Estate Planning for Digital Assets
“Your digital life includes dozens of usernames and passwords. Providing a digital estate plan can help your family deal with your accounts with minimal fuss.”
What happens to digital assets when you die? There are state laws offering the executor of an estate or an estate planning attorney to obtain access to a person’s online accounts after incapacitation or death. These laws—including RUFADAA (Revised Uniform Fiduciary Access to Digital Assets Act)—will help to protect digital assets, but only if you have a digital estate plan, reports the article “How to Tackle Digital Estate Planning in Four Easy Steps” from Kiplinger.
RUFADAA has a three-tier process for accessing digital assets:
Tier One: Some digital service platforms offer a way to designate what happens to digital assets after death. Yahoo has an inactive account manager to designate a friend, which guides what happens to digital assets.
Tier Two: If there is no such tool, the owner’s estate planning documents must dictate what should happen with the asset.
Tier Three: If neither of these tiers is in place, refer to the platform’s Terms of Service Agreement (TOSA) to see how the executor may access these accounts.
What makes up your digital estate? It includes all electronic and virtual accounts and assets, including:
- Social media
- E-Commerce accounts
- Photos saved in cloud-based storage
- Cryptocurrency keys, wallet, and any related accounts
- Cellphone and cellphone apps
- Domain accounts
- Text, graphic and audio files and any other intellectual property
- Blogs and domains
- Loyalty benefit programs, like credit card perks and frequent flier rewards programs
- Utility accounts, including electricity and cable tv
- Online banking
- Online shopping accounts
Electronic bank accounts are considered digital assets. However, the money in the bank account is not a digital asset. Likewise, cryptocurrency account access platforms, such as Coinbase, are digital assets, but the actual cryptocurrency, such as Ethereum or Bitcoin, is not a digital asset.
Here are the four steps to creating a digital estate plan:
Create a complete digital asset inventory. This should include all account names, usernames, passwords and the URL or address of the digital asset.
Decide how you want digital assets handled. List intentions for every account, so your executor knows what you want to happen. This is known as a “directive” and will likely be required by the platform to indicate your wishes. Some companies have conditions in the TOSA, so make sure your wishes can be followed. For example, Twitter and Google have “legacy” policies. Facebook lets family members memorialize your account.
Name a digital executor. This person doesn’t need to be the same as your executor. You’ll want to select someone familiar with the online world.
Store your digital estate plan in a secure place. Make sure that your digital executor knows where the information can be accessed. There are online platforms to help organize digital estate plans in the event of an emergency. Note that they are not the same as password managers, which store passwords. These platforms should include directives indicating what you want to happen with your digital assets.
The digital estate plan is considered informal, if your state has not passed RUFADAA. Ask your estate planning attorney if you can formalize it by making it a codicil to your will.
Reference: Kiplinger (May 16, 2023) “How to Tackle Digital Estate Planning in Four Easy Steps”
Suggested Key Terms: Digital Assets, RUFADAA, Revised Uniform Fiduciary Access to Digital Assets Act, Executor, Estate Planning Attorney, Password Manager, Directives, Platforms, Terms of Service Agreements, TOSA
What if My Executor Dies?
“When someone passes away, it’s up to their executor to handle the probate process. However, what happens if the executor of a will dies?”
If the executor dies while the estate is being administered, it can create many complications, says a recent article, “What Happens If the Executor of My Will Dies?” from yahoo! finance. One solution is to name a successor executor to avoid some of the problems. Many people fail to do this. It’s a big mistake.
In estate planning, an executor is charged with settling the estate of a deceased person. The executor is named when your will is created. That is when you have the opportunity to name the person you trust to act as an executor. If you die without a will in place or your will fails to name an executor, any interested party can petition the probate court to become the executor.
You probably prefer to select the person to be your executor, rather than hoping the court names someone you trust to follow your wishes.
The executor has a number of tasks to complete, including but not limited to:
- Creating an inventory of the decedent’s estate
- Notifying creditors of the decedent’s passing
- Liquidating estate assets to pay creditors
- Distributing remaining assets among heirs according to the terms of the will
Executors have a fiduciary duty when settling estates, meaning they must always act in the best interest of the decedent’s heirs. If they fail to do this, they can be removed.
If the executor dies before the person who makes the will, a new one needs to be named. This is yet another reason why last wills need to be updated on a regular basis, especially if the executor is close in age to the testator, the person who created the will.
The court will name an executor if the testator fails to update their will or write a new one. Any interested person can petition the court, which may not be what you had in mind. Someone who is not qualified or doesn’t have the best interest of heirs could be appointed.
What if the executor dies during the probate process? If a successor executor is named in the will, they can step up to finish the estate settlement. However, this only happens if the testator names one or more successor executors. When there is no successor executor named, the court will name one.
The easiest way to avoid complications arising from the death of the executor is to name one or more successor executors. Another is to place most or all of your assets in a trust, which would allow them to bypass probate. For a trust, you’ll need to name a trustee who will manage assets on behalf of beneficiaries.
Placing assets in a trust avoids complications following the death of an executor as the trustee would be responsible for distributing the assets. Instead of waiting for probate to be included, the trust beneficiaries could receive their assets according to the terms of the trust.
Reference: yahoo! finance (May 15, 2023) “What Happens If the Executor of My Will Dies?”
Suggested Key Terms: Executor, Estate Planning Attorney, Testator, Heirs, Beneficiaries, Trustee, Successor, Assets, Court, Settlement, Creditors
Estate Plans Require Preparation for Success
“One major misconception is we simply can tell loved ones what we want to happen for the purposes of health or property distribution and family members can ensure that those wishes are followed.”
Making wishes clear to family members is never enough to satisfy legal standards, according to a recent article, “Preparation is essential part of estate plan” from The News-Enterprise. Quite the opposite occurs when family members refuse to follow verbal requests, especially when personal grievances come to the surface during times of grief.
A second misconception concerns the spouse or children being able to step in and take action for a loved one solely based on the family relationship.
Many parents have children who would make poor agents, so many don’t name their children to act on their behalf. Even if you want your spouse or child to act on your behalf, you have to name them in the proper legal documents.
A third frequent misconception is that documents can be created when needed. Not so! Documents like Power of Attorney, Health Care Power of Attorney, Living Will and others must be created well in advance. An incapacitated person cannot sign legal documents, so if no planning has been done, the family will have to petition the court to name a guardian—an expensive, time-consuming and complicated process.
Every adult should have three basic documents while they are in good health: a Health Care Power of Attorney, a Durable Power of Attorney and a Last Will and Testament.
The Health Care Power of Attorney gives another person the right to make healthcare decisions for you if you are unable to do so. It also gives another person the right to access protected health care information, including medical and health insurance records. It may also be used to authorize organ and/or tissue donation and set limitations for donation. Finally, the document may direct end-of-life decisions regarding artificial life support.
The Durable Power of Attorney allows another person to handle legal and financial matters. It can be effective upon signing or upon incapacity. Without correctly executed Powers of Attorney, the family will need to apply for guardianship.
The Last Will and Testament determines who should receive any specific property and how your property is to be divided and distributed. Wills are only effective upon death, so any property in the will continues to be yours until death. Wills are also used to name the executor who will be responsible for administering the estate. It can also be used to set up additional protections for disabled beneficiaries, minor children and others who are not good with finances.
Speak with an experienced estate planning attorney to be certain to have these essential documents to prepare for the times when life doesn’t go as expected. Preparation is key to protecting yourself and those you love.
Reference: The News-Enterprise (May 13, 2023) “Preparation is essential part of estate plan”
Suggested Key Terms: Health Care Power of Attorney, Durable Power of Attorney, Last Will and Testament, Estate Planning Attorney, Minor Children, Executor, Incapacity, Guardianship
What Does “Power of Attorney” Mean?
“A power of attorney is a legal document that gives a person the authority to act on another's behalf.”
A power of attorney is a legal document giving one person—the “agent”—the legal power to make legal, financial, or medical decisions for another person. According to a recent article from Nerd Wallet, “What is a Power of Attorney (POA)? Types, How, When to Use,” the POA lets someone act on your behalf if you are traveling, too sick to act on your own behalf or can’t be present to sign legal documents.
You may name any adult, including your spouse, adult child, sibling, or a trusted friend, to act as your agent under power of attorney. It can be granted to anyone who is a legal adult and of sound mind. Ordinary power of attorney designations dissolve if you become incapacitated. However, durable power of attorney designations remain intact, even upon incapacity.
You can give one person power of attorney or divide the responsibilities among multiple people.
Most people don’t know that power of authority authorizations can be very specific or general, depending on your needs. When having an experienced estate planning attorney draft a power of attorney, review the desired scope of your agent’s authority, when it should take effect and the desired duration.
If you don’t have a power of attorney and become incapacitated, a court can appoint someone to act on your behalf. However, court intervention turns a private matter into a public proceeding, and you cannot know if the appointed conservator will follow your wishes.
There are several types of power of attorney. The durable power of attorney remains intact, even when you are incapacitated. The ordinary power of attorney becomes moot once you are incapacitated. A dual power of attorney gives power to two people and requires both individuals to sign off on any decisions.
A dual power of attorney may be useful if you have two children, for instance, and you’d like them to make joint decisions for you. Regardless of how many powers of attorney you appoint, you should always name successor agents for each power of attorney, in case the primary person is unable or unwilling to serve when needed.
A medical power of attorney, also called a health care proxy, is a type of advance directive giving another person to make all health care decisions for you in accordance with your wishes when you are unable to do so. Health care proxy decisions generally cover any type of medical treatment or procedure to diagnose and treat your health. Make sure the person you grant medical power of attorney to is familiar with your wishes and knows what decisions you would want in treatment or for life—supporting measures.
Reference: Nerd Wallet (May 10, 2023) “What is a Power of Attorney (POA)? Types, How, When to Use”
Suggested Key Terms: Durable Power of Attorney, Medical, Health Care Proxy, Estate Planning Attorney, Incapacitated, Dual, POA, Designations, Conservatorship, Agent, Successor
Prepare Now for Coming Estate Tax Changes
“One of the most significant changes Americans will soon see is the sunsetting of tax laws under the Tax Cuts and Jobs Act (TCJA) of 2017.”
The TCJA nearly doubled the lifetime estate and gift tax exemption from $5.6 million for individuals (and $11.18 million for married couples) to $11.18 million and $22.36 million for married couples), indexed for inflation after 2018. Right now, the exemption stands at $12.92 million per person and $22.84 million for couples, as reported in a recent article, “How To Prepare Clients Now For Looming Estate Tax Changes” from Financial Advisor.
All this changes on January 1, 2026, resulting in a roughly 50% reduction over the next few years. Individuals could see their federal estate tax exemption dipping to approximately $7 million, while couples could see a decrease to $14 million.
In anticipation of this drastic change, estate planning attorneys are reviewing plans now with clients to implement an appropriate course of action in less than three years. This is especially important for clients who might not have been impacted by estate tax laws in the past but who will be in 2026 because of a combination of the lowered amount and any growth in their assets.
Here are some strategies for preparing for the new lowered levels:
Review the complete estate plan with an estate planning attorney. Without a proper estate plan, it’s easy to lose sight of the value of all assets and may be entirely in the dark concerning estate tax liabilities. For instance, a boomer who hasn’t reviewed their estate plan in twenty years could see an enormous change in the size of their assets, possibly bringing them across the $7 million estate tax exemption threshold. Failing to address this could risk financial security in retirement and significantly impact their heirs.
Create a strategy with the information you have now. First, review your estate plan with an eye to moving assets out of the estate. You should then consider the overall goals and time horizons to determine the best way forward. There are several optimal strategies, including using annual gift tax exclusion, which as of 2023, is up to $17,000 per person.
The use of trusts is a well-known facet of estate planning. Which type of trust is used depends upon your specific situation. Trusts generate income and protect access to assets used for living expenses, reduce taxation on the estate, protect assets from creditors and keep a family’s financial assets and affairs private upon death.
Other strategies to consider:
Allocating assets to a 529 education plan, allows you to put money aside for the education of loved ones. It can be used for education from kindergarten to college, graduate coursework and more. There is also an option of accelerating gifting by giving up to five years of contributions in one year per individual.
Suppose you wish to pass assets to grandchildren, instead of gifting them during their lifetimes. Consider generation-skipping trusts, which allow you to create a separate fund for grandchildren under age 37.
There is no one-size-fits-all approach to estate planning. However, a discussion with your estate planning attorney will clarify your wishes and allow you to plan for the future.
Reference: Financial Advisor (May 8, 2023) “How To Prepare Clients Now For Looming Estate Tax Changes”
Suggested Key Terms: Federal Estate Tax Exemption, Estate Planning Attorney, Generation Skipping Trusts, 529 Education Plan, Trusts, Annual Gift Exclusion, Assets, Creditors, Heirs