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Category: Estate Planning

  • Estate Planning for Your Digital Legacy

    One aspect of your estate plan that you may not yet have taken into consideration is your digital legacy. Arranging what happens to your digital assets and information when you pass away has become an increasingly essential component of financial literacy — and comprehensive estate planning.

    According to Pew Research, the number of adults in the United States who say they use the internet has grown from 52 percent in 2000 to 93 percent in 2021, with 85 percent using the internet daily. Many people rely on digital technology to socialize, work, pay bills, and manage their affairs.

    Including Digital Assets in Your Estate Plan

    When planning their legacies, individuals often first address their tangible assets – homes, cars, money, and personal items, like jewelry collections or photo albums. Yet it is also crucial to consider digital assets and information – which can have significant financial and sentimental value – when planning for the future.

    By accounting for digital assets in your estate plan, you can protect your family, pass along things of monetary or sentimental value, make things easier for your loved ones, and preserve your legacy.

    For example, suppose you pass away or suffer an accident or illness that renders you incapacitated. In that case, your loved ones might need to access your passwords to continue paying bills and handling things you can no longer do. In addition to a making a loved one your agent under a power of attorney, you need to provide clear instructions for how to access your electronic information.

    Or, you might have valuable digital assets that you wish to transfer to your loved ones, just as you intend to pass on physical property. With an electronic legacy plan, you can ensure your family gets the important things you have on a computer, flash drive, or in the cloud.

    What Are Digital Assets?

    Your digital assets consist of anything stored electronically that provides or has value, such as online accounts or e-files, that you own or control. This may include:

    • Passwords – Passwords allow you and your loved ones access any number of accounts, such as those housing your financial records or where you pay your bills, like utilities or rent.
    • Encryption Keys – As passwords to digital content, encryption keys prevent outsiders from obtaining electronic information. The password to access an iCloud account and the code you must enter to get into an iPhone exemplify encryption keys.

    Compared to ordinary passwords, it can be challenging to reset lost encryption keys. If you die or lose the ability to communicate without passing on your encryption keys, your surviving loved ones might lack access to your digital assets.

    • Email Accounts – Email accounts can preserve important information.

    For instance, a business owner might have significant and relevant company correspondence in an email account.

    • Social Media Accounts – Your social networking accounts can have sentimental and even monetary value in some instances. They often contain photos or video clips of you that surviving loved ones might appreciate.
    • Digital Photos and Music – Digital files, such as photos, music, and movies, can have monetary and emotional value. Just as you can pass down photo albums and vinyl records, you can transfer your digital photos and music to your loved ones. Surviving loved ones might treasure pictures, particularly as they display memories of the person they lost, while digital music can reflect a person’s unique taste and may even carry financial value.
    • Art – Perhaps you have your own professional creative work, like art, recorded music, and writing, stored electronically. In addition to having great meaning to your loved ones, such work may even generate income for your family after you pass away.

    Organizing Digital Assets

    The first step in making a plan for your digital assets is to organize them. With organization, you can make it easier for your loved ones to handle your digital items if you need their help or you pass away.

    To put your electronic possessions and information in order, start by inventorying what you have. There might be things you have forgotten about, such as unused subscriptions or old accounts, as well as electronic items that you value, like digital photos.

    A password manager can help you compile and preserve your login information. These services store usernames, passwords, security question answers, Personal Identification Numbers (PINs), and other details you need to access online accounts.

    When you use a password manager and choose strong passwords, rather than using the same password for multiple accounts, you can safeguard your digital estate from any bad actors. Examples of password managers include:

    • LastPass
    • 1password
    • SecureSafe

    Writing Instructions for a Digital Executor

    In your will, you can designate a loved one to handle and distribute your digital assets upon your death. Creating separate written instructions for your online executor can help you explain your wishes privately, as wills are public documents.

    With written instructions, you could:

    • List your devices and accounts
    • Explain how to access your digital assets (for instance, detailing where to locate passwords)
    • Describe what you would like to happen to each electronic possession

    When you lay out what you would like to happen to your digital assets, you can determine whether you would like your loved ones to delete them, setting up a digital “death.” Or you can tell them to preserve the e-asset and transfer it to a beneficiary.

    Legacy Contacts and Trusted Individuals

    Your written instructions can also state your wishes for your social media and certain other online accounts.

    By adjusting your social media account settings, you can set up legacy contacts to manage your accounts upon your death. For example, Facebook permits legacy contacts to manage memorialized accounts. Once Facebook preserves your account, no one can log in and post as you, but your loved ones can see your Facebook memories.

    Google allows users to select a trusted individual to receive their data or erase their accounts after a period of inactivity.

    Benefits of Legacy Planning for Digital Assets

    While making final arrangements for your digital property and accounts might seem daunting, including your digital assets in your estate plan can benefit you and your loved ones in the following ways;

    • Preserves valuable and sentimental e-property for your descendants.
    • Lessens the estate administration burden on your family. With clear instructions, your loved ones can easily navigate your accounts and obtain your digital property.
    • Protects your privacy by arranging the deletion of sensitive digital information upon your death.
    • Also protects your loved ones from identity thieves, who could attempt to pretend to be you after you pass away, in some cases to take your loved ones’ inheritance
    • Although digital estate planning is a relatively novel concept, it makes sense to prepare your electronic legacy, given how prevalent technology has become. Making a digital estate plan is a crucial financial skill today. Consult with your estate planning attorney to learn more about making an electronic legacy plan.

  • How to Divide Up Personal Possessions Without Dividing the Family

    Allocating your personal possessions can be one of the most difficult tasks when creating an estate plan. To avoid family feuds after you are gone, it is important to have a plan and make your wishes clear.

    When passing on possessions to your heirs, savings and investments are easy to divide up, since they can be turned into cash. Real estate can also be turned into cash or co-owners can share it. Sometimes the most difficult items to divvy up are personal possessions—silverware, dishes, artwork, furniture, tools, jewelry — items that are unique and don’t have a set resale value. In a will, these are known as “tangible personal property” and can become the focus of family fights. Often one or more children claim that a parent had promised them a particular item. Things may disappear from a house or an apartment shortly before or after a parent’s death, or a child may claim that her 90-year-old somewhat-demented mother “gave” her a cherished diamond ring during life. These types of situations can create great suspicion and irrevocably split families. Siblings may stop communicating due to their anger and distrust.

    Clarity about one’s wishes can go a long way toward avoiding these difficulties. Also, it’s important that the executor of an estate (also called a personal representative) secure the deceased person’s residence as soon as possible after death to make sure items don’t disappear. Here are a few steps you or the executor of your estate can take to make sure splitting up your stuff doesn’t split up your family:

    List the Most Important or Valuable items in Your Will. While your will could get very long if you tried to list all of your possessions, you may have a few family heirlooms or valuable artworks that you want to stay in the family. It may be easier for all concerned if you say who should get what. But talk with your children or other family members first to determine who values which items most.

    Direct That Certain Items Be Sold. If you have one or more possessions that have much greater value than others, it can be difficult to make your distributions equal. It may make more sense to sell the items of greatest value and distribute the proceeds. For example, in a family whose parents were able to save one painting by a famous artist when they fled Europe during the Holocaust, the children sold the painting and split the proceeds equally, since it would not have been fair for any one of them to have received the painting and none had the resources to buy out the other two. The painting was auctioned at Christie’s and they were all quite happy with the results.

    Write A Memorandum. You can write a list of who should receive what item. Even, if your will references the list, it will NOT be enforceable in Connecticut. Nonetheless, it may help keep family harmony. Be careful about how you describe each item so that there is no confusion. Unlike your will, this list can be as long as you like, and you can change it without having to go back and redo your will. You can also take pictures of items if they are difficult to describe and label them.

    Give Everything Away Now. Well, perhaps not everything, but the more you disburse during life, the less that will have to be dealt with at death. When you make gifts, make sure that everyone knows about it so that the person receiving the gift is not suspected of having pilfered your jewelry box, for instance. There may be items that you would like to give away, but still want in your house. This is especially true of artwork and furniture. As long as the new owner is agreeable, you can keep these items around. You might want to tape a note to the back or underside explaining that the Picasso, for instance, belongs to your daughter, Jane. (Of course, if it is a Picasso, you will need to file a gift tax return and a transfer document.) Be aware that for highly-appreciated property, for tax reasons, it may be better not to make gifts during life because they’ll lose the step-up in basis. So check with your estate planning attorney or tax accountant first.

    Get an Appraisal. For the tax reasons referenced above and to guide you in deciding who should get what, it can be useful to know the monetary value of the items you’re giving away, whether during life or at death. This can also be very important for your personal representative and for your heirs in making their decisions.

    Use a Lottery. If you do not made choices regarding your estate plan, your executor may want to set up a lottery system for distributing the tangible assets. The executor can put names or numbers into a hat and someone can draw them out to determine the order in which the family members or other heirs will choose items. In order to inform the process, the executor should create a list of the most valuable items, including their appraisal value if one has been obtained. If everyone is in the same location at the same time, they can simply take turns. If that’s not possible, the executor can add pictures to the list to help identify the items and the beneficiaries can choose online, informing the executor of their choices as their turns come up. The order of who chooses can change each round, whether reversing or moving along progressively. Here’s the distinction between these two alternatives:

    Reversing: 1,2,3,4,5; 5,4,3,2,1; 1,2,3,4,5

    Progressive: 1,2,3,4,5; 2,3,4,5,1; 3,4,5,1,2

    Bidding. A more complicated structure would be to provide all of the heirs the same number of tokens or points that they can use to bid on the various items. For instance, someone who really wants one painting or photo album more than anything else could put all the tokens on that. Someone who doesn’t care as much would bid fewer tokens. The complication in this approach is what happens after an item is gone. Certainly, anyone who used up his or her tokens “winning” an item in the first round is out, but can those who lost reallocate their tokens to other items? A variation on this theme would be for everyone to rank the items by preference. When there’s no competition, everyone who chose an item first would get that one. When more than one person chose an item as their first choice, they might draw straws, with those losing getting to choose again.

    The more you decide who gets what rather than leaving the decisions to your family, the less likely the distribution process will create family strife.

  • Reasons to Create an Estate Plan Now

    Although I am an Estate Planner, I don’t like the term Estate. It makes many people think that estate plans are for someone else, not them. They may rationalize that they are too young or don’t have enough money to reap the tax benefits of a plan. But as the following list makes clear, estate planning is for everyone, regardless of age or net worth.

    1. Loss of Capacity. What if you become incompetent and unable to manage your own affairs? Without a plan the courts will select the person to manage your affairs. With a plan, you pick that person through a power of attorney.
    2. Minor Children. Who will raise your children if you die? Without a plan, a court will make that decision. With a plan, you are able to nominate the guardian of your choice. Is there a perfect choice? Most likely not, but that should not stop you from making the best choice out of all the possible choices.
    3. Dying without a Will. Who will inherit your assets? Without a plan, your assets pass to your heirs according to your state’s laws of intestacy (dying without a will). Your family members (and perhaps not the ones you would choose) will receive your assets without benefit of your direction or of trust protection. With a plan, you decide who gets your assets, and when and how they receive them.
    4. Blended Families. What if your family is the result of multiple marriages? Without a plan, children from different marriages may not be treated as you would wish. With a plan, you determine what goes to your current spouse and to the children from a prior marriage or marriages.
    5. Children with Special Needs. Without a plan, a child with special needs risks being disqualified from receiving Medicaid or SSI benefits, and may have to use his or her inheritance to pay for care. With a plan, you can set up a supplemental needs trust that will allow the child to remain eligible for government benefits while using the trust assets to pay for non-covered expenses.
    6. Keeping Assets in the Family. Would you prefer that your assets stay in your own family? Without a plan, your child’s spouse may wind up with your money if your child passes away prematurely. If your child divorces his or her current spouse, half of your assets could go to the spouse. With a plan, you can set up a trust that ensures that your assets will stay in your family and, for example, pass to your grandchildren.
    7. Financial Security. Will your spouse and children be able to survive financially? Without a plan and the income replacement provided by life insurance, your family may be unable to maintain its current living standard. With a plan, life insurance can mean that your family will enjoy financial security.
    8. Retirement Accounts. Do you have an IRA or similar retirement account? Without a plan, your designated beneficiary for the retirement account funds may not reflect your current wishes and may result in burdensome tax consequences for your heirs. With a plan, you can choose the optimal beneficiary.
    9. Business Ownership. Do you own a business? Without a plan, you don’t name a successor, thus risking that your family could lose control of the business. With a plan, you choose who will own and control the business after you are gone.
    10. Avoiding Probate. Without a plan, your estate may be subject to delays and excess fees (depending on the state), and your assets will be a matter of public record. With a plan, you can structure things so that probate can be avoided entirely. This is very state dependent. For instance, in Connecticut you can avoid some of the probate process and paperwork, but not the Connecticut Probate fee.
    11. Health Care Autonomy. Do you want to have your wishes known about being kept alive by machines if you are permanently unconscious or terminally ill and at the very end of your life? With a plan you can have your wishes carried out, and determine who will make medical decisions for you if you cannot make them for yourself.

    So even if you don’t have what you consider to be an Estate, you should have an Estate Plan

  • How Often Should You Review Your Estate Plan?

    How frequently you should review your estate plan depends on how old you are and whether there has been a significant change in your circumstances. If you are over age 60 and you haven’t updated your estate plan in many decades, it’s almost certain that you need to update your documents. After that, you should review your plan every five years or so. But if you’re younger, you don’t need to do so nearly as often.

    Age

    Here are a few age ranges and what they mean in terms of estate planning:

    18-30. Everyone needs a durable power of attorney, health care proxy and HIPAA release so that they have people they choose to step in and make decisions for them in the event of incapacity.

    30-40. Once you begin accumulating assets, get married, and have children, it’s important to create an estate plan to care for your loved ones in the event of your death. It also can’t hurt to update your durable power of attorney, health care proxy and HIPAA release, since the people you may have appointed at 18 (your parents?) may not be the people you want in these roles at 35.

    40-60. Unless there’s been a change in your circumstances, and assuming you’ve set a good plan in place during your 30s, you probably don’t need to review your estate plan during your 40s and 50s.

    60-70. Once you’ve hit your 60s, it’s time to take a look. Your children are probably grown. You may have grandchildren. And, hopefully, you’ve accumulated some wealth. The people you appointed to step in in the event of incapacity when you were 35 may not be in a position to assist when you’re 65. You may have retired or are contemplating doing so. And, unfortunately, the chances of disability or death increase with every year.

    70+ Now it’s time to review your plan every five years or so. Changes happen — to your health and that of your loved ones, to the tax laws, to the programs supporting long-term care or disability care. It’s important to have a plan in place and to adjust it as circumstances change.

    Change in Circumstances

    While the timeline above outlines when you should review and perhaps update your estate plan, it needs to be supplemented by the following potential changes in circumstances that would warrant a review of your plan to see if it still meets your goals and needs:

    Marriage. You’re likely to want your assets to go to your spouse and to name him or her to be your agent in the event of incapacity.

    Divorce. Likewise, if you get divorced, you probably won’t want your assets to go to your ex-spouse or to rely upon him or her to step in if you were to become incapacitated.

    Children. Once you have children, you’ll want to provide for them and to name someone to step in as guardian in the event of your death or incapacity and that of their other parent, if any. Generally, once you have a plan in place you do not have to update it if you have more children.

    Disability. If you or someone who would inherit from you becomes disabled, you will need to plan to protect and manage your assets, whether for yourself or for your beneficiaries.

    Wealth. If you accumulate sufficient assets to exceed the thresholds for state and federal estate taxes — $11.4 million federally — you may want to plan to reduce or eliminate such taxes.

    Moving. If you move to a new state or country, it will be important to have your estate plan reviewed to make sure it works in the new jurisdiction.

    Change in Tax Law: If there is a significant change in estate tax law, your past planning may be obsolete.

    In short, until you reach age 60 or 70, reviewing your estate plan every five years probably is overkill. But do so whenever you have a change in circumstances such as those listed above. If you’re over 60 and haven’t updated your estate plan in many years, now’s the time. Then, having a review every five years is definitely a good rule of thumb.

  • Understanding the Differences Between a Will and a Trust

    Everyone has heard the terms “will” and “trust,” but not everyone knows the differences between the two. Both are useful estate planning devices that serve different purposes, and both can work together to create a complete estate plan.

    One main difference between a will and a trust is that a will goes into effect only after you die, while a trust takes effect as soon as you create it. A will is a document that directs who will receive your property at your death and it appoints a legal representative to carry out your wishes. By contrast, a trust can be used to begin distributing property before death, at death, or afterwards. A trust is a legal arrangement through which one person (or an institution, such as a bank or law firm), called a “trustee,” holds legal title to property for another person, called a “beneficiary.” A trust usually has two types of beneficiaries — one set that receives income from the trust during their lives and another set that receives whatever is left over after the first set of beneficiaries dies.

    A will covers any property that is only in your name when you die. It does not cover property held in joint tenancy or in a trust. A trust, on the other hand, covers only property that has been transferred to the trust. In order for property to be included in a trust, it must be put in the name of the trust.

    Another difference between a will and a trust is that a will passes through probate. That means a court oversees the administration of the will and ensures the will is valid and the property gets distributed the way the deceased wanted. A trust passes outside of probate, so a court does not need to oversee the process, which can save some time and money. Unlike a will, which becomes part of the public record, a trust can remain private.

    Wills and trusts each have their advantages and disadvantages. For example, a will allows you to name a guardian for children and to specify funeral arrangements, while a trust does not. On the other hand, a trust can be used to plan for disability or to provide savings on taxes. Your attorney can tell you how best to use a will and a trust in your estate plan.