Wills, Trusts & Estates Prof Blog

Digital Asset Planning Becoming a Necessity

As I have previously discussed, it’s becoming more and more common among financial advisers to incorporate digital assets into their client’s estate plan.  If they don’t leave behind passwords or provisions detailing the transfer of account ownership, “loved ones may never be able to access their digital photos, games, music, or videos, as well as their email, online-banking and social-media accounts.”

Some estate planners suggest using trusts to hold digital assets while other planners are giving their clients checklists containing data they will need to provide for the disposition of digital assets.  Advisers suggest including any passwords in a separate document from the will as wills can become public.

Meanwhile, the Uniform Law Commission is drafting a law that would allow states to grant fiduciaries the right to manage clients’ digital assets.  Please see my article, Estate Planning in the Digital Age, for additional information on this increasingly popular topic.

See Arden Dale, More Estate Plans Account for ‘Digital Assets’, The Wall Street Journal, June 13, 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Estate Administration in Our Digital World

In our digital world, it’s increasingly important to plan ahead for the administration of our virtual estate.  Besides valuable financial information found online, most people also have email accounts, social networking accounts, photos, and music that have sentimental value.  This online presence can be difficult for executors to access if the decedent hasn’t left a password.  Some websites like Gmail and Hotmail have policies that “may” assist executors.  Other sites like Facebook and LinkedIn allow the family to make formal requests concerning a decedent’s account.  Sites like Twitter and Yahoo! de-activate or delete the account while sites like Apple have no policy.

To help executors unlock all of your digital information, it’s a good idea to leave a list of your confidential user IDs and passwords in a safe, with a trusted person, or with an online company.  Please see my article, Estate Planning in the Digital Age, for additional information.

See Gary A. Phillips, Mary W. Browning & Leo Matarazzo, Estate Administration in a Paperless World, Lexology, June 4, 2013.

Purchase Property Using Your IRA

Most people interested in growing tax-free assets put IRA funds into a “self directed” IRA.  However, this doesn't work for everyone. Property prices are on the rise so some people are wondering how to invest IRA funds into property purchases to help lower or get rid of taxes and gain a return on their investment. There are a few factors to consider, one of which is the eligibility of properties. People who purchase property need to be sure to buy business property and avoid personal property purchases. Additionally, the IRA funds can only be used to purchase new property not property already owned. People should have enough funding in their IRAs to buy long term rental properties, because  a conventional mortgage is not available. Folks should also reflect on IRA investment issues. It is important to note that failure to comply with IRA rules can mean tax penalties. Furthermore, administering the IRA costs money. Consider diversifying your portfolio and speaking with a financial advisor for more information.

See Zillow, How to Use Your IRA to Buy Investment Properties, Forbes, Jun. 6, 2013.

401(k)s a Losing Battle?

According to a recent study, old-style defined-benefit pensions are outperforming 401(k)s by the widest margin since 1995.  However, many private employers refuse to offer them, instead going with more expensive and lesser performing actively-managed funds. 

Actively-managed funds can reduce up to 20% of a saver’s returns by the time he retires due to the expenses that middlemen eat up.  After accounting for fees, actively managed funds produce significantly less returns than safer index funds.  Employees that find they’re overcharged should do something about it now instead of waiting 30 years or more to complain.

See John Wasik, 401(k) Folly Continues, Forbes, May 29, 2013.

Article on Cotenancy

John V. Orth (William Rand Kenan, Jr. Professor of Law, University of North Carolina School of Law) recently published an article entitled, Presumed Equal: Shares of Cotenants, 37 ACTEC L.J. 463 (Winter 2011).  Provided below is the beginning of his article:

For most of the long history of the common law, land was the most important asset and its ownership could be divided up in many ways. An interest in real property could be a present interest, such as a life estate or a fee simple; or it could be a future interest, such as a remainder or a reversion. Land could be held in trust for the benefit of another. A right to possession for a term of years could be created by a lease. A right of use could be created by an easement. Duties incident to ownership could be imposed by a real covenant or an equitable servitude. Land could be owned by one person in sole ownership, or it could be owned by two or more concurrently as tenants in common or as joint tenants. Married persons could take title to land as tenants by the entirety.

At common law the shares of cotenants depended on the type of estate. In tenancies by the entirety the shares were equal because each spouse owned the whole, title being held not by two persons but by the marital unit. In joint tenancies the shares were equal by definition. For a joint tenancy to exist, the “four unities” of time, title, interest, and possession were required. If the shares of the cotenants were not equal, the unity of interest would be lacking and the estate could not be a joint tenancy. The tenancy in common required only the unity of possession, so the shares of cotenants could be unequal. But even here the shares were presumed equal in the absence of evidence to the contrary.

Today the story is not so simple. Tenancies by the entirety that end with the divorce of the spouses - a possibility unknown to the common law - default into tenancies in common and are subject to equitable distribution. Joint tenancies in many states are now exempted by statute from the required unity of interest. While retaining the right of survivorship, the new joint tenancies otherwise resemble tenancies in common. In consequence, the presumption of equal shares that once applied only to tenancies in common now extends to joint tenancies as well, focusing additional attention on the evidence necessary to rebut it. A clear expression of intention to hold other than equal shares poses no difficulty. A will or deed could grant an estate to multiple grantees and describe the respective shares of each. The problems arise when the intention is implied rather than express.

Source for Estate Planning News

Estate Dispatch, sponsored by Estate Map, covers interesting estate planning news with a focus on digital assets.  Readers can also subscribe to their weekly newsletter, Heir-O-Smith. 

For more information, please click here.

Uniform Law Commission Helps Move Digital Asset Legislation

As I have previously discussed, privacy laws have made it difficult to access family members digital assets after death. Most of those assets are regulated by company service agreements. Recently, Virginia passed a law allowing parents to access social accounts such as Facebook. However, most states have not passed laws about digital assets. In fact, only five states have enacted laws about digital assets at all.

The Uniform Law Commission (ULC), helps normalize laws across states. The ULC developed a committee dedicated to digital assets to develop consistent laws and help bridge the gap with state probate laws. As a result, several states have begun to draft digital asset laws. Some companies are opposing this legislation because of their current users reliance on privacy agreements. A survey conducted by a security software company asked 3,000 people an average of their online assets. The average online asset worth was $55,000. Recently, I posted a revised version of my article, Estate Planning in the Digital Age that educates estates planning professionals on the importance for planning for the disposition of digital assets.

See Anne Hobson, The Digital Afterlife, Spectator.org, May 30, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

Supreme Court Ruling Reminds People To Update Beneficiary Forms

Recently, the U.S. Supreme Court emphasised the importance of keeping up with your beneficiary designation form. In 2008, Warren Hillman died. He had a insurance policy valued at $124,558.03 that his ex wife Judy Maretta, and current wife were fighting over.

In Hillman v. Maretta, The Supreme Court held that Judy Maretta was entitled to all of the insurance proceeds.The court stated that the beneficiary designation form was not updated after Hillman was diagnosed with leukemia. Some states have laws protecting spouses from these types of mistakes. Even though Virginia does have this protective statue, the life insurance policy was part of a program for federal employees. The Federal Employee's Group Life Insurance Act of 1954 regulates these policies. The act indicated that the proceeds must be paid according to the beneficiary designation form. If the policy holder does not have one the policy is paid out through intestacy. The Supreme Court ruled that the act preempts the Virgina state law that protects spouses from these mistakes.

See Deborah L. Jacobs, Supreme Court Favors Ex-Wife Over Widow In Battle For Life Insurance Proceeds, Forbes, Jun. 3, 2013.

Cognitive Disorders May Prove A Lack Of Capacity

Plaintiffs commonly argue lack of capacity when contesting the validity of a trust or will. Recently, a federal court in Maryland looked at whether major depression and alcoholism imply incompetence when an individual suffering from these disorders changes a beneficiary on a life insurance plan. William Ratz died from intoxication. A year and half prior to his death, he named his two daughters as his beneficiaries to his life insurance policy. However, a year later Ratz changed the beneficiary to his second wife who he had already divorced. The two daughters challanged his capacity. 

In Dorsey v. Ratz, the court held that the two daughters of William Ratz did not present admissible evidence, nor did they present contradicting evidence that proved their father was incompetent.The burden to prove incompetence is on the individual who brings that claim. 

See Luke Lantta, Alcoholism And Incapacity, Bryan Cave Fiduciary Litigation, May 24, 2013.

CLE on Skills Training For Estate Planners

The American Bar Association of Real Property, Trust and Estate Law and the New York Law School  is offering a CLE program entitled, Skills Training For Estate Planners, on July 17-19, 2013.  Provided below is a description of the event:

Come to New York City July 17-19 for an intensive CLE program for experienced estate planning lawyers. The annual Skills Training for Estate Planners program has a NEW Advanced Topics course of study focused on current areas of interest and importance. This institute-type program allows lawyers to have a comprehensive CLE experience with coordinated sessions that build upon one another, covering advanced estate planning subjects. The sessions will be led by an outstanding faculty consisting of experts in all aspects of estate planning and will include time to speak with the presenters. The topics covered include:

Business Planning

• Family business planning
• Chapter 14 implications
• Valuation theory and practice
• QSSTs versus ESBTs
• Use and drafting of buy sell agreements
• Income tax exit strategies

Trust Considerations

• Use and drafting of split interest trusts
• Generation skipping transfer tax planning
• Impact of Section 2036 on drafting and planning
• Estate freezes, GRATs and sales to intentionally defective grantor trusts
• Life insurance trust planning
• The numbers of estate planning

Important Considerations

• Retirement planning and deferred compensation
• Planning for residences/vacation homes
• Planning for the multinational client
• Income tax considerations for taxable estates
• Ethical considerations

Registration Deadline - June 28

Register now for the Advanced Topics course!

For more information, including a complete schedule, list of speakers, CLE credit, and tuition rates, please visit our webpage. Contact Michael Kesler at (312) 988-5620 orMichael.Kesler@americanbar.org with any questions.

If you're looking for more fundamental training, visit our webpage for information on the Fundamentals course.

Fiduciaries Should Proceed with Caution when Handling Offshore Accounts

Trustees, executors, and other fiduciaries have an absolute obligation to gather the assets of a deceased or disabled taxpayer and provide accountings to creditors and beneficiaries.  If the taxpayer has foreign financial accounts and has failed to file a Report of Foreign Bank or Financial Account (FBAR), the fiduciary’s duty can be much more difficult.  The fiduciary may face “personal liability if he/she finds evidence of an offshore account and does not timely file currently due FBAR and properly report the accounts for income tax purposes.”

If a fiduciary finds delinquent FBARs or unreported income from offshore accounts, the fiduciary should make a voluntary disclosure under the Offshore Voluntary Disclosure Program of 2012 (OVDP) on behalf of the taxpayer’s estate.  Although beneficiaries may have a problem with coming forward under the OVDP due to the range of penalties the estate will be subjected to, the fiduciary should not risk personal liability for consciously deciding not to come forward.

See Sanford Millar, FBAR Penalties and Estate Administration, JD Supra Law News, May 20, 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

U.S. Trust Surveys High Net Worth Individuals About Healthcare & Retirement

Family health was recently discovered as a danger to a family's wealth. Health care not covered by insurance combined with financially supporting extended family has presented financial problems not typically addressed in financial planning. A survey conducted by U.S. Trust on high net worth individuals indicates only 18% have accounts for long-term health care costs for their parents. While roughly 63% claimed they felt responsible for supporting their parents financially.

The survey also showed that affluent people felt secure with their wealth and have shifted their financial priorities to asset growth. However, they are still risk averse. As a result, the low risk taking outweighs the goal of asset growth creating a divide between the strategic planning and the goal. The survey showed 88% of wealthy people feel financially stable and secure. The financial security extends to retirement because 62% of the wealthy people surveyed believe they have calculated enough for retirement.Despite this belief, there is still 75% of the respondents that did not factor the increases or possible decreases on their real estate, an important factor to consider when planning for retirement.

See High Net Worth Investors Refocus On Growth But Overlook Family, Health and Retirement Risks, Finds U.S. Trust 2013 Insights On Wealth And Worth, Yahoo Finance, May 21, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

Articles About Managing Your Digital Assets

Anne Eisenburg (Journalist, New York Times) and Paul Sullivan (Journalist, New York Times) have recently published articles Bequeathing The Keys To Your Digital Afterlife and Leaving Behind the Digital Keys To Financial Lives. Both articles provide information and tips on digital asset management. Recently, I posted a revised version of my article, Estate Planning in the Digital Age that also educates estates planning professionals on the immportance for planning for the disposition of digital assets.

Special thanks to Naomi Cahn (John Theodore Fey Research Professor of Law, George Washington University School of Law) for bringing these articles to my attention.

People Who Acquire Sudden Wealth Are More Susceptible To Fraud

The most recent Estate Analyst newsletter, highlights the different hurdles of planning for new stars, and athletes. More often than not new superstars can make the worst choices for themselves by spending too much, exposing themselves to court claims, and trusting people who are only interested in their money. Both new and old celebrities would benefit from talking to an estate planner and financial advisor.

Estate planning experts say a celebrity that has come to sudden wealth is more vulnerable to fraud by their followers or advisors because of peer pressure and misplaced trust. The experts contrast new celebrities with self-made entrepreneurs who gradually acquire wealth and are usually fiscally conservative and tend to be more disciplined about planning for the future. The newsletter distinguishes estate planning strategies suggesting to athletes it is a good idea to get life insurance. Estate planners remind everyone that even though it is easy to spend money, it is crucial to set aside some funds just in case.

 See Robert L. Moshman, Superstar Estates Fleeting Fame, Enduring Security, The Estate Analyst (May 2013).

Michael Jackson 60 Minutes Exclusive Details

As I have previously discussed, 60 Minutes had an exclusive on Michael Jackson’s estate. The Michael Jackson brand is making more money now that any single artist has made in the past four years. However, it has not been easy. After Jackson died he left over half a billion dollars in debt. He spent most of the money on Neverland, antiques, maintenance, and his entourage. Jackson was borrowing against his assets and used his music catalogues as collateral. Jackson first purchased Sly & the Family Stone catalog, and a few other classic rock catalogues. Then Jackson became part owner of ATV Music by the Beatles. It cost him $47.5 million dollars for 50% of the catalogue. When Jackson died, he had borrowed over $380 million dollars against his music assets.

Since Jackson’s death, his belongings are being sorted and stored in warehouses. The executor’s team found personal videos of Jackson preparing for his last tour in his belongings. Using those compilations, producers made a movie called “This is It.“ To date the movie has brought in $500 million dollars. In Vegas, Cirque du Soleil is working on a new production called Michael Jackson One which highlights classic Jackson choreography. There have been many frivolous claims filed against Michael’s estate and his team of executors has to defend each one. 

See Michael Jackson's Lucrative Legacy, CBS News, May 19, 2013.

Setting Goals For Philanthropic Giving and Estate Planning

Estate Planners should know what goal their client is trying to achieve and what estate planning tools will best accomplish these goals. Some of the more useful tools for providing income are the charitable remainder trust and a gift annuity. People who are planning to leave part of their estate to charity and part for their families should be aware that a balance between the two is possible, but each person’s situation is unique. For some families it is a tradition to include philanthropic trusts or donations to charity in their estate. A client should remain flexible because philanthropic advising changes over time. These changes can affect a client’s goal. Therefore, it is up to the financial advisor to use the best estate planning tools to reach their clients goals. 

See Rob Shapiro and Cameron Casey, Experts Reflect On Personal Aspects of Philanthropic and Estate Planning, Harvard Alumni, May 13, 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

Seventh Circuit Halts The Protection Of Inherited Retirement Plans

As I have previously discussed, recently the Seventh Circuit Court of Appeals held that funds within an IRA are not necessarily retirement funds so the funds could not be shielded from creditors.The laws protect retirement funds so long as they are in a tax-exempt account. The law does not define “retirement fund” so the court was able to interpret the word claiming that funds that reach the hands of a beneficiary are no longer considered retirement funds. Because of this interpretation, the court limited the definition of “retirement funds.” The court reasoned that if it chooses to exempt those funds it would allow assets being used for current consumption to be guarded against creditors. Additionally, an inherited IRA is different than other retirement tools because the money in the inherited IRA cannot stay in the IRA until retirement.

See Edwin Morrow III, Clark-Seventh Circuit Case Questions Inherited Retirement Plan Protection In Bankruptcy, The Journal, May 21, 2013.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.

A Charitable Gift Annuity

Because of the American Taxpayer Relief Act, donors face higher taxes. This year, major charitable donors will be seeking financial advice to reduce their taxable income. Single taxpayers might lose part of their itemized deductions. Single taxpayers are not the only ones facing tax increases married couples should expect increases as well. Donors over age 75 are trying to gain tax-free income. A funded gift annuity might be the best tool to reach that goal. The gift annuity is the best combination of tax-free income and donor deductions. Using a gift annuity should be effective with the expected interest rates.

See What Do Major Donors Want?, Legacy UCLA, May 21, 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

CLE on IRA Compliance Issues Including IRA Trust Violations

The American Bar Association will sponsor a CLE entitled, IRA Compliance Issues Including IRA Trust Violations, on Jun. 11, 2013 from 9:00 am - 12:45 pm. Provided below is a description of the event:

WHY ATTEND?

Government reports from the Treasury Inspector General for Tax Administration and the Government Accountability Office reveal a significant amount of noncompliance from taxpayers who make excess contributions to IRA accounts and from taxpayers who fail to receive required minimum distributions.

The IRS is developing a significant long-term compliance initiative to reduce this growing noncompliance involving retirement accounts. This strategy includes the development of techniques to identify individuals who are not in compliance. The initiative will also include education components and outreach programs.

Seymour Goldberg, the featured speaker at this program, is well known and highly respected for his expertise in retirement distribution planning and compliance. He will provide the guidance practitioners need to effectively advise their clients. As a BONUS, his just written manual for the American Bar Association, IRA Guide to IRS Compliance Issues Including IRA Trust Violations, will be given to registrants as part of the course materials at no extra cost.

PROGRAM TOPICS INCLUDE:

• Commencement of the IRS audit initiative in fiscal 2013 on IRA noncompliance
• (including outreach initiatives)
• Statute of limitations involving IRA penalties
• Professional responsibility and ethics issues
• Tax preparer responsibility and Circular 230 issues
• Personal liability of the fiduciary for debts to the U.S. Government
• Early distribution penalty violations
• Required minimum penalty violations
• Waiver distribution procedure of the required minimum penalty
• Excess contribution violations .
• Important IRA distribution tax trap to know about
• IRA trust checklist and practitioner tips
• Disclosure issues and IRA trust violations
• And much more. . . .

Life Insurance v. Annuities

Both life insurance and annuities have tax deferral benefits. Annuities offer steady income, while life insurance protects your family in the event of your death. However, many believe the tax benefits are outweighed by administration costs and penalties. If you are planning to take money from your life insurance policy then it might be wise to consider an annuity instead. Moreover, people who live in a high tax state might want to consider an annuity to hold income-generating assets.

See Weighing the Tax Advantages of Life Insurance and Annuities Against Their Real Costs, Wealthstrategiesjournal.com, May 14, 2013.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.