What Happens to Digital Assets After Death? – Annapolis and Towson Estate Planning

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

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

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

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

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

Can you protect and organize digital assets?

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

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

How do digital assets get incorporated into my estate plan?

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

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

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

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

 

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When Should I Hire an Estate Planning Attorney? – Annapolis and Towson Estate Planning

Kiplinger’s recent article entitled “Should I Hire an Estate Planning Attorney Now That I Am a Widow?” describes some situations where an experienced estate planning attorney is really required:

Estates with many types of complicated assets. Hiring an experienced estate planning attorney is a must for more complicated estates. These are estates with multiple investments, numerous assets, cryptocurrency, hedge funds, private equity, or a business. Some estates also include significant real estate, including vacation homes, commercial properties and timeshares. Managing, appraising and selling a business, real estate and complex investments are all jobs that require some expertise and experience. In addition, valuing private equity investments and certain hedge funds is also not straightforward and can require the services of an expert.

The estate might owe federal or state estate tax. In some estates, there are time-sensitive decisions that require somewhat immediate attention. Even if all assets were held jointly and court involvement is unnecessary, hiring a knowledgeable trust and estate lawyer may have real tax benefits. There are many planning strategies from which testators and their heirs can benefit. For example, the will or an estate tax return may need to be filed to transfer the deceased spouse’s unused Federal Estate Unified Tax Credit to the surviving spouse. The decision whether to transfer to an unused unified tax credit to the surviving spouse is not obvious and requires guidance from an experienced estate planning attorney.

Many states also impose their own estate taxes, and many of these states impose taxes on an estate valued at $1 million or more. Therefore, when you add the value of a home, investments and life insurance proceeds, many Americans will find themselves on the wrong side of the state exemption and owe estate taxes.

The family is fighting. Family disputes often emerge after the death of a parent. It is stressful, and emotions run high. No one is really operating at their best. If unhappy family members want to contest the will or are threatening a lawsuit, you will also need guidance from an experienced estate planning attorney. These fights can result in time-intensive and costly lawsuits. The sooner you get legal advice from a probate attorney, the better chance you have of avoiding this.

Complicated beneficiary plans. Some wills have tricky beneficiary designations that leave assets to one child but nothing to another. Others could include charitable bequests or leave assets to many beneficiaries.

Talk to an experienced attorney, whose primary focus is estate and trust law.

Reference: Kiplinger (July 5, 2022) “Should I Hire an Estate Planning Attorney Now That I Am a Widow?”

 

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

Addressing Vacation Home in Another State in Estate Planning – Annapolis and Towson Estate Planning

Many families have an out-of-state cabin or vacation home that is passed down by putting the property in a will. While that is an option, this strategy might not make it as easy as you think for your family to inherit this home in the future.

Florida Today’s recent article entitled “Avoiding probate: What is the best option for my out-of-state vacation home?” explains the reason to look into a more comprehensive plan. While you could just leave an out-of-state vacation home in your will, you might consider protecting your loved ones from the often expensive, overwhelming and complicated process of dealing both an in-state probate and an out-of-state probate.

There are options to help avoid probate on an out-of-state vacation home that can save your family headaches in the future. Let’s take a look:

  • Revocable trust: This type of trust can be altered while you are still living, especially as your assets or beneficiaries change. You can place all your assets into this trust, but at the very least, put the vacation home in the trust to avoid the property going through probate. Another benefit of a revocable trust is you could set aside money in the trust specifically for the management and upkeep of the property, and you can leave instructions on how the vacation home should be managed upon your death.
  • Irrevocable trust: similar to the revocable trust, assets can be put into an irrevocable trust, including your vacation home. You can leave instructions and money for the management of the vacation home. However, once an irrevocable trust is established, you cannot amend or terminate it.
  • Limited liability company (LLC): You can also create an LLC and list your home as an asset of the company to eliminate probate and save you or your family from the risk of losing any other assets outside of the vacation home, if sued. You can protect yourself if renting out a vacation home and the renter decides to sue. The most you could then lose is that property, rather than possibly losing any other assets. Having beneficiaries rent the home will help keep out-of-pocket expenses low for future beneficiaries. With the creation of an LLC, you are also able to create a plan to help with the future management of the vacation home.
  • Transfer via a deed: When you have multiple children, issues may arise when making decisions surrounding the home. This is usually because your wishes for the management of the house are not explicitly detailed in writing.
  • Joint ownership: You can hold the title to the property with another that’s given the right of survivorship. However, like with the deed, this can lead to miscommunication as to how the house should be cared for and used.

Plan for the future to help make certain that the property continues to be a place where cherished memories can be made for years to come. Talk to a qualified estate planning attorney for expert legal advice for your specific situation.

Reference: Florida Today (July 2, 2022) “Avoiding probate: What is the best option for my out-of-state vacation home?”

 

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Should I Update My Estate Plan? – Annapolis and Towson Estate Planning

An estate plan exists to accomplish three things.

  1. Preserving your accumulated wealth
  2. To specify who will inherit your assets after your death; and
  3. To indicate who will make health care and financial decisions on your behalf if you are unable.

Real Daily’s recent article entitled “4 Good Reasons to Update Your Estate Plan” says that as you age, you should consider updating your estate plan. Why? Well, your feelings may change over time, or you may experience a significant life event that requires you to update things. These are events such as a marriage or divorce, a new child or grandchild, or a significant change in your health, wealth and outlook on life.

In addition to your will and trusts, you need to review your power of attorney, healthcare directive, living will and HIPAA waiver.

It is critical to recognize the life events that may necessitate updating your estate plan.

For example, if you are recently married or divorced, according to some state laws, existing wills are nullified when someone gets married or divorced.

It is also possible that your wealth has increased significantly, which may affect the way you view how your assets should be distributed to your beneficiaries.

Another reason to update your plan, is if you want to give more (or less) to charity or to your heirs.

Your executor or trustees may change their minds about their roles, no longer live nearby, or they themselves have died. If an individual is no longer interested in assuming those responsibilities, no longer alive, or no longer in good health or of repute, then there is a need to revise the document.

Some other reasons to update your plan include if you are in the process of retiring, moving to another state, or buying or selling real estate.

Each of these events calls for a comprehensive estate plan review.

Finally, your goals may evolve over the years as a result of changes to your lifestyle or circumstances, such as an inheritance, career change, marriage, house purchase, or a growing family.

Reference: Real Daily (June 13, 2022) “4 Good Reasons to Update Your Estate Plan”

 

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What Is Better, a Trust or a Will? – Annapolis and Towson Estate Planning

Estate plans come in all sizes and shapes. One of the decisions in creating an estate plan is whether a trust should be part of your plan, as detailed in this recent article titled “Trust vs. Will: What They Share (And 6 Ways They are Different)” from Yahoo! Money. Both trusts and wills give control over how assets are distributed. However, there are differences.

A trust is a tool for asset protection during and after life, created by an estate planning attorney. When the trust is created, assets are transferred into the trust, which is a legal entity. If it is a revocable trust, typically you are the grantor, trustee, and beneficiary. There are also other roles, like the successor trustee, who is the trustee if the primary is incapacitated and the beneficiary, the person who receives the assets. The trustee is a fiduciary and responsible for managing the assets for the best interest of the beneficiary.

There are many different types of trusts, but they mainly fall into two categories:

Revocable or living trusts allow the grantor full control of the trust. The trust assets are outside of the probate estate. Revocable trusts can be changed, assets may be added and beneficiaries can be changed. However, there is no protection from creditors and no unique tax benefits.

Irrevocable living trusts transfer assets upon death without going through probate. They provide stronger asset protection. Assets in an irrevocable trust are not accessible to creditors and, depending on how they are set up, may place assets outside of the taxable estate.

There are also many specialized trusts. A Special Needs Trust is used to care for a person with special needs, while maintaining their government benefits. A spendthrift trust can be used to leave assets for people who are not capable (or interested) in managing funds responsibly. Trusts provide significantly more control over assets after death than wills. They may also be harder to contest after death, since they go into effect while you are living and may remain in effect for many years.

Wills are used to provide specific directions about how you want to distribute assets upon your death. The will goes through probate, where the court determines if the will is valid, if the executor is acceptable and then the will becomes part of the public record. Creditors can make claims against the estate, family members may challenge the will and depending upon where you live, it could take many months or several years to settle the estate.

How are trusts and wills different?

1—Trusts can be more complex than wills and require management. The will goes into effect upon your death, and you can change a will whenever you want. You also can change a trust whenever you want, but only if it is revocable.

2—Trusts go into effect immediately and they need to be funded, so you will have to transfer assets to the trust.

3—A trust is a separate legal entity, so assets are shielded from estate and inheritance taxes. Certain trusts do pay taxes, so speak with your estate planning attorney about how this may work for you.

4—Certain trusts put assets well beyond the reach of creditors. However, a trust may not be created solely for this purpose, since it could be deemed invalid by a court. However, in most cases, trusts work well to protect assets to pass them along to beneficiaries. A will offers no such protection, unless a “testamentary” trust is created under the will. This will created trust can operate exactly as an inheritance trust created for loved ones after you die and your revocable trust becomes irrevocable.

5—Planning for incapacity should be part of any estate plan. Once a trust is set up and funded, the assets immediately enjoy the protection by having a successor trustee to be in charge of assets if the grantor/trustee becomes incapacitated. A will only addresses what happens after you die, not what happens if you become too sick or are injured and cannot manage your affairs.

6—The trust is the winner when it comes to control over assets after death, if you want to avoid probate. You can instruct the trustee to distribute funds to beneficiaries only under certain conditions and terms. If you want beneficiaries to finish college, for instance, you can direct the trustee to distribute a certain amount of money only after the person completes an undergraduate degree. You can also use the money to pay for their college education.

For most people, a combination of a will and trust works to control assets, prepare for incapacity and, just as importantly, provide peace of mind.

Bottom line: estate planning is complicated, not a do-it-yourself project and should be done with the counsel of an experienced estate planning attorney.

Reference: Yahoo! Money (June 5, 2022) “Trust vs. Will: What They Share (And 6 Ways They are Different”

 

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

How Do I Store Estate Planning Documents? – Annapolis and Towson Estate Planning

It is a common series of events: an elderly parent is rushed to the hospital in the middle of the afternoon and once children are notified, the search for the Power of Attorney, Living Will and Health Care Power of Attorney begins. It is easily avoided with planning and communication, according to an article from The News-Enterprise titled “Give thought to storing your estate papers.” However, just because the solution is simple does not mean most people address it.

As a general rule, estate planning documents should be kept together in a fire and waterproof container in a location known to fiduciaries.

Most people think of a bank safe deposit box as a protected place. However, it is not a good location for several reasons. Individuals may not have access to the contents of the safe deposit box, unless they are named on the account. Even with their names on the account, emergencies do not follow bankers’ hours. If the Power of Attorney giving the person the ability to access the safe deposit box is inside the safe deposit box, bank officials are not likely to be willing to open the box to an unknown person.

A well-organized binder of documents in a fire and waterproof container at home makes the most sense.

Certain documents should be given in advance to certain agencies or offices. For instance, health care documents, like the Health Care Power of Attorney and Advance Medical Directive (or Living Will) should be given to each healthcare provider to keep in the person’s medical record and be sure they are accessible 24/7 to health care providers. Make sure that there are copies for adult children or whoever has been designated to serve as the Health Care Power of Attorney.

Power of Attorney documents should be given to each financial institution or agency in preparation for use, if and when the time comes.

It may feel like an overwhelming task to contact banks and brokerage houses in advance to make sure they accept a Power of Attorney form in advance. However, imagine the same hours plus the immense stress if this has to be done when a parent is incapacitated or has died. Banks, in particular, require POAs to be reviewed by their own attorneys before the document can be approved, which could take weeks to complete.

Depending upon where you live, Durable General Powers of Attorney may be filed at the county clerk’s office. If a POA is filed but is later revoked and a new document created, or if a fiduciary needs to convey real estate property with the powers conferred by a POA, the document at the county clerk’s office should be updated.

Last will and testaments are treated differently than POA documents. Wills are usually kept at home and not filed anywhere until after death.

Each fiduciary listed in the documents should be given a copy of the documents. This will be helpful when it is time to show proof they are a decision maker.

Having estate planning documents properly prepared by an experienced estate planning attorney is the first step. Step two is ensuring they are safely and properly stored, so they are ready for use when needed.

Reference: The Times-Enterprise (June 11, 2022) “Give thought to storing your estate papers”

 

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

What’s Involved in an Estate Inventory? – Annapolis and Towson Estate Planning

If you are named as executor of an estate, you will be tasked with identifying all the assets of the decedent. Let’s look at some of the options you may have for identifying assets:

  • The deceased’s will if they have one
  • Their financial statements or legal documents
  • Their recent tax returns
  • Abandoned asset database searching; and
  • A public property records search.

Yahoo Finance’s recent article entitled “What Is Included in an Estate Inventory?” says you may also be able to find assets for an estate inventory by talking to the decedent’s financial advisor, estate planning attorney, or relatives. An executor must be as thorough as possible, so the final inventory list submitted to the probate court is accurate and complete.

If you are planning your estate, you can make this job easier for your executor by creating an estate inventory yourself. Keep a copy of this inventory with a copy of your will, if you have one in place. (If you do not have a will, draft one sooner rather than later.) If you pass without a will in place, your assets would be distributed according to state law.

If you are making an inventory of your estate, include the types of assets for which an executor might search. Depending on your financial situation, your personal estate inventory might include:

  • A 401(k) plan or similar employer-sponsored retirement plan
  • Traditional or Roth IRAs
  • Business retirement accounts, such as a solo 401(k) or SEP IRA if you are self-employed
  • Taxable brokerage accounts
  • A Health Savings Account (HSA)
  • College savings accounts
  • Life insurance policies
  • Bank accounts
  • Vehicles
  • Real estate and land
  • Personal possessions that are valued at $500 or more; and
  • Family heirlooms, antiques, or collectibles.

The executor’s job can be simplified by making a list of any liabilities or debts that you owe. This can include a mortgage on your home, auto loans, private student loans, credit cards, installment loans, business loans, tax liens, medical bills and personal loans. Once you complete your personal estate inventory you may want to file a copy of it with your estate planning attorney. Review your inventory annually to make certain that it is up to date.

Knowing what is included in an estate inventory can make your job as an executor easier. If you submit an incomplete inventory, it may delay the probate process.

Reference: Yahoo Finance (Feb. 15, 2022) “What Is Included in an Estate Inventory?”

 

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

What Sparks the Contesting of a Will? – Annapolis and Towson Estate Planning

A last will and testament is the document used to direct your executor to distribute assets and property according to your wishes. However, it is not uncommon for disgruntled or distant family members or others to dispute the validity of the will. A recent article titled “5 Reasons A Law Will May Be Contested” from Vents Magazine explains the top five factors to keep in mind when preparing your will.

Undue influence is a commonly invoked reason for a challenge. If a potential beneficiary can prove the person making the will (the testator) was influenced by another person to make decisions they would not have otherwise made, a will challenge could be brought to court. Undue influence means the testator’s decision was significantly affected by a person who stood to gain something by the outcome of the will and made a concerted effort to change the testator’s mind.

Even if there was no evidence of fraud, any suspicion of the testator’s being influenced is enough for a court to accept a case. If you think someone unduly influenced a loved one, especially if they suffer from any mental frailties or dementia, you may have cause to bring a case.

Outright fraud or forgery is another reason for the will to be contested. If there have been many erasures or signature styles appear different from one document to another, there may have been fraud. An estate planning attorney should examine documents to evaluate whether there is enough cause for suspicion to challenge the will.

Improper witnesses. The testator is required to sign the will with witnesses present. In some states, only one witness is required. In most states, two witnesses must be present to sign the will in front of the testator. A beneficiary may not be a witness to the signing of the will. Some states have changed laws to allow for remote signings in response to COVID. If the rules have not been followed, the will may be invalid.

Mistaken identity seems farfetched. However, it is a common occurrence, especially when someone has a common name or more than one person in the family has the same name, and the document has not been properly signed or witnessed. This could create confusion and make the document vulnerable to a challenge. An experienced estate planning attorney will know how to prepare documents to withstand any challenges.

Capacity in the law means someone is able to understand the concept of a will and contents of the document they are signing, along with the identities of the people to whom they are leaving their assets. The person does not need to have perfect mental health, so people with mild cognitive impairments, such as depression or anxiety, may make and sign a will. A medical opinion may be needed, if there might be any doubt as to whether a person had testamentary capacity when the will is signed.

A will contest can be time-consuming and expensive, so keep these issues in mind, especially if the family includes some litigious individuals.

Reference: Vents Magazine (May 6, 2022) “5 Reasons A Law Will May Be Contested”

 

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How Can I Help My Family After I Pass Away? – Annapolis and Towson Estate Planning

In addition to attempting to arrange a spouse’s funeral, a grieving person must try to locate the deceased’s will, the executor, information on the family’s finances and the various family accounts’ usernames and passwords.

Starts at 60’s recent article entitled “How to take care of your family in life and in death” explains that estate planning is always a difficult subject to deal with, because no one wants to arrange things for when they die.

However, good communication and planning make the life of the surviving spouse and family easier, particularly during the inevitably stressful time of dealing with the death. Let’s look at seven key points of estate planning:

Communication. Sharing information is crucial. Both spouses should be aware of the family’s investments and advisors. The advisers should also know both clients to help make any transition as seamless as possible. Where one spouse has taken responsibility for the financial affairs, he or she should leave specific instructions concerning who to contact in the event of their death and what steps to be taken.

Bank accounts. It is important to know what bank accounts the couple has, and, importantly, what are the accounts’ usernames and passwords. They should also make the executor or adult children aware of the location of the keys to the safety deposit box or the code to the safe at home.

Financial contacts. The couple should divulge important family financial contacts, such as an accountant, estate planning attorney, their insurance broker and financial advisors.

Will. Determine where their wills are kept and if they are up to date. Note the names of the executors. You should also see if the executors are aware they have been named as executors, and if the couple has any power of attorney documents.

Life Insurance. See if the couple has life insurance and note the details of the policy, as well as the agent’s contact information.

Other family assets. Your other valuables should be recorded with the specific ownership of each noted and shared with an estate planning attorney. This includes companies, motor vehicles, boats, vacation homes and art collections.

Reference: Starts at 60 (April 2, 2022) “How to take care of your family in life and in death”

 

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

What Happens Financially when a Spouse Dies? – Annapolis and Towson Estate Planning

Losing a beloved spouse is one of the most stressful events in life, so it is one we tend not to talk about. However, planning for life after the passing of a spouse needs to be done, as it is an eventuality. According to a recent article from AARP Magazine, “The Financial Penalty of Losing Your Spouse,” the best time to plan for this is before your spouse dies.

You will have the most options while your spouse is still living. Estate plans, wills, trusts, and beneficiary designations can still be updated, as long as your spouse has legal capacity. You can make sure you will still have access to savings, retirement, and investment accounts. Create a list of assets, including information needed to access digital accounts.

Make sure that your credit cards will be available. Many surviving spouses only learn after a death whether credit cards are in the spouse’s name or their own name.

Get help from professionals. Review your new status with your estate planning attorney, CPA and financial advisor. This includes which accounts need to be moved and which need to be renamed. Can you afford to maintain your home? An experienced professional who works regularly with widows or widowers can provide help, if you are open to asking.

A warning note: Be careful about new “friends.” Widows are key targets of scammers, and thieves are very good at scamming vulnerable people.

Be strategic about Social Security. If both partners were drawing benefits, the surviving spouse may elect the higher benefit going forward. If you have not claimed yet, you have options. You can take either a survivor’s benefit based on your spouse’s work history, or the retirement benefit based on your own work history. You will be able to switch to the higher benefit, if it ends up being higher, later on.

Be careful about your spouse’s 401(k) and IRA. If you are in your 50s, you are allowed to roll your spouse’s 401(k) or IRA into your own account. However, do not rush to move the 401(k). You can make a withdrawal from a late spouse’s 401(k) without penalty. However, it will be taxable as ordinary income. If you move the 401(k) to a rollover IRA, you will have to pay taxes plus a 10% penalty on any withdrawals taken from the IRA before you reach 59 ½. Your estate planning attorney can help with these accounts.

Use any advantages available to you. The IRS will still let you file jointly in the year of your spouse’s death. Tax rates are better for married filers than for singles. Any taxable withdrawals you’ll need to take from 401(k)s or IRAs may be taxed at a lower rate during this year. You may decide to use the money to create a rollover Roth IRA or to put some funds into a non-tax deferred account.

Do not rush to do anything you do not have to do. Selling your home, writing large checks to children, or moving are all things you should not do right now. Decisions made in the fog of grief are often regretted later on. Take your time to mourn, adjust to your admittedly unwanted new life and give yourself time for this major adjustment.

Reference: AARP Magazine (May 13, 2022) “The Financial Penalty of Losing Your Spouse”

 

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