July 22, 2016 By JRL, Esq.

It has been anticipated that by 2050 there will be nearly 20 million Americans who are at least age 85 or older.  What steps can someone take to assure that he or she remains in control of his or her assets for as long as possible?  And as you age, what are the steps that can be taken to minimize the risk of elder financial abuse?

Almost all well-developed estate plans include not only a Revocable Living Trust to hold assets during one’s lifetime, but also include preparation of a Durable Power of Attorney, which names someone to handle the your financial assets which are not held in the trust in the event you become disabled or incapacitated.  However, it’s rare that something is done to address the practicalities that a Successor Trustee or agent acting under a Power of Attorney will face.  As more and more individuals are living longer, what steps can be taken to make your later years as secure as possible?  Estate planning is not the only issue that should be addressed, but a broader discussion about financial planning, personal organization, home design, and more should be had.

The following are five steps that can be taken to help address some of the issues and challenges in later life planning:

1. Consider downsizing. I am talking about downsizing your residence and the amount of “stuff” that you have.  Less space simply means less to take care of and less time demands.  This is truly a case where “less is more” as we age and face health challenges.  Also, as you shed the tangible personal property that you no longer need, you may be reducing or eliminating family fights, protecting you from a wide array of physical or emotional problems.  Another benefit of downsizing can be “down-costing,” thereby leaving you more in your budget to spend on activities that you enjoy.  And while moving out of that home that you have owned for many years can be looked at as a loss of independence and defeat, the reality is that it can be just the opposite.  It can be very empowering, safer, and foster a greater sense of security, both physically and financially.
2. Scan Documents. We all have boxes full of old financial records and tax returns.  And the older we get, the more we have.  As part of the downsizing mentioned above, it may make sense to review all those old records, scan those that are important, and destroy everything else.  Certain documents you may not want to shred after they are scanned. Other you will want to keep, such as tax basis documents and key legal documents.
3. Digitalize. Many older individuals have boxes and boxes full of old photographs, 35-mm slides, and
   

   Digitalize Your Old Slides and Film

   priceless 8-mm home videos.  It is a good idea to preserve these treasured items of personal history by having them digitalized.  In doing so you will be able to more easily store them and share them.

4. Consider home safety. Rather than ignoring the realities of aging and health challenges until it is too late, one should consider what safety features either should or might be advisable to install in his or her home.  One may need to decide whether it is even feasible to modify an existing home or whether it is more advisable to simply relocate to a different type of home.  Some examples of potential modifications may include grab bars in bathrooms or home automation.
5. Checks and balances. You should consider building into your estate plan certain safeguards.  For example, if you were to become incapacitated you may wish your various financial statements to also be sent to your CPA for review.  The accountant could provide a report or advise another family member if they were concerned about elder financial abuse.

By taking these actions before they are needed, you will be better able to remain in control of your assets for as long as possible.  This includes minimizing the risk of elder financial abuse and securing treasured memories.

July 18, 2016 By JRL, Esq.

When considering where one lives, common factors include employment and extended family.  However, for the Baby Boomers who are retiring in increasing numbers, employment becomes less of a factor.  Also, many Baby Boomers find that their families are spread across many states.  At some point it may make sense to consider whether you should change your domicile or residency.

Factors to consider may include whether the state you live in will tax your estate at your death.  Also to be considered is the income taxation during your lifetime.  Another consideration may include healthcare decision-making.  As well as the consideration of laws affecting spousal rights of election, which vary from state to state.

While most states have a state income tax, the income tax rates vary from state to state.  There are a few states, such as Nevada, which impose no individual state income tax.

In addition to the federal estate tax, many states impose an inheritance tax or death tax upon your death.  And some states have a rather low exemption amount retaining the old $600,000 or $1,000,000 exemption.  Other states, again such as Nevada, impose no death tax or inheritance tax.

Where you live may also affect your access to different types of pain management, healthcare decision-making ability, or even assisted suicide.  Some may consider changing their domicile to one of the five states which allow for “death with dignity,” or assisted-suicide.  For example, Brittany Maynard was a 29-year-old woman that had incurable brain cancer.  Brittany moved her domicile from California to Oregon in order to take advantage of that state’s death with dignity laws.  To read more about Brittany’s case, go here.

A more difficult situation can arise as one ages and becomes incapacitated.  There is a split in the courts as to whether a guardian can change an incapacitated ward’s domicile.  While the courts may differ and the law being unclear, it cannot hurt to be proactive in your planning and grant an express right to change domicile in your Power of Attorney for Healthcare Decisions.  Your Revocable Living Trust should also contain provisions which allow the Trustee to change situs and governing law to help further assist the change in domicile.

From an estate planning point of view, attorneys have long focused on the estate tax implications of a client’s domicile.  However, with the increasing importance of longevity planning, advisors need to take an earlier and broader consideration of domicile planning issues for many clients.  While family considerations will always remain an important factor in choosing a domicile, with an aging population there are a number of other factors as discussed above that should be considered, including making sure that a client will not fall short of funds in their later years.  This may mean moving to a state with lower income taxes and lower living expenses in order to create greater financial security over the long run.

July 13, 2016 By JRL, Esq.

The population of the United States is aging.  There are currently about 75 million Baby Boomers, with an estimated 5,000,000 Baby Boomers retiring each year.  However, 82% of working Americans over the age of 50 indicate it is somewhat likely that they will continue to do some work for pay even in retirement.  And the average retirement age has crept up to age 71.2 from 66.3 in 2007.  As Baby Boomers age, the face of estate planning will change with them.  If you are a Baby Boomer,  here are four things you should consider right now.

First, you should make sure that your estate planning documents are all in order.  This means making sure that your Durable Power of Attorney for Asset Management, Durable Power of Attorney for Healthcare Decisions, and Living Wills are all up-to-date.  In addition, you should review your Living Trust and Last Will and Testament in order to ensure that they accomplish your intended goals.  The terms of the Living Trust may need to be modified or tailored to better address some of the issues related to aging.  You may also want to give greater consideration to naming a financial institution as Successor Trustee, or even using disability provisions that better address the realities of acute illness or chronic disease.

Second, it is important that your Living Trust be fully funded.  You will want to review the ownership of your various assets.  Transfer any accounts and real estate that remain in your name individually to the Trust.  You do not want to simply use the Living Trust as a standby vehicle, waiting to receive your assets upon your death.  That would defeat the purpose of a Living Trust of avoiding probate.  Also, failing to fund the trust also defeats the purpose of providing administration of your assets if you were to become disabled or incapacitated, thereby avoiding a guardianship over those assets.

Third, consider building into your estate planning documents a monitor-type relationship.  For example, you could use your CPA, who could be sent copies of monthly bank and brokerage account statements.  The CPA could create reports and monitor the accounts for any signs of obvious financial abuse or other issues.  An additional safeguard could be to integrate a care manager.  A provision could be placed in the Trust that would require an independent care manager to be hired to perform a quarterly assessment and provide a report to the Trustee and a key friend or family member.  This way any concerns that an independent care manager has could be brought to the appropriate person’s attention.

And fourth, consider consolidating your financial accounts.  I often see clients with three, four, or more different bank accounts.  Often they use only one of the accounts as the primary operating account through which they run their income and expenses.  The other bank accounts remain relatively inactive.  In order to simplify things for yourself as well as for a Successor Trustee in the event of your incapacity or death, it makes sense to consolidate the various accounts into a single financial institution where possible.

With an aging Baby Boomer population comes increased health challenges.  It is estimated that by 2030, one-fifth of all Americans will be 65 years of age or older.  Approximately 125 million Americans are dealing with at least one chronic condition.  There are currently in excess of 5 million Americans that have Alzheimer’s disease.  There are about 400,000 Americans suffering from Multiple Sclerosis and another 1.5 million living with Parkinson’s disease.  Because of the many health challenges of aging, it is important to review your estate planning and consider taking the actions discussed above before it is too late.

July 5, 2016 By JRL, Esq.

Welcome to the third installment of our three-part series regarding estate planning for digital assets.  In this post we take a look at a couple steps you want to take to properly plan for your digital assets.  Despite the uncertainties and obstacles discussed in Part II, there are a few reasonable steps you may take to both transfer and protect digital assets.

First, you should consider updating your estate planning documents if they do not contain a clause commonly referred to as a “Digital Asset Clause.”  We have started including such a clause in our estate planning documents in order to give your successor trustee, executor, or attorney-in-fact use, control, and generally broad access to your digital accounts, social media, information stored electronically, etc.  If your estate planning documents do not contain such a clause, you will want to consider having them updated.

It is generally true that these clauses have not yet been tested, or may face obstacles when it comes to licensing agreements of the companies providing the digital services.  Nevertheless, there is no real downside to including the digital asset clauses, as such may provide a court the basis for granting an order specifically giving access to those assets.  Or such a clause may encourage a service provider to provide access to your accounts.  Also, you should consider giving a specific bequest of loyalty program benefits, such as hotel points or airline miles, to beneficiaries.  However, the particular airline or hotel chain may have certain rules that come into play.  If you are curious, you may want to check with your program provider regarding how your program benefits can be passed to a beneficiary.

Second, and perhaps most important, you should let your executor or successor trustee know about your various digital assets and how to access them if needed.  You don’t necessarily need to give them all of your passwords now.  However, it would be a good idea to inform them where you have online accounts, as well as giving them the ability to access passwords if needed.  You could list all of your digital assets in an inventory, for example.  There are also services like LastPass, where you can store all of your passwords, which can then be accessed with one password.  But if you decide to simply make your own list of passwords, it is important to keep the list in a safe place, but still give your chosen fiduciary the ability to access that list.  You will also need to remember to keep the list up to date.  Also, keep in mind that handing over a list of your usernames and/or passwords may be a violation of a digital service provider’s service agreement.  When it comes to your family photos, even if you store them on a cloud-based service, it is still a good idea to back them up on a physical storage medium such as a CD or thumb drive.

Third, take the necessary steps to protect your privacy.  Unlike a will that is probated, a revocable trust does not automatically become a public document.  So under normal circumstances, a trust provides more privacy than does a will.  So in particular, if a particular frequent flyer account or hotel points account is referenced in your estate planning document, a revocable living trust would be preferable.  Also, if possible, you may want to consolidate and reduce the number of accounts.  This way, your executor or successor trustee will have fewer accounts to deal with.  In addition, if you’ve set up all of your automatic bill payments from one account, your executor or successor trustee can always close that one account in order to stop any unwanted bill payments.

As the online world of digital assets becomes a larger and larger part of our lives, doing what we can to prepare for their access and transfer is becoming a more important concern.  Our estate planning documents have traditionally focused on who gets the jewelry and how your house is to be distributed.  This will still be an important part of any estate plan.  However, accessing online accounts and other digital assets should also now be a consideration in your estate planning documents.

July 1, 2016 By JRL, Esq.

In Part I of our series of blog posts about estate planning for digital assets, we covered what digital assets are.  In this post, we cover why it is important to plan for those assets.  We also discuss the various obstacles that may be encountered in the ever-evolving legal landscape.

When it comes to estate planning, we are often very good about insuring that real estate and financial accounts are properly re-titled in the name of a trust.  However, and perhaps unfortunately, digital assets are often overlooked as an important step in the process of estate planning.

The following includes the five most important reasons for planning for your digital assets:

1. Making it easier for your Personal Representative and heirs. Your Personal Representative or heirs cannot deal with assets that they are not aware of or can’t access because they don’t have the proper passwords.  And the more accounts that you have, the greater potential there is for problems.
2. Preventing financial loss. It is important that the Personal Representative know about your online accounts in order to prevent further depletion of such financial accounts.  For example, health insurance premiums or utility bills may be set up to be paid automatically online.  If the Personal Representative is not aware of the account or is unable to access it, unnecessary additional payments may be made beyond the decedent’s passing, which will cause either additional financial loss or, at a minimum, delay distribution as such funds are sought to be recovered.  Clearly, it is important to stop such payments.
3. Losing important treasures and documents. Tax records that were stored digitally may become an important tool in the estate administration.  Or there may be irreplaceable photographs of the decedent’s family members or significant moments in the decedent’s life that may be lost if no one can access them.
4. Minimizing identity theft risk. Unfortunately, there are those who try to steal the identities of those who have passed away in order to create new identities for themselves, often for financial gain.
5. Keeping information private. It often takes proper planning in order to keep important personal information from becoming public

It is not easy to plan for digital assets.  The law in this field is unclear or just nonexistent at both the federal and state levels.  And while there have been some attempts at legislation in a few states, the results have been rather limited.  The “Uniform Fiduciary Access to Digital Assets Act” was approved in mid-2014 by the National Conference of Commissioners on Uniform State Laws.  Nevertheless, even this has been met with opposition over privacy concerns and a potential conflict with federal laws.  This is an area where the law has simply not caught up to the real world.

And what about ownership of the digital assets?  Think of all the digital music purchased on iTunes or books from Audible.  Many of these digital accounts are not actually owned by the individual who died, but rather were used through a licensing agreement.  And who has actually read these agreements?  Chances are great that the individual simply clicked “I Agree” when they signed up for the account.  Some of the agreements may actually limit or even prohibit a transfer at death.

And then there is the issue of safety.  On the one hand, you would like your Personal Representative to have access to all of your passwords in order for them to have access to your various accounts upon your passing.  However, if you make a list of all of your passwords, or if you simply use the same password for every account, there is a greater risk that these will fall into the hands of someone with malintent.

So the question becomes what should you do?  And how should you plan for these digital assets?  In the third part to our series on estate planning with digital assets, we will explore some suggestions that can be used to help protect and transfer your digital assets.

June 28, 2016 By JRL, Esq.

Inventorying assets after one’s death used to be relatively easy.  A simple walk around the person’s home revealed their tangible personal property.  And if the Personal Representative did not know about all of the decedent’s assets, she could simply wait for the mail for a month or so and receive copies of bank statements, bills, etc.  And the checking account statement itself could be reviewed to determine the decedent’s ordinary cash flow from month to month.  Consequently, by physically inspecting the residence and waiting a little time for mail, the Personal Representative was able to obtain a fairly accurate view of the liabilities and assets of the decedent’s estate.

However, we now live in a digital age.  Bank and brokerage account statements, for example, may not arrive in the mail, but are often just sent electronically or are only available to review online.  A significant part of our lives are now online. This includes social media accounts, family photos, music, etc.  Some may have online businesses, which have domain names or blogs with value.

It is only recently that the effect of this digital transformation has had on both estate administration and estate planning has begun to receive recognition.  Problems arise when the Personal Representative is not aware of all of the decedent’s online accounts.  And even if she is aware of the accounts, some accounts may not be accessible because the Personal Representative lacks the proper username and/or password, either to the decedent’s computer or to the specific accounts.  The Personal Representative may have no way of shutting off automatic bill payments, if they are even aware that they are occurring.  And unfortunately, the lowlifes of society often scan the obituaries and try to steal the decedent’s identity in order to open new credit card accounts in the name of the decedent.  Uncovering such digital liability may take several months.

With this series of blog posts, we will explore what digital assets are, why it is important to plan for digital assets, what some of the obstacles may be in planning for such assets, and finally, how to plan for them.  The law surrounding digital assets at this point is largely undeveloped.  So we will discuss some of the uncertainties surrounding the law, as well as some steps that both estate planners and individuals may want to undertake to improve the accessibility of digital assets to their intended heirs.

So what exactly are digital assets?

The term “digital asset” can refer to almost anything on a computer or other digital device, such as images, texts, audio files, videos, or other personal information and property stored in a digital format.  The following is a list of common types of digital assets:

1. Facebook, Instagram, Twitter, or other social media accounts, including personal email accounts. Not only are these accounts used for personal interaction, but they are also used to store and share videos and photographs.
2. Many financial accounts are now designed to be accessed online, and some may even have no connection with a physical address or location. This could include either an account at certain financial institutions, such as E*TRADE or Betterment, or it may be an arrangement to pay bills that is set up to recur on a regular basis online.
3. Loyalty or points programs. Common among these types of programs are airline miles, cash back programs, and hotel point programs associated with credit cards.
4. Blogs and domain names. While many domain names and blogs that people have do not have any value, there are those occasions when such things do have considerable value.  Depending upon the domain name or blog, and the metrics associated with the website, such may be sold for a significant amount of money.
5. Personal assets. This may include sensitive personal information, such as one’s medical records or income tax returns.  It may also include videos, photographs, music playlists, and similar items that have been uploaded to one’s computer.  Again, often such sensitive information is password protected even beyond the basic password protections for getting onto the computer in the first place.

In our next blog post, we will look at why it is important to plan for such digital assets.  We will also cover the evolving legal arena and the obstacles faced when planning for your digital assets.

June 20, 2016 By JRL, Esq.

Life insurance often plays an important part in planning one’s estate. It’s important to recognize the various uses and functions of life insurance as well as the tax repercussions of having a life policy and also receiving the death benefits from a policy. This is the first of two posts dealing with life insurance and the estate planning and tax issues it presents.

Types of Life Policies

A number of life insurance policies are available. The decision of which product to purchase should be made with the help of an insurance professional. As an example, your situation may call for a policy with a cash value component such as universal life or whole life. Or a term policy may be the best for your circumstances. Another consideration is whether to insure one life or joint lives (often called a “second-to-die” policy). A “second-to-die” plan frequently is acquired to cover estate tax considering that the majority of estate strategies defer the payment of death tax until following the death of the second spouse to die. There may likewise be choices concerning the payment of premiums, surrender fees, policy loans, and also various policy riders.

It is worth noting that life insurance is regulated by the states, so the life policies which are issued are authorized ahead of time by the particular state’s division of insurance. However, picking the appropriate life insurance policy can be difficult with the wide variety of options available on the market.  So it’s essential to speak with your insurance advisor when buying life insurance.

Earnings Replacement

Among the most usual uses of life insurance is income replacement for your family. When one loses a spouse, the difficulties can be worsened considerably by the loss of deceased spouse’s earnings. Among the crucial functions of life insurance is that insurance proceeds are not taxed as income to the beneficiary. (There is an exception if there was a “transfer for value”, which is beyond the scope of this post.) Consequently, the life insurance death benefit can provide economic security to the insured’s household.

Also, you should not forget about the value of a “stay-at-home” spouse. A life insurance policy is often purchased on the stay-at-home spouse to offer financial resources to the employed spouse just in case of an unanticipated death. Don’t undervalue the contributions of the stay-at-home spouse.

Mitigating Taxes

In estate tax planning, a common purpose for a life insurance policy is to use the death benefit to pay the federal estate tax owed upon the policyholder’s death or to at least replace the value of assets that are used to pay the estate tax. The lifetime exception for federal estate tax purposes is $5,450,000 per person for 2016. Although the life insurance proceeds are part of the insured’s taxable estate, the estate tax affects fewer people than in the past. Consequently, this function of life insurance is not used as extensive as before. Nevertheless, if life insurance is needed and there is an estate tax issue, perhaps due to the life insurance itself, clients often use a “Life insurance Trust” to keep the policy proceeds out of the insured’s estate. Whatever the situation, it is a good idea to review your policies to make certain continuation of the policy is prudent, whether it is in a trust or not.

Catch next week’s continuation of post about the uses of life insurance in estate planning.