Many clients own digital property, but need estate plans utilizing new laws to control and protect their digital legacies.
One of the challenges facing estate plans today is a new class of assets, known as digital property or digital assets. When a person dies, what happens to their digital lives? According to the article “Digital assets important part of modern estate planning” from the Cleveland Jewish News, digital assets need to be included in an estate plan, just like any other property.
What is a digital asset? There are many, but the basics include things like social media—Facebook, Instagram, SnapChat—as well as financial accounts, bank and investment accounts, blogs, photo sharing accounts, cloud storage, text messages, emails and more. If it has a username and a password and you access it on a digital device, consider it a digital asset. I wrote recently on this topic in response to Pennsylvania’s passage of a law addressing digital property, so see there for more details on what these assets are https://galligan-law.com/new-digital-asset-law-passes-in-pennsylvania/
Business and household files stored on a local computer or in the cloud should also be considered as digital assets. The same goes for any cryptocurrency; Bitcoin is the most well-known type, and there are many others.
The Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) has been adopted by almost all states to provide legal guidance on rights to access digital property for four (4) different types of fiduciaries: executors, trustees, agents under a financial power of attorney and guardians. The law allows people the right to grant not only their digital assets, but the contents of their communications. It establishes a three-tier system for the user, the most important part being if the person expresses permission in an online platform for a specific asset, directly with the custodian of a digital platform, that is the controlling law. If they have not done so, they can provide for permission to be granted in their estate planning documents. They can also allow or forbid people to gain access to their digital assets. Texas has such a law, and we prepare our estate planning documents to address such property.
If a person does not take either of these steps, the terms of service they agreed to with the platform custodian governs the rights to access or deny access to their digital assets.
It’s important to discuss this new asset class with your estate planning attorney to ensure that your estate plan addresses your digital assets. Having a list of digital assets is a first step, but it’s just the start. Leaving the family to plead with a tech giant to gain access to digital accounts is a stressful legacy to leave behind.
Because life brings many changes, you should have an estate plan checkup at least every three years.
After you’ve met with an attorney to do your first Will, it is easy to assume that you have checked estate planning off of your to do list forever. The reality is not so simple. Not only do tax laws frequently change, but so does your life. The smallest change could have a big impact on your estate plan. That’s why it’s a good idea to go through an estate plan checkup at least every three years to ensure your estate plan still accurately reflects your values, needs, and hopes for your legacy.
Even if you have already created an estate plan you feel confident about, circumstances surrounding your decisions may change. Marriages end, children grow up, and serious illnesses occur. When laws change, some estate planning techniques can become outdated.
An estate plan checkup should include a look at how your accounts and property are titled to see if any changes are necessary. Joint ownership of your property, for example, may be a good idea or a bad idea, depending on the circumstances. Births or deaths of loved ones may lead you to change your beneficiaries. The person you named as one of your trusted decision-makers (for example, a trustee, executor, agent under a financial power of attorney, or agent under a medical power of attorney) may no longer be the best option due to relationship changes or physical relocation. Such changes can occur without your thinking of the effect they have on your estate plan, so it is worth a periodic estate plan checkup to make sure your your plan still reflects your wishes.
Significant financial change can also be a good reason for an estate plan checkup. If you have taken on a new job, bought a house, or made new investments, you will want your estate plan to reflect these changes. If you have a trust, the only way to ensure that your accounts and property are kept out of probate is to have all of your accounts and property appropriately funded into the trust or naming the trust as beneficiary.
Changes in the laws affecting how assets are left to beneficiaries seem to be happening with more and more frequency. For example, the recent SECURE Act and the elimination of the lifetime stretch for nonspouse beneficiaries shows how important it is for you to talk with your estate planning attorney about the effect this new law may have on the beneficiaries of your retirement accounts.
Life is ever changing, and many changes may have a great impact on your estate plan. If you or your family have undergone any changes since your estate planning documents were originally created, now is the perfect time to reach out to your estate planning attorney for an estate plan checkup.
Are you a collector? Is your collection included in your estate plan?
Many people have collections about which they are quite passionate: The collections may be very valuable, for example, art collections, coins, stamps, or designer handbags, or they may have more sentimental than monetary value, such as political bumper stickers, postcards, or rocks. Regardless of its dollar value, if you have a collection, it should be included in your estate plan. You should make arrangements in advance to ensure that it is handled in the way you want, and if it is worth a lot of money, that its value is maximized. The following are a few steps you should take to ensure your wishes for your collection are followed:
Collect relevant documentation. If you have a valuable collection, it is important to create a catalog describing each piece, including photographs, bills of sale, and appraisals. If you have an insurance policy covering some or all of the items, it should be kept with your important documents as well.
Discuss your collection with your family members and loved ones. Although you may have invested a lot of time and money in your collection, and may have a strong emotional attachment to it, it is not unusual for family members not to share your passion about your collection. Try to understand their perspective if this is the case in your family. It is important to discuss this with them to ensure that your estate plan is designed to minimize the burden your family could face in dealing with the collection when you pass away. However, it is also important to find out from your family members if anyone would like to inherit certain pieces or the collection as a whole. If more than one person would like to receive certain items, it is prudent to figure out a reasonable solution in advance. This will help to avoid conflict between family members after you pass away.
Pass it on to loved ones. If you do pass your collection to family members, consider giving them your permission to sell or donate it. If one or more family members is interested in keeping it, consider whether to also provide a cash gift to help those beneficiaries with the costs of maintaining it. If the collection is one of your more valuable assets, take steps to ensure that other beneficiaries receive an equivalent inheritance, for example, by making them the beneficiaries of a life insurance policy. Alternatively, you could consider transferring your entire collection to a trust or a limited liability company that could manage the collection for the benefit of multiple generations.
Donate your collection to a museum or charitable organization. It is important to check with the organization to which you plan to donate the collection to make sure that it is able to handle housing or selling it, both of which could involve more expense than you might expect. Such organizations may request that a donation of cash accompany the bequest to offset the cost of maintaining the collection. Keep in mind that only a donation to a public charity will be tax deductible by your estate (or you, if you make a lifetime gift), and there are certain circumstances when even donations to a public charity will not be deductible.
Sell the collection. If you would like your family to sell your collection or anticipate that they will sell it, it will be helpful to them and likely minimize delays if you provide the names of dealers or auction companies that specialize in the type of collection you have, as this type of information may not be as easy to find for those who are not collectors. To prevent the collection from being sold for much less than its actual value, consider appointing an executor who is knowledgeable about it and its value.
Consider the tax implications. The Taxpayer Relief Act of 1997 lowered the maximum capital gains rate on gains from the sale of most assets to 20 percent but left the maximum rate on gains from the sale of collectibles at 28 percent. If you pass your collection on to a child or other beneficiary when you pass away, that person will have a tax basis in the property based on the value on the date of your death (i.e., a stepped-up basis). This will be the basis used to determine the amount of taxable gain and income tax the beneficiary must pay if the beneficiary eventually sells some or all of the items in the collection. As a result, if your collection has increased in value over time, your beneficiary’s tax bill will be lower if you wait until your death to gift the collection to them rather than making a lifetime gift—in that case, their basis would be the amount you originally paid, resulting in a larger taxable gain. On the other hand, if the collection has not increased in value, you could consider taking advantage of the annual or lifetime gift tax exclusions to make outright gifts of your collection while you are still living.
Make sure it is properly valued. Appraisals are particularly important, as they will help your executor, trustee, and family members determine the value of the collection. Be sure to use an appraiser knowledgeable about the particular type of items in your collection. This will ensure that these items are not sold for a price far below their actual worth or donated because of a lack of knowledge of their true value. Also, it will help you to make decisions about how to provide equitable gifts to your beneficiaries and whether to make gifts from your collection during your life or at death.
Finding Help to Design an Estate Plan for Your Special Collection
Your collection likely means a lot to you. It also adds another level of complexity to your estate plan. An experienced estate planning attorney can help you think through your goals and develop an estate plan that will allow you to rest assured that your collection will be handled according to your wishes after you pass away.
