Read more about the article Integrating Digital Assets for Estate Planning- Annapolis and Towson Estate Planning

Integrating Digital Assets for Estate Planning- Annapolis and Towson Estate Planning

Estate planning for digital assets is an increasingly important aspect of overall estate planning due to the growth of online accounts, cryptocurrencies, and other digital assets. It involves organizing and planning for the management and distribution of your digital assets in the event of your incapacity or passing. Here are key considerations and steps to effectively include digital assets in your estate plan:

  1. Take Inventory of Digital Assets: Start by creating a comprehensive list of your digital assets, including:
    • Financial Accounts: Online banking, investment accounts, PayPal, etc.
    • Social Media and Email Accounts: Facebook, Twitter, Gmail, etc.
    • Digital Media: Music, videos, ebooks, etc.
    • Cryptocurrencies: Bitcoin, Ethereum, etc.
    • Domain Names and Websites: If you own any.
    • Online Storage Accounts: Dropbox, Google Drive, etc.
  1. Organize Documentation and Access Information:
    • Document account information, login credentials, and any two-factor authentication codes.
    • Store this information securely, either in a physical location (like a safe deposit box) or a password manager. Ensure a trusted individual knows how to access this information.
  1. Appoint a Digital Executor:
    • Designate a trusted person as your digital executor in your will or estate plan.
    • Grant them the authority to access, manage, and distribute your digital assets in accordance with your wishes.
  1. Review Terms of Service Agreements:
    • Understand the terms of service for each digital platform or service you use, as they may have specific rules about transferring or accessing accounts after death.
    • Comply with any necessary procedures for handling digital assets outlined in these agreements.
  1. Communicate Your Wishes:
    • Clearly communicate your wishes regarding digital assets to your loved ones, digital executor, and any other relevant parties.
    • Provide guidance on how you want each type of digital asset handled, shared, or preserved.
  1. Regularly Update Your Plan:
    • Regularly review and update your estate plan, especially if you acquire new digital assets or change online account information.
  1. Consult with Professionals:
    • Seek advice from estate planning attorneys or financial advisors who are knowledgeable about digital asset planning to ensure your plan is thorough and legally sound.
  1. Consider Legal Assistance:
    • Depending on the complexity of your digital assets and your overall estate, consult a lawyer specializing in estate planning and digital asset management to ensure your plan is comprehensive and legally binding.

By integrating your digital assets into your estate plan, you can help ensure a smooth transition of your online presence and assets to your chosen beneficiaries and loved ones.

Contact us to schedule a complimentary call with one of our experienced estate planning attorneys!

Sims & Campbell, LLC– Annapolis and Towson Estate Planning Attorneys

Read more about the article What Is the Purpose of an Executor? – Annapolis and Towson Estate Planning

What Is the Purpose of an Executor? – Annapolis and Towson Estate Planning

It is flattering to be named the executor for a loved one. It demonstrates an extremely high level of trust and respect, as the person considers you capable enough to fulfill their wishes when they have passed. However, just because you have been named executor does not mean you are obliged to serve, says the recent article, “What are the responsibilities of an executor?” from Daily Local News.

Suppose you decide the responsibilities of being an executor are more than you’re willing or able to handle. In that case, you can renounce your position as executor, and a successor executor named in the will becomes the executor. If the person who named you executor did not name a successor, the court will select a person for the role.

If you have any doubts about this role, please tell the person who asks you to serve, so they can make other arrangements.

If you choose to serve, you’ll want to understand what the job entails. Each estate is unique, and its administration depends upon the assets owned by the deceased, what debts they had and their wishes for distribution.

Some duties are the same regardless of the complexity or simplicity of the estate. For example, the executor often makes arrangements with the funeral home and provides information for the death certificate. Once the death certificate is issued, the executor probates the will with the local court in the county where the decedent last lived. Most people retain an estate planning attorney to guide them through probate and estate administration.

Once the petition for probate has been filed and the court issues Letters Testamentary empowering you to serve as the executor, the administration begins. Some, but not all, of the tasks, include:

  • Gathering assets
  • Notifying beneficiaries named in the will
  • Obtaining an EIN federal tax number for the estate
  • Opening an estate checking account
  • Verifying and paying the debts of the decedent
  • Liquidating and transferring estate assets into the estate checking account
  • Filing a final personal income tax return
  • Providing an accounting to beneficiaries and distributing the estate in accordance with the decedent’s will
  • Filing an estate tax return.

The executor also handles other tasks, such as selling the contents of the person’s residence and home.

The executor is entitled to reasonable compensation for their services. The amount is treated as taxable income. Determining the fee depends on the value and complexity of the estate and the amount of time it took to settle the estate. Some family members waive a fee, while others feel their time deserves compensation.

An estate planning attorney can provide invaluable assistance and prevent expensive mistakes from occurring. If the estate involves businesses, complex ownership structures, trusts, or other sophisticated assets, it is worthwhile to have the help of an experienced professional.

Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Daily Local News (March 22, 2023) “What are an executor’s responsibilities?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Read more about the article What Is Probate?- Annapolis and Towson Estate Planning

What Is Probate?- Annapolis and Towson Estate Planning

Investopedia’s recent article, “What Is Probate Court?” explains that people want to avoid or shorten the probate process because of its length and expense. This can be accomplished by creating a living trust, assigning your assets to it and naming beneficiaries for those assets. A living trust is an estate planning tool that can help you avoid probate’s usually lengthy, sometimes costly, and always public nature.

Some assets, including life insurance and retirement accounts, are not generally subject to probate. You instead designate beneficiaries for them in the account paperwork held by the life insurance company, retirement plan, brokerage, and bank. As a result, these funds will flow directly to the beneficiaries upon your death.

Another way to reduce probate is to give gifts during your lifetime. Anyone can provide individuals with tax-free money in the form of gifts, as defined by the IRS.

At a probate court hearing, the judge will list the responsibilities of the executor of the will, including contacting any beneficiaries and creditors, appraising the deceased’s assets and paying any outstanding creditors and taxes.

At the second court hearing, the judge will ensure that all these tasks have been accomplished and close out the estate, so that the transfers of money and other assets in the estate may start.

Each state has specific probate laws to determine what’s required. Unless someone has no assets or descendants when they die, probate may still be necessary to settle the deceased’s remaining affairs, including debts, assets and paying their final bills and taxes.

While it can be hard to avoid probate court altogether, some ways to avoid probate include creating a living trust, naming beneficiaries clearly on all investment, bank and retirement accounts, and establishing joint ownership for certain assets.

The time for probate varies depending on the deceased person’s assets, the complexity of their will and other factors. For instance, the executor may have to liquidate assets to pay creditors, and selling a home or other property for this purpose can take time. However, the average time it takes to complete is about nine months.

After someone dies, the grief over their loss can be all-consuming for their family and friends.  Unfortunately, the probate process can add to this a financial and administrative burden. Yet, with or without a will, the probate process is essential to ensure that all of one’s affairs are in order before death.

Contact us to review your estate plan with one of our experienced estate planning attorneys.

Reference: Investopedia (Sep. 21, 2022) “What Is Probate Court?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys 

Storing Passwords in Case of Death – Annapolis and Towson Estate Planning

Despite having the resources to hire IT forensic experts to help access accounts, including her husband’s IRA, it has been three years and Deborah Placet still has not been able to gain access to her husband’s Bitcoin account. Placet and her late husband were financial planners and should have known better. However, they did not have a digital estate plan. Her situation, according to the Barron’s article “How to Ensure Heirs Avoid a Password-Protected Nightmare” offers cautionary tale.

Our digital footprint keeps expanding. As a result, there is no paper trail to follow when a loved one dies. In the past, an executor or estate administrator could simply have mail forwarded and figure out accounts, assets and values. Not only do we not have a paper trail, but digital accounts are protected by passwords, multifactor authentication processes, fingerprints, facial recognition systems and federal data privacy laws.

The starting point is to create a list of digital accounts. Instructions on how to gain access to the accounts must be very specific, because a password alone may not be enough information. Explain what you want to happen to the account: should ownership be transferred to someone else, who has permission to retrieve and save the data and whether you want the account to be shut down and no data saved, etc.

The account list should include:

  • Social media platforms
  • Traditional bank, retirement and investment accounts
  • PayPal, Venmo and similar payment accounts
  • Cryptocurrency wallets, nonfungible token (NFT) assets
  • Home and utilities accounts, like mortgage, electric, gas, cable, internet
  • Insurance, including home, auto, flood, health, life, disability, long-term care.
  • Smart phone accounts
  • Online storage accounts
  • Photo, music and video accounts
  • Subscription services
  • Loyalty/rewards programs
  • Gaming accounts

Some accounts may be accessed by using a username and password. However, others are more secure and require biometric protection. This information should all be included in a document, but the document should not be included in the Last Will and Testament, since the Last Will and Testament becomes public information through probate and is accessible to anyone who wants to see it.

Certain platforms have created a process to allow heirs to access assets. Typically, death certificates, a Last Will and Testament or probate documents, a valid photo ID of the deceased and a letter signed by those named in the probate records outlining what is to be done with assets are required. However, not every platform has addressed this issue.

Compiling a list of digital assets is about as much fun as preparing for tax season. However, without a plan, digital assets are likely to be lost. Identity theft and fraud occurs when assets are unprotected and unused.

Just as a traditional estate plan protects heirs to avoid further stress and expense, a digital estate plan helps to protect the family and loved ones. Speak with your estate planning attorney as you are working on your estate plan to create a digital estate plan.

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

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

How Do the Children Divide Up Mom’s Tangible Property? – Annapolis and Towson Estate Planning

What should you do if you have been given the task to be in charge of divvying up a parent’s estate that includes assorted tangible items?

Minneapolis Tribune’s article entitled “A clever way to divvy up items after a parent’s death” says that some families do it by taking turns selecting which items each will keep.

The article discusses how a family decided to divide things up their mom’s grand estate and how the method the family used to divvy up the tangible items could be one that other families with much smaller estates could use.

After their mom’s death at 93, the brother and sister co-executors created an inventory of 724 items in her estate that had monetary or sentimental value. These included things like furniture, artwork, oriental rugs, cutlery, china, a piano and a car. They did not include their mom’s jewelry, books or linens, or her silver, gold and collectible coins. The four siblings all agreed to sell the coins and to deal with the many books, linens, and jewelry more informally, after the more significant items had been distributed.

The family did not use the common way of disbursing tangible items of an estate, in which family members take turns choosing items. With over 700 items, that could take a while. They felt that system would not maximize the value received by the four children and seven grandchildren. Instead, their process for dividing the intangible items used the following steps:

  1. The inventory was given to all four siblings and asked each one to state the items that they were interested in. This divided the 724 items into three groups: (a) items in which no one had an interest; (b) items in which only one person had an interest; and (c) those in which two or more were interested. Things in which no one had an interest were set aside to be sold or given away, and those who were the only siblings to want certain items got them.
  2. They then made lists of items in which more than one sibling expressed an interest. Each received a list of those items. They were not given information on ones in which they were not interested—one of two ways the system was not transparent.
  3. Each person was then “given” 500 virtual poker chips that he or she could use to bid for contested items. However, prior to the bidding deadline, they could talk with one another about their intentions. The result was that many had bid for several similar items, like family pictures, bookcases and oriental rugs — when they really only wanted one from each category. Thus, they agreed among themselves who would receive each one, without wasting too many chips. This also avoided two siblings using a lot of tokens to bid for a particular item, and no one bidding on another similar one.
  4. After the bids were in, the co-executors announced the results without revealing the bids, to avoid a silent auction where bidders can see what others are bidding and readjust their bids up to the deadline. This was the second part of the system that was not transparent.
  5. Finally, when all the allocations were determined, the co-executors tabulated the monetary value of all the items and readjusted the estate monetary distributions to ensure that everyone came out at the same place financially. The most valuable items were a 1919 Steinway drawing room grand piano valued at $25,000; a 2005 Toyota Camry valued at $4,500; and some oriental rugs with a total value of $13,975. Those who got the big-ticket items had to pay their siblings something for them, with a total of $17,500 trading hands.

It was time-consuming and took several months, but the siblings thought that their system was very fair and the process, unlike what is done in some other family estates, relieved tensions and brought the siblings closer together.

Reference: Minneapolis Tribune (Feb. 25, 2020) “A clever way to divvy up items after a parent’s death”

 

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

 

 

Is There Estate Tax on the Property I Inherited? – Annapolis and Towson Estate Planning

The vast majority of those who inherit real estate don’t end up paying any taxes on the property. However, there are some instances where estate or inheritance taxes could be assessed on inherited real estate. Motley Fool’s recent article, “Do You Have to Pay Estate Tax on Real Estate You Inherit?” provides a rundown of how estate taxes work in the U.S. and what it means to you if you inherit or are gifted real estate assets.

An estate tax is a tax applied on property transfers at death. A gift tax is a tax levied on property transfers while both parties are alive. An inheritance tax is assessed on the individual who inherits the property. For real estate purposes, you should also know that this includes money and property, and real estate is valued based on the fair market value at the time of the decedent’s death.

Most Americans don’t have to worry about estate taxes because we’re allowed to exclude a certain amount of assets from our taxable estates, which is called the lifetime exemption. This amount is adjusted for inflation over time and is $11.58 million per person for 2020. Note that estate taxes aren’t paid by people who inherit the property but are paid directly by the estate before it is distributed to the heirs.

The estate and gift taxes in the U.S. are part of a unified system. The IRS allows an annual exclusion amount that exempts many gifts from any potential transfer tax taxation. In 2020, it’s $15,000 per donor, per recipient. Although money (or assets) exceeding this amount in a given year is reported as a taxable gift, doesn’t mean you’ll need to pay tax on them. However, taxable gifts do accumulate from year to year and count toward your lifetime exclusion. If you passed away in 2020, your lifetime exclusion will be $11.58 million for estate tax purposes.

If you’d given $3 million in taxable gifts during your lifetime, you’ll only be able to exclude $8.58 million of your assets from estate taxation. You’d only be required to pay any gift taxes while you’re alive, if you use up your entire lifetime exemption. If you have given away $11 million prior to 2020 and you give away another $1 million, it would trigger a taxable gift to the extent that your new gift exceeds the $11.58 million threshold.

There are a few special rules to understand, such as the fact that you can give any amount to your spouse in most cases, without any gift or estate tax. Any amount given to charity is also free of gift tax and doesn’t count toward your lifetime exemption. Higher education expenses are free of gift and estate tax consequences provided the payment is made directly to the school. Medical expense payments are free of gift and estate tax consequences, if the payment is made directly to the health care provider.

Remember that some states also have their own estate and/or inheritance taxes that you might need to consider.

States that have an estate tax include Connecticut, Illinois, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington. The states with an inheritance tax are Iowa, Kentucky, Nebraska, New Jersey and Pennsylvania. Maryland has both an estate and an inheritance tax. However, there are very few situations when you would personally have to pay tax on inherited real estate.

Estate tax can be a complex issue, so speak with a qualified estate planning attorney.

Reference: Motley Fool (December 11, 2019) “Do You Have to Pay Estate Tax on Real Estate You Inherit?”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What Should I Know About Being an Executor? – Annapolis and Towson Estate Planning

You’re named executor because someone thinks you’d be good at collecting assets, settling debts, filing estate tax returns where necessary, distributing assets and closing the estate.

However, Investopedia’s article from last summer, “5 Surprising Hazards of Being an Executor,” explains that the person named as an executor isn’t required to accept the appointment. Prior to agreeing to act as an executor, you should know some of the hazards that can result, as well as how you can address some of these potential issues, so that being an executor can run smoothly.

  1. Conflicts with Co-Executors. Parents will frequently name more than one adult child as co-executor, so they don’t show favoritism. However, for those who are named, this may not work well because some children may live far way, making it difficult to coordinate the hands-on activities, like securing assets and selling a home. Some adult children may also not have the financial ability to deal with creditors, understand estate tax matters and perform effective accounting to satisfy beneficiaries that things have been properly handled. In addition, multiple executors mean additional paperwork. Instead, see if co-executors can agree to allow only one to serve, and the others will waive their appointment. Another option is for all of the children to decline and allow a bank’s trust department to handle the task. Employing a bank to serve instead of an individual as executor can alleviate conflicts among the children and relieves them from what could be a very difficult job.
  2. Conflicts with Heirs. It’s an executor’s job to gather the estate assets and distribute them according to the deceased person’s wishes. In some cases, heirs will land on a decedent’s home even before the funeral, taking mementos, heirlooms and other valuables. It’s best to secure the home and other assets as quickly as possible. Tell the heirs that this is the law and share information about the decedent’s wishes, which may be described in a will or listed in a separate document. This Letter of Last Instruction isn’t binding on the executor but can be a good guide for asset disbursements.
  3. Time-Consuming Responsibilities. One of the major drawbacks to be an executor is the amount of time it takes to handle responsibilities. For example, imagine the time involved in contacting various government agencies. This can include the Social Security Administration to stop Social Security benefits and, in the case of a surviving spouse, claim the $255 death benefit. However, an executor can permit an estate attorney to handle many of these matters.
  4. Personal Liability Exposure. The executor must pay taxes owed, before disbursing inheritances to heirs. However, if you pay heirs first and don’t have enough funds in the estate’s checking account to pay taxes, you’re personally liable for the taxes. Explain to heirs who are chomping at the bit to receive their inheritances that you’re not allowed to give them their share, until you’ve settled with creditors, the IRS and others with a claim against the estate. You should also be sure that you understand the extent of the funds needed to pay what’s owed.
  5. Out-of-Pocket Expenses. An executor can receive a commission for handling his duties. The amount of the commission is typically determined by the size of the estate (e.g., a percentage of assets). However, with many cases, particularly smaller estates and among families, an executor may waive any commission. You should pay the expenses of the estate from an estate checking account and record all out-of-pocket expenses, because some of these expenses may be reimbursable by the estate.

Being an executor can be a challenge, but somebody must do it. If that person’s you, be sure to know what you’re getting into before you agree to act as an executor.

Reference: Investopedia (June 25, 2019) “5 Surprising Hazards of Being an Executor”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

How Do I Plan for My Incapacity? – Annapolis and Towson Estate Planning

The Post-Searchlight’s recent article, “How to go about planning for incapacity,” advises that planning ahead can make certain that your health-care wishes will be carried out, and that your finances will continue to be competently managed.

Incapacity can strike at any time. Advancing age can bring dementia and Alzheimer’s disease, and a serious illness or accident can happen suddenly. Therefore, it’s a real possibility that you or your spouse could become unable to handle your own medical or financial affairs.

If you become incapacitated without the proper plans and documentation in place, a relative or friend will have to petition the court to appoint a guardian for you. This is a public procedure that can be stressful, time consuming and costly. In addition, without your directions, a guardian might not make the decisions you would have made.

Advance medical directives. Without any legal documents that state your wishes, healthcare providers are obligated to prolong your life using artificial means, if necessary, even if you really don’t want this. To avoid this happening to you, sign an advance medical directive. There are three types of advance medical directives: a living will, a durable power of attorney for health care (or health-care proxy) and a Do Not Resuscitate order (DNR). Each of these documents has its own purpose, benefits and drawbacks, and may not be effective in some states. Employ an experienced estate planning attorney to prepare your medical directives to make certain that you have the ones you’ll need and that all documents are consistent.

Living will. This document lets you stipulate the types of medical care you want to receive, despite the fact that you will die as a result of the choice. Check with an estate planning attorney about how living wills are used in your state.

Durable power of attorney for health care. Also called a “health-care proxy,” this document lets you designate a representative to make medical decisions on your behalf.

Do Not Resuscitate order (DNR). This is a physician’s order that tells all other medical staff not to perform CPR, if you go into cardiac arrest. There are two types of DNRs: (i) a DNR that’s only effective while you are hospitalized; and (ii) and DNR that’s used while you’re outside the hospital.

Durable power of attorney (DPOA). This document lets you to name an individual to act on your behalf. There are two types of DPOA: (i) an immediate DPOA. This document is effective immediately; and (ii) a springing DPOA, which isn’t effective until you’ve become incapacitated. Both types end at your death. Note that a springing DPOA isn’t legal in some states, so check with an estate planning attorney.

Incapacity can be determined by (i) physician certification where you can include a provision in a durable power of attorney naming one or more doctors to make the determination, or you can state that your incapacity will be determined by your attending physician at the relevant time; and (ii) judicial finding where a judge is petitioned to determine incapacity where a hearing is held where medical and other testimony will be heard.

Reference: The Post-Searchlight (December 13, 2019) “How to go about planning for incapacity”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

What Happens to Estate Tax Benefits After 2025? – Annapolis and Towson Estate Planning

You may recall that the 2017 Republican tax reform legislation roughly doubled the estate and gift tax exemption.

This means starting in 2019, people are permitted to pass on, tax-free, $11.4 million from their estate and gifts they give before their death. Couples can pass on twice that amount, or $22.8 million.

These higher levels expire in 2026, but those who make large gifts while the exemption is higher and die after it goes back down, won’t see the estate tax benefit eroded, the IRS announced recently via new regulations.

“As a result, individuals planning to make large gifts between 2018 and 2025 can do so, without concern that they will lose the tax benefit of the higher exclusion level once it decreases after 2025,” the agency said in a press release.

Yahoo Finance’s recent article, “IRS Says Millionaires Can Keep Estate Tax Benefits After 2025,” says that the exemption increase was a big priority for Republicans in the 2017 tax overhaul.

This exemption decreased the number of individuals who’d be subject to the 40% estate tax by about two-thirds.

The exemption was $5.5 million prior to the law change.

However, Democrats are looking to reverse those changes, if they sweep the House, Senate and White House in the 2020 national elections.

Nearly every Democratic presidential candidate would like to see the estate tax apply to a greater number of wealthy families.

Senator Bernie Sanders has called for the estate tax, to begin when fortunes are worth at least $3.5 million. He has also proposed rates as high as 77%.

Reference: Yahoo Finance (November 22, 2019) “IRS Says Millionaires Can Keep Estate Tax Benefits After 2025”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys

Simple Mistakes to Avoid in Estate Planning – Annapolis and Towson Estate Planning

There’s so much information available today, good and bad, that it is not always easy to know which is which. Just as we should not perform surgery on ourselves, we are asking for problems if we try to manage our estate planning without professional help. That’s the good advice from the article “Examining three common mistakes of estate planning” from The News-Enterprise.

For one thing, the roles of power of attorney agent and executor are often confused. The power of attorney agent acts in accordance with a document that is used when a person is living. The power of attorney appointment is made by you for someone to act on your behalf, when you cannot do so. The power of attorney expires upon your death.

The executor is a person who you name to handle matters for your estate after your death, as instructed in your last will and testament. The executor is nominated by you but is not in effect, until that person is appointed through a court order. Therefore, the executor cannot act on your behalf, until you have died and a court has reviewed your will and appointed them to handle your estate.

Too many people opt for the easy way out, when it comes to estate planning. We hear that someone wants a “simple will.” This is planning based on a document, rather than planning for someone’s goals. Every estate plan needs to be prepared with the consideration of a person’s health, family relationships, and finances.

Many problems that arise in the probate process could have been prevented, had good estate planning been done.

Another mistake is not addressing change. This can lead to big problems while you are living and after you die. If you are healthy, that’s great—but you may not always enjoy good health. Your health and the health of your loved ones may change.

Family dynamics also change over time. If you only plan for your current circumstances, without planning for change, then you may need to make many updates to your will.

The other thing that will occur, is that your estate plan may fail. Be realistic, and work with your estate planning attorney to plan for the many changes that life brings. Plan for incapacity and for long-term care. Make sure that your documents include secondary beneficiaries, disability provisions, and successor fiduciaries.

Create an estate plan that works with today’s circumstances, but also anticipates what the future may bring.

Reference: The News-Enterprise (Nov. 18, 2019) “Examining three common mistakes of estate planning”

Sims & Campbell, LLC – Annapolis and Towson Estate Planning Attorneys