After years of delays, on September 13, 2017, the Uniform Fiduciary Access to Digital Assets Act, was enacted into New Jersey law. In general, the Act provides executors, trustees, guardians, and power of attorney holders ("fiduciaries") the ability to access and control "digital assets" belonging to decedents, beneficiaries and wards. 

Going "digital" may improve efficiency, access, storage, and ease of sharing but at death, those benefits disappear. For an estate’s executor and its beneficiaries, going digital can have the opposite effect, making assets more difficult to access or even entirely inaccessible and lost.

Michael Crichton’s unpublished novel, Pirate Latitudes , was found in his computer files by his heirs, and the novel eventually was published. Leonard Bernstein’s unpublished memoir, Blue Ink , was password protected and is still not accessible to his heirs as of this writing. The two illustrate the range of outcomes for digital assets after death.

"Digital assets" encompasses all electronically stored information, not just what’s on one’s computer. An estate plan today should include a digital inventory of assets such as:

  • Passwords for devices, files, email, and social media accounts.
  • Passwords for financial information, accounts, and digital tax records.
  • Domain names, Web pages, Blogs, and other virtual property
  • Subscription services that would need to be cancelled or adjusted.

Passwords for access to computers, phones, or tablets and user account passwords may be required so your executor or heirs can have your pictures, videos, writing, or other personal content. Don’t assume they can acquire this easily from providers either. For example, Facebook will not provide access to a member’s account to their family upon death, instead giving the family the option of closing the page or leaving it up as a memorial.

The Revised Uniform Fiduciary Access to Digital Assets Act provides default assumptions regarding the digital estate, but those assumptions can be countermanded in a will, trust, or a power of attorney.

The law addresses questions such as:

  • As an executor, how do I obtain access to the decedent’s electronic communications?
  • If I am a trustee, does a custodian of a digital account have to provide me access?
  • Once I obtain access, am I treated as an “authorized user” under the law?

Our suggestion, when reviewing your estate planning documents is to be sure that your Power of Attorney, Will and / or Trust addresses your digital assets.

Wishing you a safe summer,
Ira J. Brower, Founder
AVOID RETIREMENT SURPRISES
The latest news on retirement preparedness is not encouraging. An estimated 40% of households headed by people aged 55 through 70 are unlikely to have sufficient resources to maintain their standard of living, according to a Wall Street Journal analysis. The median 401(k) account balance for this group is just $135,000, which might be enough for a $600 per month joint life annuity for a couple aged 65 and 62. 

More troubling, the debt for this cohort is on the rise. New York Federal Reserve data indicate that those aged 60 through 69 had about $2 trillion in total debt, an 11% increase since 2004. Car loan debt was up 25%, and student loan debt increased by a factor of 6!

More and more people will have to work longer to achieve the level of financial independence necessary for retirement security.

How long should you plan for?

At the same time, life expectancies are improving, and that raises the financial stakes still further. According to the Social Security Administration, men turning 65 this year will, on average, live to age 84.3, and women to age 86.7. Many retirements will last for 25 or 30 years. About one in four of those now 65 will live to age 90, and one in ten to age 95. You may calculate your own life expectancy with the calcluator found at https://www.ssa.gov/planners/lifeexpectancy.html .

How much will you need?

Developing a realistic retirement budget is an important exercise, one that requires an examination of values as much as resources. Some people enjoy living rather modestly during retirement. But one retiree we know says, "Life is too short to drink cheap wine." The retirement budget needs to be understood from three perspectives.

Essential versus discretionary spending. Which expenditures could be curtailed, even eliminated, in the event of financial reversals? Food is essential; restaurant dining is not. Is there room in the budget for savings?

Structural versus peripheral expenses . Some costs are binding, not subject to modification, and failure to meet them means a structural change in retirement. If you own real property, you must pay the taxes. If you have a mortgage, you must make the payments. If you own a car, you have to pay for routine maintenance. Trips, vacations, and gifts, in contrast, are peripheral expenses.

Fixed versus inflation-prone costs. Inflation has been very mild in recent years, but this may not be a permanent condition. Most retirement expenses are vulnerable to inflation, while retirement income generally is fixed. The response to inflation may include cutting back on optional purchases or substituting less expensive items for those that become unaffordable.

Understand also that long, modern retirements typically include three phases:

  • active retirement, filled with travel and pursuit of deferred dreams;
  • passive retirement, typically beginning in the mid-70s, when activities are gradually reduced; and
  • final retirement, a period often marked by failing health and a need for long-term care.

A different retirement budget applies to each of these three periods.

Put us on your team

We specialize in two areas of personal financial management:

  • Helping clients to achieve financial independence, using tax-sensitive techniques as appropriate.
  • Helping clients to maintain financial independence by providing unbiased investment advice and trusteeship.

For specifics on how we might help you, make an appointment to meet with one of our trust officers. He or she will help you to inventory resources, spot financial problems and opportunities, and develop an investment plan that appropriately balances risks and rewards for your circumstances. We are at your service.

(July 2018)
© 2018 M.A. Co. All rights reserved.
A NEW KIND OF LONG-TERM CARE INSURANCE
More than 400,000 long-term care insurance policies were sold in 1992, according to figures published by The Wall Street Journal . These are the policies that help seniors cover the costs of nursing home stays at the end of life. At least 400,000 additional policies were purchased each year in the subsequent ten years, peaking at about 750,000 in 2002.

Then sales collapsed, and never again reached the 400,000 level. Last year, reportedly only 66,000 such policies were sold. The need for long-term care insurance has never been greater. What happened to the market?

Actuarial errors

A series of actuarial errors were made when long-term care insurance was first introduced. The most important of these was the "lapse rate," the number of policies that will be terminated without ever paying a benefit. This occurs either because the insured stops paying premiums or the insured dies without making a claim. The actuaries chose a fairly conservative lapse rate of 5%. At that rate, if 1,000 policies were sold in year one, only 400 would be in force 20 years later. As it turned out, the buyers of long-term care insurance thought of their purchase as an investment, not as insurance, and so the lapse experience was closer to 1%, which implies that 800 of every 1,000 policies still will be in force after 20 years. That led to far higher payouts than projected.
   
Two more errors compounded the damage. The first is that medical advances have lengthened life expectancies, which, in turn, increases the likelihood of making a claim on a long-term care insurance policy. The second is that the actuaries generally assumed a 7% rate of return on the invested premiums on these policies. That assumption was fine in the 1990s, but interest rates have been at historic lows since 2008. When long-term care policies are priced today, the projected rate of return on premiums is likely to be 2% to 3%, which drives premium costs still higher.

Hybrid insurance

The new approach in this area combines life insurance with long-term care insurance. An estimated 260,000 such policies were sold last year. There is wide variation among such policies, but they may offer:

  • a death benefit;
  • guaranteed level premiums;
  • a return of premium feature should the buyer have a change of heart;
  • fully paid-up insurance after 10 years.

When the product offers more, it will cost more. In an example published recently in The Wall Street Journal , coverage for a couple in their mid-50s came to over $32,000 per year for 10 years, a total of $320,000. That compares to some $8,500 per year for a traditional long-term policy, in which the premiums must continue to be paid. After 30 years, the traditional policy will require $255,000 in total premiums, assuming no premium increases, so the disparity is not as large as it may at first appear.

What’s more, the minimum death benefit of the hybrid policy was $180,000 per spouse, which will be larger than the total premiums paid.

Still, the hybrid policy requires most of the premium payment early. For this couple, the policy will be paid up when they are in their mid-60s, and they may well not make a claim for another 20 years. Such coverage will be most attractive for individuals with high current income, sufficient to comfortably cover the premiums, who wish to protect a large estate from being eroded by private nursing home costs. Maximum coverage in the illustration was $1,371,891 per spouse.

Look to the future

If you already have a long-term care policy, you probably want to hang on to it. For the most part, those who have purchased these policies have profited from them.

The poorest seniors may have the costs of their long-term care picked up by the government through Medicaid. The wealthiest may be able to cover the costs without insurance—even though a year’s stay in a nursing home can easily run to $100,000 or more.

For everyone in the middle, planning is necessary. Despite the price increases, long-term care insurance will prove to be an important part of that plan for many affluent families. 

(July 2018)
© 2018 M.A. Co. All rights reserved.
THE IMPORTANCE OF CHOOSING THE RIGHT EXECUTOR
The following story is true (but names and some nonessential facts have been altered for privacy purposes).

Mike, 61 years old, suffers from autism. The severity of the disability varies, but in Mike’s case he is dependent upon others for constant care and supervision.

Mike’s parents provided all that he needed while they were alive and made plans for his care after they were gone. One of their goals was to make sure that Mike continued to live in familiar surroundings—the family home—after they were gone. By the year 2000 both of his parents had passed away. The family had lived frugally, and Mike’s father had worked two jobs. As a result, they left behind a $1.2 million estate, enough for Mike to continue to live out his days as his parents felt would best suit his needs.

A shocking development

It’s not clear from the available information how Smith came to be named as executor (sometimes referred to as a personal representative) of Mike’s father’s estate, but it was a disastrous choice. Smith allegedly embezzled the estate’s assets and subsequently was arrested. According to court documents, by the time that a new executor was appointed, the estate had less than $300 in assets. At this point, little is known about the chance of recovering anything from Smith.

In the meantime the bills for Mike’s care mounted up. The family home had to be sold, probably for less than it would have brought under normal circumstances. With no roof over his head, Mike was forced to move into a home for disabled seniors.

There are a few bright spots in this story. Caring neighbors visit Mike regularly, and he seems to be adjusting well to his new environment. Legislation has been introduced in Mike’s state to protect people with developmental disabilities from financial misconduct.

Another solution

The big mistake here, of course, was naming the wrong executor. Choosing an executor only should be done after careful consideration. And it’s more than choosing someone honest. Lack of experience and expertise can be costly as well.

The role of executor is to settle an estate expeditiously, efficiently and at the lowest possible cost. There are many responsibilities that an executor faces: arranging for the probate of the will; assembling and inventorying estate assets; protecting and managing the assets; notifying creditors and handling claims; filing tax returns and paying taxes. And, of course, after paying expenses and taxes, distributing the full amount due to the beneficiaries.

Our capabilities

We bring all the desired skills and talent when we are chosen to settle your estate. Consider the following benefits of our professional services as a corporate executor:

  • Specialized knowledge. For optimum results the complexity of modern estate settlement demands that your executor have specialized knowledge in such fields as investments, taxes, accounting, real estate and probate procedure. Your executor needs to pay close attention to record keeping, correspondence and other details.
  • Constant availability. With so much to be done in a limited amount of time, your executor always should be accessible and unhampered by outside pressures. In less complicated times, people relied on close relatives or friends to settle their estates. The individuals whom you may consider candidates for the job may lack the time or inclination for such complex work.
  • Unquestioned financial responsibility. Your executor should be financially secure. Our estate settlement services are backed by the strength of significant capital and resources. No surety bonds are required of us at the expense of your estate.
  • Impartiality. It is our policy to treat all beneficiaries fairly. There is no worry that we will be influenced to favor one beneficiary over others. In addition, for our many years of experience in settling estates, we well appreciate the importance of sympathy, understanding and consideration when counseling beneficiaries during a particularly emotional time.
  • Economy. Executor’s fees are often the same whether a corporate or individual executor is employed. The real economy in the use of an experienced executor is the ability to avoid mistakes and delays and to recognize cost-saving options. A single mistake resulting from an executor’s inexperience can cost an estate far more than might be saved in executor’s fees. In fact, the unqualified executor often can be the more expensive, even if he or she accepts no fee for the service.

Talk to us

Our experience as executor can offer you distinct advantages in planning for the security and well-being of your family. If you’re concerned about the burden placed upon the executor in your present will, or if you are ready to select an executor, we would be glad to explain in more detail about the many advantages of putting our team of full-time professionals to work for your estate.

© 2018 M.A. Co. All rights reserved.
Any developments occurring after January 1, 2018, are not reflected in this article.
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Because of the rapidly changing nature of tax, legal or accounting rules and our reliance on outside sources, Garden State Trust Company makes no warranty or guarantee of the accuracy or reliability of information contained herein nor do we take responsibility for any decision made or action taken by you in reliance upon information provided here or at other sites to which we link. ©2017. All rights reserved.