life savings to inferior products.
Why are online estate document services inferior? See the following three reasons below:
Legal Advice is Prohibited
. Because there is no state licensed attorney involved, Internet legal sites are prohibited from providing legal advice. When you are trying to protect your life savings with a will or trust, the first thing required is legal advice tailored to your particular needs and circumstances. But by law, the Internet legal sites are prohibited from giving you the personal legal advice that you need.
- Only Form Documents are Provided. The Internet legal services are known merely as “document assistants,” which primarily only let the customer fill out generic form documents. Such forms are frequently not tailored to the customer’s individual needs or circumstances.
- Your Internet Forms May Not Work. Consumers seeking a will and or trust need documents that will properly distribute a lifetime of savings to chosen beneficiaries. Unfortunately, most consumers only get one chance to get their will right.
Internet forms do not even promise to work when needed. They may not be in compliance with state law, and they may include significant mistakes or oversights. Because no legal advice is given, the Internet legal companies cannot promise a particular legal result, or even that your documents will work.
If wills, trusts, or other estate documents are not drafted properly, lawyers will need to be hired later to clean up the mess, at great expense to your estate and your family. In addition, improperly drafted estate documents may lead to family arguments, which in turn may lead to expensive litigation. It is almost always more cost effective to use a licensed attorney to draft estate documents properly in the beginning, than to clean up a mess later resulting from improper Internet form estate documents.
If you have a toothache, you will probably turn to your dentist, and not the Internet for dental work, right? It makes just as much sense to use a licensed estate planning attorney to develop your critical estate documents, instead of placing your trust in generic form documents from the Internet that might not work when needed.
Source: David Hiersekorn, Can You Trust Your Trust? Why an Online Will or Trust Could Be the Dumbest Mistake You Ever Make, EstatePlanning.com (May 15, 2012), https://www.estateplanning.com/Should-You-Trust-Online-Legal-Document-Services/.
A new online calculator developed by the federal Consumer Financial Protection Bureau helps consumers determine the best time to start receiving retirement benefits, and what those benefits will be.
To use the calculator, a consumer merely types in his or her birthday, and maximum yearly salary received during his or her work career, and the calculator does the rest.
Categories: Estate planning, asset protection, estate tax, gift tax, elder law, Winston Salem, North Carolina, NC.
Higher net worth individuals and families are increasingly looking to family private foundations to both advance their charitable goals, and to avoid estate taxes.
A private foundation is a freestanding legal entity which can be 100% controlled by the donor. The donor, and anyone he chooses to advise him, fully decide how the money is invested.
Private foundations may own almost any type of asset, including real estate, jewelry, closely held stock, stock options, art, insurance policies, and other variables. Founders can donate highly appreciated stock to the foundation to avoid capital gains taxes so that the full market value of the stock grows tax free, ultimately benefitting the charities to be funded by the foundation.
A private foundation may be established quickly, with an investment of $250,000.00 or less. In fact, 67% of all private foundations have less than $1 million in assets. Establishing the private foundation may take as little as three days, with set up cost being often very affordable.
The following types of charitable gifts are available to private foundations:
- Funding 501(c)(3) public charities
- Funding tax-exempt organizations that are not 501(c)(3) entities
- Making grants directly to individuals and families facing hardship, emergencies, or medical distress
- Supporting charitable organizations based outside of the U.S.
- Making loans, loan guarantees, and equity investments
- Providing funding to for-profit businesses that support the foundation’s charitable mission
- Setting up and running Scholarship and award programs
- Running their own charitable programs.
Robert Chartener, Financial Planning, http://www.financial-planning.com/blogs/wealth-ideas/this-may-be-the-best-bet-for-charity-minded-clients-2694760-1.html?utm_medium=email&ET=financialplanning:e5499154:4512791a:&utm_source=newsletter&utm_campaign=Nov%209%202015-am_retirement_scan&st=email , November 9, 2015.
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Categories: Estate planning: Elder law, Winston Salem, North Carolina, NC.
The legal landscape for LGBT civil rights is changing, but the LGBT community still needs careful and timely estate planning to ensure protection for the ones they love.
Married LGBT Couples
As North Carolina LGBT adults are aware, on October 10, 2014, the United States District Court for the Western District of North Carolina issued an order that struck down the ban on same sex marriage in North Carolina. The ruling allows LGBT couples to seek the rights and privileges of marriage in North Carolina. Legal LGBT marriage has improved estate rights in two areas.
Legal LGBT Marriage — Two Estate Rights Improvements
Second Parent Adoptions – Although North Carolina adoption law is still evolving, both spouses in a LGBT marriage should now be able to legally adopt the same child. Legal “second parent” adoption for married LGBT couples will solidify the rights of both LGBT spouses to care for and raise the children should something happen to one spouse. Because legal LGBT marriage is still so new in NC, adoption laws remain tricky and untested. When adopting in NC, it is important for the married LGBT couple to consult with an North Carolina family lawyer familiar with LGBT family issues.
Intestate Succession – Better Protection for Surviving Married LGBT Spouses When There is No Will
When an adult in North Carolina dies without a will (called dying intestate), the probate court will look to a complex set of North Carolina laws called the NC intestate succession statutes. Generally, only spouses, legally adopted children and genetic or “blood” relatives inherit under these statutes when there is no will. Unmarried partners, friends, and charities get nothing.
Because LGBT marriage is now legal in NC, if one spouse dies without a will, the surviving spouse should inherit as allowed by the NC intestate succession statutes.
Despite the above two improved estate law protections, married LGBT spouses should still create valid wills in order to pass down their property according to their wishes after death. A proper will also allows a married LGBT couple to name their choice of guardians for their children, which is normally upheld by the courts.
Unmarried LGBT Domestic Partners
North Carolina law provides no statewide protections for domestic relationships related to sexual orientation, gender identity, or gender expression that are not within marriage. Proper estate planning is absolutely critical for unmarried LGBT domestic partners.
As discussed above, if an unmarried LGBT domestic partner in NC dies without a will, a court will look to the NC intestate succession statutes to determine who will receive inheritance. NC’s intestate succession statutes provide the strongest inheritance rights to married spouses, genetic or legally adopted children, and close “blood” or genetic relatives. Without a valid will, an unmarried LGBT domestic partner will likely inherit nothing from the deceased partner.
North Carolina law does, however, allow people to select whomever they wish as “beneficiaries” and “fiduciaries” in their estate documents. Through a proper will, an LGBT partner can “will” or “bequeath” property to the other domestic partner.
LGBT domestic partners who do not plan properly may not be able to care for each other should one partner become seriously ill. If an LGBT domestic partner becomes mentally incapacitated, hospitals or courts may look first to blood relatives to make health care decisions for the incapacitated partner, instead of to the other domestic partner.
To ensure that they will be making each other’s health care decisions in cases of serious illness, LGBT domestic partners must execute proper Health Care Power of Attorney documents listing each other as the highest priority agents for making each other’s health care decisions in case of incapacity.
In response to the great need for partner security in North Carolina, we have prepared the following advice for the North Carolina LGBT community
- Do not let the courts make your critical estate planning decisions for you after you are gone. Obtain a valid will so that YOU decide:
- who is considered part of your family;
- the guardian for your children;
- the terms of a family trust to provide for your family;
- what happens to your pets; and
- what happens to your property.
- Help keep the peace even after you pass. Obtain a well-drafted will so that your friends and family are certain of your wishes and no one fights or litigates over differing interpretations of your intentions.
- Complete a valid will as soon as possible. If your family or your wishes change, you can update your will.
- Complete both your Health Care Power of Attorney and your Living Will documents so that the partner you trust will be able to maintain control of your healthcare if you become medically incapacitated.
- Obtain a Durable Power of Attorney document to select an agent to take care of your business and legal affairs when you are unable to care for those yourself. Make sure a licensed attorney prepares this document; otherwise, banks and other institutions may refuse to recognize the document when it is needed.
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Categories: Estate planning, elder law, trusts, probate, Winston Salem, North Carolina, NC.
Estate planning documents are designed to protect clients’ wishes both during life and after death. In a durable power of attorney document, a client may pick an agent to help him manage his finances and legal affairs should he become mentally incapacitated during life. And in both will and trust documents, the client may determine how he wants his assets used or distributed after death.
But in the Internet age, it can be difficult to separate certain assets such as financial accounts from the computers, websites, and software used to operate, manage, manipulate, and convey information about those accounts. Thus without proper estate planning incorporating the client’s digital assets, it is a mistake to assume that client fiduciaries such as agents, guardians, executors, and trustees will have the tools they need to perform their obligations.
Existing Laws Do Not Provide Automatic Fiduciary Access To Digital Accounts And Digital Information
In North Carolina, statutory law does not support automatic fiduciary access to digital accounts and digital assets. An NC proposal addressing estate planning and digital accounts was removed from the statute S.L. 2013-91 (N.C. Gen. Stat. 30-3.1) before the Governor signed on March 12, 2013. A few other states have passed digital assets legislation.
Without clear direction from NC state law, controlling law is still mostly dictated by two 1986 Federal statutes which predate the commercial Internet. Although these Federal statutes are outdated, they still guide court decisions.
The overriding purpose of both the 1986 Stored Communications Act (SCA) and the Computer Fraud and Abuse Act (CFAA) is to protect the computer user’s privacy and to prevent unauthorized access to the user’s digital assets. As a result, the computer service providers subject to the SCA and CFAA maintain service agreements that include only one user, and strictly prohibit “unauthorized access.” Some service agreements also state that the individual user’s rights are “nontransferable.” Thus, when a user becomes mentally incompetent or dies, fiduciaries may have difficulty getting access to his online accounts.
In addition, many online services will refuse to release the password information from a deceased user, even in the face of a judicial order or civil lawsuit.
Best Practices Require Both Authorization And Transfer Of Log-on Data Including Passwords
In the absence of a modern statute controlling fiduciary access to digital assets, best estate planning practices require both 1) clear authorization from the principal, grantor, or testator in the estate documents authorizing the fiduciary to access the digital accounts; 2) the actual transfer of account information including log-on information and passwords.
Although these preparations may not work forever and may not work with every digital account, these steps may be the best that NC estate planners can do until controlling laws are modernized. Some digital providers have revised their rules to permit fiduciaries to access online accounts when the proper authorization is included in the primary user’s estate planning documents.
Authorization Language and Definition
Estate planner Jean Gordon Carter and colleagues provide sample authorization language, which may be included in a will:
“Digital Assets. My executor shall have the power to access, handle, distribute and dispose of my digital assets.”
They also advocate including a broad definition of “Digital Assets” in the will.
Proper authorization to use digital assets language should additionally be included in the durable power of attorney document, in order for the agent to be fully able to conduct an incapacitated grantor’s business and legal affairs.
Transfer of Account Administrative Information
In addition to the digital assets authorization language needed in the estate documents, the grantor must also physically transfer to the proper fiduciaries the administrative information required for using the digital assets. This includes account information, log-on information, and passwords.
Randy Siller, a registered representative of Lincoln Financial Advisors Corporation, shares the following seven best practices for clients transferring digital access information to fiduciaries as part of an estate plan:
- Digital Hardware. List all digital hardware, including desktops, laptops, smartphones, iPads, USB flash drives, and external hard drives.
- Financial Software. List all financial-related software programs used, such as Quicken, QuickBooks, and Turbo Tax, which may include important tax and business information, as well as passwords.
- File Organization/Passwords. Provide an outline of the file organization on digital devices so fiduciaries will know where to find important files, as well as any passwords they may need to gain file access.
- Social Media. List all social media accounts, such as Facebook, LinkedIn, Twitter, and Cloud websites, as well as the information needed to access each one.
- Online Accounts. Prepare a list of all online accounts including bank accounts, investment accounts, retirement accounts, e-commerce accounts (Amazon, PayPal), credit card accounts, and insurance accounts. It is critical for fiduciaries to have access to these providers.
- Subscriptions. Ensure that a list of online subscriptions such as Netflix, Norton Anti-Virus, credit reporting/protection subscriptions, and streaming music subscription services are documented so fiduciaries can access or cancel those services.
- Email. List all personal and business-related email accounts, and how to access them.
It is easy for estate planners to focus on protecting monetary assets. But the control of a client’s “digital legacy” on social media may also be important.
Geoffrey Fowler, writing for the Wall Street Journal, has noted: “The digital era adds a new complexity to the human test of dealing with death. Loved ones once may have memorialized the departed with private rituals and a notice in the newspaper. Today, as family and friends gather publicly to write and share photos online, the obituary may never be complete.”
To deal with the desire for users to allow their loved ones to memorialize them through their Facebook accounts at death, Facebook recently decided to allow members to designate a “legacy contact” to manage parts of their accounts posthumously. Members may now also choose to have their presence deleted entirely at death.
On The Horizon
Likely the most complete proposal addressing the need of clients to effectively give fiduciaries access to their digital estate has been written under the auspices of the Uniform Law Commission. The Uniform Law Commission approved the recent Uniform Fiduciary Access to Digital Assets Act (UFADAA) on July 16, 2014 in Seattle, WA.
The Commission states:
The UFADAA gives people the power to plan for the management and disposition of their digital assets in the same way they can make plans for their tangible property: by providing instructions in a will, trust, or power of attorney. If a person fails to plan, the same court-appointed fiduciary that manages the person’s tangible assets can manage the person’s digital assets, distributing those assets to heirs or disposing of them as appropriate.
Until such reforms become law, the best strategy for passing down digital assets to fiduciaries requires both including proper fiduciary authorization language in the estate documents, and the physical transfer of digital asset user information to fiduciaries.
Computer Fraud and Abuse Act 18 U.S.C. § 1030 (1986).
Geoffrey Fowler, Facebook Heir? Time to Choose Who Manages Your Account When You Die, The Wall Street Journal, Feb. 12, 2015.
Geoffrey Fowler, Life and Death Online: Who Controls a Digital Legacy?,
The Wall Street Journal, Jan. 5, 2013.
Jean Carter, Sample Will and Power of Attorney Language for Digital Assets, The Digital Beyond, http://www.thedigitalbeyond.com/sample-language/
N.C. Gen. Stat. 30-3.1.
Randy Siller, Seven Tips for Managing Your Digital Estate, WealthManagement.com, (Nov. 25, 2014), http://wealthmanagement.com/estate-planning/seven-tips-managing-your-digital-estate#slide-0-field_images-715801
Stored Communications Act 18 U.S.C. Chapter 121 (1986).
Uniform Law Commission, Uniform Fiduciary Access to Digital Assets Act Approved (July 16, 2014), http://www.uniformlaws.org/NewsDetail.aspx?title=Uniform+Fiduciary+Access+to+Digital+Assets+Act+Approved
Uniform Law Commission, The Uniform Fiduciary Access to Digital Access Act–A Summary, http://www.uniformlaws.org/shared/docs/Fiduciary%20Access%20to%20Digital%20Assets/UFADAA%20-%20Summary%20-%20August%202014.pdf
William Bisset & David Kauffman, Understanding Proposed Legislation for Digital Assets, Journal of Financial Planning, http://www.onefpa.org/journal/Pages/APR14-Understanding-Proposed-Legislation-for-Digital-Assets.aspx
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Categories: Estate planning, elder law, wills, Winston Salem, North Carolina, NC.
NFL Tennessee Titans quarterback Steve McNair, age 36, was unexpectedly found murdered in a Nashville, TN hotel room on July 4, 2009. McNair had earned about $90 million during his NFL career, yet he died without a will, or intestate. Because he had done no estate planning, his family lost millions of dollars to taxes and legal fees.
Estate planners strongly recommend that every adult who owns property or who has minor children should maintain valid estate planning documents, including a will. Yet every year thousands of North Carolina adults die intestate.
In certain groups, the numbers of adults without a will are remarkably high. 68% of African-American adults and 74 percent of Hispanic adults do not have one. And strikingly, 92% of adults under the age of 35 (prime parenting age) do not have a will.
NC Intestate Succession Laws
In North Carolina, when the probate court addresses an estate where the property owner died intestate, the court looks to the North Carolina intestate succession laws to help the court divide up the deceased person’s property. Unfortunately, the probate court often will make different decisions than the deceased would have made had he or she made a will while living.
Under North Carolina intestate succession law, typically only spouses and genetic relatives inherit. Unmarried partners, friends, and charities get nothing.
Dying without a will may create many problems not addressed by the probate court applying NC’s intestate succession statutes.
Fighting and Expensive Lawsuits
If the deceased person’s (decedent’s) intent was never expressed in a will, potential heirs and others seeking part of the estate often argue about what the deceased really intended. Those disputes may lead to expensive litigation.
Because the intestate succession statutes deal mainly in percentages and do not address individual items of personal property, family members may fight over who gets certain family heirlooms or individual items of value.
Where infighting leads to litigation, the potential heirs may spend many times more in legal fees than what a proper will (which could have prevented the arguments) would have cost the decedent.
A Court Decides Who Gets The Children
Parents who plan use a will to name their choices of guardians for their children. Courts normally uphold the parents’ choices for their children’s guardians in a will. But where there is no will and both parents die intestate, guardians will be appointed for the children by a court. This is a result that no parent intended.
Higher Fees, Taxes and Legal Costs
Proper estate planning helps minimize probate fees, taxes, and legal costs. The goal of all legal planning should be to prevent problems. Preventing problems is always less expensive than paying to clean up a mess later, and is more predictable and less harrowing for the family.
Please contact us with any questions and to learn how we can help with your estate planning in North Carolina.
A.L. Kennedy, Statistics on Last Wills & Testaments, Demand Media
A Look at Last Wills & Testaments, The Virtual Attorney
Clark Wilson LLP, 10 Problems with Dying Intestate
Legal Consequences of Dying Without a Will, Lawyers.com
Mary Randolph, J.D., How an Estate is Settled if There’s No Will: Intestate Succession, Nolo