Why Digital Assets Need to be Included in Your Estate Plan

Your digital assets are just as vulnerable as any other property—maybe more so!

You wouldn’t leave your checkbook at a coffee shop for anyone to see.  However, your digital assets are just as vulnerable as any other property—maybe more so!

MP900442500We all have an online digital life, some of us way more than others. Almost 25% of all Americans told surveyors from the Pew Research Center that they are almost constantly online. More than 75% of Americans are online at least once a day. The internet is an integral part of our daily lives.

As more and more of our personal and financial data is stored online, Forbes’ recent article advises us: “You Should Have An Estate Plan For Your Facebook Account.”

While the internet makes our lives much easier and everything is available with a mouse click, there are also some real issues for those who need to retrieve our digital assets after we’re gone. Digital assets include things like your personal e-mail accounts, online bank and brokerage accounts, frequent flier miles and social media websites. These may not seem like they have much value, but the value is in the vital data they contain—or the sentimental value of photos that are no longer kept in hard copy.

You should make special arrangements for your digital assets in advance. This allows the executor of your will to have access to this information. Provide the passwords of your computer and back-up hard drives to your executor, if you’re storing your documents this way. If you’re storing your documents in the cloud, be sure that your executor has access to these accounts.

Even if you provide your usernames and passwords to your executor or a family member, he or she may have issues with the vendor service agreement that denies him or her the ability to access, manage, distribute, copy, delete or even close accounts.

There’s a new statute, the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) that addresses whether and how a family member, executor, attorney-in-fact or trustee can access digital assets. Many states have introduced or adopted RUFADAA. This law is different from state laws governing estate administration, powers of attorney, and trusts. It doesn’t presume that family members and fiduciaries can access digital assets because of their relationship with the account owner. The statute requires express authorization, before anyone is allowed to access the content of a digital asset.

It is possible to invest in a password manager, which maintains a record of your online accounts and passwords in a digital vault. These accounts can be set up in advance to provide access to a representative at a specific event, like your death or incapacity.

Make a list of your digital assets and store it in a location where your personal representative can access it. Talk to your estate planning attorney about adding language to your will that grants your executor the authority to access your non-financial digital assets and accounts. You can also ask him or her about adding terms to your power-of-attorney documents that will grant your POA agent authority to act on your behalf with your digital accounts and assets. If you have assets in a trust, consider amending the trust agreement with language that will let the trustee access digital assets and accounts.

Make it easier for your heirs. Review the procedures for each of your accounts to find out what their policies are for owners, who become disabled or die. Have your estate planning attorney include all the necessary information in your documents and be sure that it matches the requested info from the account platforms, whether they are simple social media platforms or bank-security level financial portals.

Reference: Forbes (June 3, 2018) “You Should Have An Estate Plan For Your Facebook Account”

Will Your Legacy Include a Larger Purpose?

Your estate is mainly about the assets you own.  However, your legacy represents your purpose

Your estate is mainly about the assets you own.  However, your legacy represents your purpose, your values and the impact that you leave for others. A “Purpose” trust could bolster your legacy.

22530161529_6912667e92_oThe use of a “purpose” trust, as reported inForbes’recent article,“Why You Should Consider Using a 'Purpose' Trust for Your Legacy Plan,” centers on the idea of protecting and preserving your legacy. It exists not for the benefit of individual heirs, but to carry out a specific purpose. There are several states whose laws now allow purpose trusts, and you must be certain that the trust exists for a “valid” purpose, according to the law’s definition.

Three common goals of legacy planning are perpetual existence; separating the principal of the legacy assets from the revenue those assets generate; and separating the management and control of the legacy assets from those who benefit economically. A purpose trust can accomplish all of these goals.

Many states–such as Delaware, South Dakota, Nevada and Wyoming–now allow “perpetual” trusts. These trusts can last forever or for an extraordinarily long period of time, like 1,000 years.

Separating the principal of the legacy assets from the revenue those assets produce and separating the management and control of the legacy assets from those who benefit economically, can be achieved by creating up a multi-tiered trust structure.

While your purpose trust can own the legacy assets through a corporate entity, the legacy trust can provide that all of the income received be paid to one or more traditional family dynasty trusts of which your family can be beneficiaries. This lets your family or other beneficiaries benefit economically from your legacy assets, without necessarily involving them in the management and control of those assets. By creating a separate vertical for the management and control of your legacy assets, you also allow yourself to be intentional with the succession of that management and control and to integrate family members or outside advisors who are best qualified to oversee your legacy.

In a traditional dynasty trust structure, the ever-increasing pool of potential beneficiaries is a big issue. Even if you create maximum protections for the trustees and give them complete discretion as to how and when (if at all) to make distributions to beneficiaries, the trustees of the traditional dynasty trust still have fiduciary duties to those beneficiaries. As a result, the beneficiaries can file a lawsuit against the trustees, which can pressure trustees or frustrate the system, which may wreak havoc with your legacy plan.

Here’s another benefit: a “purpose” trust does not have any beneficiaries, so the trustees can focus on ensuring that the purpose of the trust is being fulfilled. They don’t have to worry about being sued by beneficiaries, because there are none. A “purpose” trust has a person appointed to make sure that your wishes are carried out the way you wanted.

Speak with an experienced estate planning attorney to learn how your state law treats a purpose trust, and see if it is right for your own situation.

Reference: Forbes(May 14, 2018) “Why You Should Consider Using A 'Purpose' Trust For Your Legacy Plan”

Living Trust and Fiduciary Duty at Issue in Case Before California Court of Appeals

This case involves the issue of whether and to what extent superior courts have authority to intervene in the administration of nonintervention estates.

This case involves the issue of whether and to what extent superior courts have authority to intervene in the administration of nonintervention estates.

MP900387776A successful business owner, Mildred Vail had purchased a number of properties in the Healdsburg area during the course of her lifetime. She was also the mother of four children: Patricia, Jonatha, Michael and Steven. recently published the case of “In re Mildred M. Vail Living Trust.”In this litigation, Mildred executed a Living Trust naming her four children as equal beneficiaries in 2003. The Trust instrument named Mildred as the "trust manager" and provided that her four children would become joint successor "Co-trust managers" in the event of her death, incapacity or resignation. It also gave Mildred the absolute power to revoke or amend the Trust during her lifetime and to add or remove property from the Trust at any time. Mildred placed several properties in the Trust.

In October 2004, before heart surgery, Mildred gave Steven her general durable power of attorney and a separate durable power of attorney "for banking and other financial institution transactions." In 2007, she revised her trust. She resigned as Trustee and named Steven as the "new trust manager."

In 2006, Steven led an effort to purchase and develop a property on behalf of the Trust. A family meeting was held to discuss the transaction. To obtain the money to buy the property, two Trust rental properties were sold, netting $466,000.

Mildred died on in 2011, at the age of 94. At that time, the four siblings, including Steven, behaved as though they had become successor co-Trust Managers. Steven later testified at his deposition that at the time of his mother's death, he hadn’t remembered her resignation as trust manager, but he later found the document making him the substitute trust manager.

Michael filed a petition to remove Steven as a co-trust manager, which alleged Steven was taking action without the consent of the other co-trust managers and refused to provide an accounting of his activities. In 2012, the court relieved all four siblings as co-trust managers and appointed Shelly Ocana as the interim trust manager.

Michael provided Ocana with a witnessed 2011 letter signed by Mildred that stated that Steven has been engaged in "rogue [activities]" and "secretive dealings" and was not authorized to act under her power of attorney. Ocana investigated the claims against Steven and ultimately sold the property at issue. The four siblings then entered into a settlement agreement providing for the distribution of Trust assets.

In 2015, Michael filed a suit accusing Steven of "numerous acts of injury to his mother and her trust involving elder abuse, conversion, breach of fiduciary duty, theft of trust assets, fraudulent transfer of assets, forgery, co-mingling trust assets, impersonating as trustee of the trust for personal gain, undue influence, conflict of interest, breach of trust, constructive trust for wrongfully retaining, secreting and/or appropriating trust assets and perjury." The trial court issued a statement of decision concluding that Steven had produced credible evidence that he had spent $71,000 for legitimate trust purposes.

The Court of Appeal of California reviewed Steven’s claim that the trial court applied the wrong legal standard, when determining whether he violated his duties as trustee.

Judge Henry E. Needhamwrote the opinion of the Court and agreed with Steven that it was Mildred to whom he owed a fiduciary duty.

“A revocable trust is a trust that the person who creates it, generally called the settlor, can revoke during the person's lifetime,” Needham explained. The beneficiaries' interest in the trust is contingent only, and the settlor can eliminate that interest at any time. When the trustee of a revocable trust is someone other than the settlor, that trustee owes a fiduciary duty to the settlor, the Court said—not to the beneficiaries,  if the settlor is alive. During that time, the trustee needs to account to the settlor only and not also to the beneficiaries.

However, the judge did note that after the settlor's death, the beneficiaries have standing to assert a breach of the fiduciary duty the trustee owed to the settlor to the extent that breach harmed the beneficiaries, and that the trustee's conduct can be attacked for fraud or bad faith. Therefore, Michael had standing to bring claims against Steven for his alleged breach of his duty to Mildred while she was alive.

The judgment was affirmed.Judge Needham said he inferred that the court had found Steven to be liable based on a breach of his duties to his mother as settlor of the Trust, which was supported by substantial evidence. The court ruled that Steven was not credible regarding the expenditures for which he was claiming an offset. Those included a down payment to purchase a property, payments made on a property after it was sold and the cost of building out his office.

Reference: (March 27, 2018) “In re Mildred M. Vail Living Trust”

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