When I read the Article that follows, I was reminded of a recent experience at a Car Dealership. I needed to retrieve some information I had stored on my iPhone so I accessed my Keeper app where I store my log-ins and passwords. As I was scrolling down Keeper, I realized I have over 100 passwords stored between personal and business log-ins. Today as I was writing this article I decided to ask the people in my office how many log-ins and passwords they have stored on their phones – to my surprise the numbers ranged from 30 to over 300!!

I would venture to guess that many of you reading this Newsletter have a great number of log-ins and passwords stored either digitally or on hard copy. That is why what follows is so important when you are considering your estate plan.

One important new aspect of estate planning concerns “digital assets,” a form of property that only recently has come into existence. Simply stated, digital assets are electronic ones and zeros; that is, information inscribed on a tangible medium or stored in an electronic or other medium and which is retrievable in perceivable form. Common types of digital assets include:

Personal. Personal digital assets include e-mail and text messages, e-books (e.g., Kindle and Nook), word processing and pdf files, photographs, videos, music files (e.g., mp3s and iTunes), spreadsheets, PowerPoint presentations, tax records and returns, and similar materials. They may be stored on a variety of devices, such as computers, tablets, smartphones, e-readers, cameras, hard drives, memory cards, CDs and DVDs, or online in the cloud. Each of these storage techniques often requires different means of access, including user names, passwords, answers to “secret” questions, biometric data (e.g., fingerprint or retinal scan), and gestures.

Social Media. Social media assets involve interactions with other people on websites such as Facebook, MySpace, LinkedIn, and Twitter. These sites are used not only for messaging and social interaction, but they also can serve as storage for photos, videos, and other electronic files.

Financial Accounts. Many people manage their financial affairs online, including bank and PayPal accounts, investment and brokerage accounts, bill payment (e.g., utilities, credit cards, car note payments, mortgage payments), and income taxes. Some may even deal with virtual currencies such as Bitcoin.

Business Accounts. Business owners are likely to have customer databases containing names, addresses, and credit card information, along with information such as order history and pending orders. A professional such as a physician, attorney, or CPA may have client records, many of which will contain confidential information.

Other Digital Assets. In this category are items such as domain names, blogs, loyalty program benefits (e.g., frequent flyer miles, credit card rewards, and business discounts or vouchers), and gaming property (e.g., virtual money, avatars, or other assets earned when playing online games).

WHY IS IT IMPORTANT TO INCLUDE DIGITAL ASSETS IN THE ESTATE PLAN?

Assist others upon death or incapacity. When individuals are prudent about their online life, they have many different usernames and passwords for their accounts. This is the only way to secure identities, but this devotion to protecting sensitive personal information can wreak havoc on families and fiduciaries upon incapacity and death as their rights to access digital assets are often unclear, as discussed below. Proper planning may make this process less complicated.

Reduce Identity Theft. In addition to needing access to online accounts for personal reasons and closing probate, family members need this information quickly so that a deceased’s identity is not stolen. Until authorities update their databases regarding a new death, criminals can open credit cards, apply for jobs, and get state identification cards under a dead person’s name.

Prevent Financial Loss to Estate. Failure to plan for digital assets upon death and disability may cause financial loss to the estate from four perspectives. First, electronic bills for utilities, loans, insurance, and other expenses need to be discovered quickly and paid to prevent cancellations. For example, without power the furnace may not run and keep pipes in the house from freezing, or the security system may not work if the residence is burglarized.

Avoid Losing a Personal Story. Many digital assets are not inherently valuable, but are valuable to family members, who extract meaning from what the deceased leaves behind. Historically, people kept special pictures, letters, and journals in albums, scrapbooks, or shoeboxes for future generations. Today this material is stored on computers or online and often is never printed. Personal blogs and Twitter feeds have replaced physical diaries, and e-mail messages have replaced letters. Without alerting family members that these assets exist and without telling them how to get access to them, the story of the life of the deceased may be lost forever. This is not only a tragedy for family members but also, possibly, for future historians, who are losing pieces of history in the digital abyss.

If you have ignored this part of your estate planning, now would be a good time to start paying attention to it. In today’s electronic age, it is absolutely critical that digital assets of all types be addressed in your estate planning.
© 2017 M.A. Co.  All rights reserved.

I hope that the above information was helpful.

Sincerely,
 
  Ira J. Brower, Founder
TAX REFORM STALLS

There has been surprisingly little progress on tax reform, given the high hopes that so many had last January. On May 17 Republicans and Democrats from the Senate Finance Committee met with Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn.The key takeaway seemed to be that the Senators want to pursue tax legislation on a bipartisan basis. That means committee hearings and, most likely, a very protracted process.  Many already have suggested that tax reform can’t happen until 2018.  However, enacting major tax reform in an election year would be unusual, because so much attention must be invested in campaigning.

President Trump’s tax proposals, rolled out at the end of April, included the elimination of the federal estate tax, so that remains a possibility.  In a statement accompanying the presentation of the one-page proposal, economics adviser Gary Cohn said: “The threat of being hit by the death tax leads small business owners and farmers in this country to waste countless hours and resources on complicated estate planning to make sure their children aren’t hit with a huge tax when they die. No one wants their children to have to sell the family business to pay an unfair tax.”

Cohn clarified that the repeal of the estate tax would be immediate, not phased in over a period of years. Democrats are likely to resist changing or eliminating the federal estate tax.

We are no closer to knowing the fate of the federal gift tax or the generation-skipping transfer tax, however. It has been argued by some observers that the gift tax must be retained so as to protect income tax revenues. No indication as of May on the fate of basis step-up, or the possibility of taxing unrealized gains at death.

WHAT’S THE HOLD-UP?

One of the major stumbling blocks to getting to tax reform is the issue of “revenue neutrality,” the idea that all tax cuts must be offset by tax increases elsewhere in the Tax Code so that net federal tax collections remain unchanged. That was the model for the Tax Reform Act of 1986; it was not the approach used for the Economic Recovery Tax Act of 1981, which helped to break a long period of stagflation. In fact, ERTA turned into a bipartisan stampede once the ball got rolling.

The cause of tax reform may have been set back when Senate Majority Leader Mitch McConnell (R-Ky.) announced in May that only a revenue-neutral tax bill could pass the Senate. He did not identify any “pay-fors” to offset tax breaks expected to foster better economic growth. The proposal put forth by President Trump, even though it lacks critical details, has been judged to “lose” as much as $7 trillion over its first ten years.  

What happens when the stock market bulls realize that corporate tax reform is not in the cards this year? Wait and see.

(June 2017)
© 2017 M.A. Co.  All rights reserved.
THE TROUBLE WITH POWERS OF ATTORNEY
Reportedly the incidence of Alzheimer’s disease among those 85 and older is about 47%. This population needs help with financial management. Perhaps the most common tool to permit a family member to assist with handling an elderly person’s assets is the power of attorney. Unfortunately, the power of attorney can also be an avenue that leads to financial abuse of the elderly. Attorneys Martin Shenkman and Jonathan Blattmachr outlined steps that may be taken to head off such problems without compromising flexible financial management for the elderly person (“Powers of Attorney for Our Aging Client Base,” published in the July 2015 issue of Trusts & Estates magazine). Among their recommendations:
  • Joint agents.  Checks and balances for the power of attorney may be created if more than one person must sign off on the exercise of the power. Although this may limit quick decisions in the event of an emergency, the tradeoff for greater security may be worthwhile.
     
  • Care managers.  An independent care manager may be hired to evaluate the elder periodically to report to the elder’s health care agent.  The care manager can determine whether the appropriate care is actually being provided to the elderly person.

  • No more gifts.  In the usual case, one who holds a power of attorney cannot make gifts of the elderly person’s property. However, the power of attorney may be drafted to specifically allow for such gifts, if that is desired.  In the days when the federal estate tax kicked in at much lower levels, some estate planners routinely advised that gifting powers be included in a power of attorney, so as to begin putting an estate plan into effect and to control death taxes. The authors make a persuasive case that, given today high federal estate tax exemption, such gifting powers should no longer be routinely included in powers of attorney. The income tax benefits of holding property until death are far greater than the potential estate tax savings for all but the largest estates. What’s more, gifting powers have been a specific source of elder abuse.

  • Living trusts.  It is becoming more and more common for elderly clients to outlive their spouses, siblings and friends. That creates a dilemma if there are no children nearby. The authors suggest, “The use of a funded revocable trust that names an institutional co-trustee or successor trustee can provide a viable solution for clients fitting this profile.”

We are that “institutional co-trustee or successor trustee.” It’s always nice to receive recognition of the value of our services from experts in estate planning. We’d be very pleased to tell you more about how our services may benefit you and your family over the generations. Please arrange for an appointment with one of our officers at your convenience.

(June 2017)
© 2017 M.A. Co.  All rights reserved.

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