California Probate - Law Offices of Janet Brewer Blog

How Do I Incorporate Cryptocurrency into My Estate Planning?

“Bitcoin has gone in value from less than one cent in 2010 to a high of $20,000 in 2017, to a value at the end of July 2020 of nearly $11,000. Now the U.S. Congress is holding hearings on the digitization of the dollar, so cryptocurrency has become an increasingly important financial tool for individuals and businesses.”

Planning for cryptocurrency has been neglected. It means that, in some cases, the cryptocurrency has been lost. There have been people who tossed their computer hard drives with thousands of bitcoins (now worth millions). They then spend days sifting through tons of garbage. To save your family from this trouble and embarrassment after you die, add your cryptocurrency into your estate plan to preserve the benefits and avoid the risks of cryptocurrency.

Wealth Advisor’s recent article entitled “Estate Planning When You Own Cryptocurrency” says, first, you must preserve the benefits of your cryptocurrency.

Cryptocurrency is highly secure. However, that security is in danger, if the private key is carelessly recorded or discarded. With the private key, anyone can access the cryptocurrency. As a result, your planning and procedures must address how to secure this information. Just like cash, cryptocurrency isn’t traceable. In fact, there’s no electronic or paper trail connecting the parties in a transaction involving cryptocurrency. Therefore, in order to preserve that privacy, you’ll need to plan so the other documentation in the transaction doesn’t reveal these identities, or at least keep that information privileged. Remember that transferring cryptocurrency takes only seconds.

Because cryptocurrency, like precious metals and other commodities, can fluctuate wildly in value even during the course of a day, it must be treated like stock in a private company and other assets that are volatile in nature. Cryptocurrency also isn’t subject to government regulation, so no government is responsible for losses from fraud, theft or other malfeasance.

Trusts and other planning devices have a tough time with cryptocurrency, especially if the Prudent Investor Rule applies. Without specific language, the trust won’t be capable of holding cryptocurrency. If that language is written too broadly, the trustee may be exempt from damages due to willful neglect.

Cryptocurrency is also taxed as property not as currency by the IRS, which means that the fair market value is set by conversion into U.S. dollars at “a reasonable exchange rate” and transactions involving cryptocurrency are subject to the capital gains tax regulations. As a result, you must have specific tax provisions in trusts, partnerships, LLCs, and other entities. Therefore, if you, or your business, own bitcoin or any other cryptocurrency, your estate, business succession, and financial plans need to address it specifically. Ask an experienced estate planning attorney for help.

Reference: Wealth Advisor (August 4, 2020) “Estate Planning When You Own Cryptocurrency”

If I’m 35, Do I Need a Will?

“It's never too early to start estate planning. If you already have a family, getting your personal affairs in order is a must. The sooner you start planning, the more prepared you will be for life's unexpected twists and turns.”

Estate planning is a crucial process for everyone, no matter what assets you have now. If you want your family to be able to deal with your affairs, debts included, drafting an estate plan is critical, says Wealth Advisor’s recent article entitled “Estate planning for those 40 and under.”

If you have young children or other dependents planning is vitally important. The less you have, the more important your plan is, so it can provide as long as possible and in the best way for those most important to you. You can’t afford to make a mistake.

Talk to your family about various “what if” situations. It is important that you’ve discussed your wishes with your family and that you’ve considered the many contingencies that can happen, like a serious illness or injury, incapacity, or death. This also gives you the chance to explain your rationale for making a larger gift to someone, rather than another or an equal division. This can be especially significant if there’s a second marriage with children from different relationships and a wide range of ages. An open conversation can help to avoid hard feelings later.

You should have the basic estate plan components, which include a will, a living will, advance directive, and powers of attorney. These are all important components of an estate plan that should be created at the beginning of the planning process. A guardian should also be named for any minor children.

In addition, a life insurance policy can give your family the needed funds in the event of an untimely death and loss of income—especially for young parents. The loss of one or both spouses’ income can have a drastic impact.

Remember that your estate plan shouldn’t be a "one and done thing." You need to review your estate plan every few years. This gives you the opportunity to make changes based on significant life events, tax law changes, the addition of more children, or their changing needs. You should also monitor your insurance policies and investments because they dovetail into your estate plan and can fluctuate based on the economic environment.

When you draft these documents, you should work with a qualified estate planning attorney. Contact our office today to schedule your consultation.

Reference: Wealth Advisor (Jan. 21, 2020) “Estate planning for those 40 and under”

Include These Three Items in Your Will

“A will or trust explains what you want to have happen to your assets when you die, hopefully in a very, very long time. While most people understand that a will explains what to do with money, property, and children, there are other parts you might be surprised by.”

MSN’s recent article entitled “3 surprising things you might not think to include your will” tells about three things to include in your will that you may not have thought about before.

Guardianship and funds for your pet. If you have a pet, you’ll want to make certain that it has care when you’re not around. You can name a guardian to take ownership of your pet, in the event your pet outlives you. You can also set up a pet trust in some states.

An executor for your digital assets. You probably have accounts with data on Facebook, Twitter, Instagram, YouTube and other social media accounts. You may have an account for online gaming, operate an online small business, or own other important digital assets. If so, you should appoint someone to manage your digital afterlife.

A digital executor should be able to access your online accounts and manage closing them down or moving them to a new strategy.

Charitable donations. If you have given to a religious organization, school, or other nonprofit, you can include these charities in your estate plan. Another option is to instruct a family member to make a donation with a part of an inheritance. It’s not legally binding, but could it pass on a tax benefit to the ultimate donor.

In addition, remember to keep your beneficiaries updated on all life insurance policies and retirement accounts, because the listed beneficiary on these accounts supersedes anything you put in your will.

If you get divorced and remarried, update your will and also make certain that your life insurance beneficiary is updated.

Don't procrastinate. Make sure that all of your estate planning documents are up to date.

Meet with your estate planning attorney every year or two, to also be sure your plan reflects any changes in the law or changes in your circumstances.

Reference: MSN (Jan. 10, 2020) “3 surprising things you might not think to include your will”

Digital Assets: Why They Need to be Part of Your Estate Plan and How They Are Valued

When discussing estate planning, most individuals think of real estate, family heirlooms, and current accounts. However, modern estate planning should include one other aspect that is frequently ignored – digital assets. These can be anything from digital photos and videos to email and social media accounts to domain names that may be registered to you. Other examples may include online reward programs, financial accounts (PayPal, Venmo) and investment/brokerage accounts, business accounts, and even cryptocurrencies.

If you neglect to include your digital assets in your estate plan, your loved ones won’t be able to access them (and sometimes may not even know they exist). If these assets cannot be accessed, you run the risk of your family losing cherished photos and videos forever. Your family may also not be able to recover some of your financial estate. 

Challenges in the Absence of No Digital Asset Plan

Given the heavy reliance on digital financial transactions, including digital assets in your overall estate plan has become absolutely essential. Without articulating your intent for your digital assets, as well as creating an inventory with passwords, your fiduciary would face massive challenges to accessing these accounts – provided the fiduciary is able to locate all of your digital accounts. Common challenges include:

• Not knowing passwords. Unless these are provided to someone, family members may not be able to access any information stored on your devices, in online accounts, or on the cloud.
• Digital data is often encrypted, which adds greater security than only passwords can provide. Two-factor authentication is often necessary (and sometimes relies on biometric data), which can further complicate the process of data retrieval without the necessary information.
• State and federal laws may complicate the process of accessing digital assets without explicit, legally-binding authority to do so.
• Data privacy laws prohibit account providers from sharing your digital assets, which allows them to lock it. The only one who may be allowed access would be someone with the authority to do so.

How Are Digital Assets Valued?

Digital assets are intangible assets, which can increase the challenge of assigning value to them. In a recent survey by McAfee, the average US consumer valued their digital assets at $55,000, while the global average was $37,000 for survey participants. However, as the survey points out, individuals often value their personal, sentimental digital assets far more than what they would be worth on the market. For example, individuals assigned an average value of $7,000 to their images and videos despite the fact that it is highly unlikely anyone would ever pay that figure for these assets.

The process of assigning value to digital assets can become extremely complex, particularly if the individual owns a business or has a website. There are many factors that could come into play, such as current revenue, site conversion rate, the industry’s value, and the domain name value, among other things. In more complex cases, it may be necessary to consult with an expert to help determine the value of the digital assets in question.

Estate Planning for Digital Assets

Despite the complexity with valuing digital assets, incorporating them into your estate plan is generally straightforward, and includes the following steps:

• Make a list of all of your digital assets, including user names and passwords. This list should be as comprehensive as possible and include software, hardware, and any online accounts. It can be challenging to keep this list updated and using a password manager program can be helpful. You would simply share access to this program with your executor.
• Name a digital executor. In most cases, this will be the executor of your entire estate. However, sometimes it may be advisable to have someone who is more digital-savvy to assist the primary executor.
• Decide how you want each of these assets treated. Similar to your physical assets, you can determine how you want your digital assets to be treated after your death. Should they be transferred to someone else? Or shut down? Sold?
• Incorporate this information into your estate plan. A digital estate plan can be formalized into a legally binding document. You should not include any passwords in this document, but you should outline the process for your executor or digital executor to access your digital asset inventory.

Digital asset estate planning is a crucial aspect of modern estate planning. These assets can potentially have a tremendous amount of monetary value – not to mention, sentimental value. If you are unsure of how to incorporate your digital assets into your estate plan, it is best to consult with professionals who can guide you through this process and ensure that your digital assets will be transferred and handled according to your wishes.

You Have Frequent Flyer Miles but Can You Pass Them On?

Where do those thousands of dollars’ worth of frequent flyer miles end up when you die?

It depends on the airline but your frequent flyers miles may come to an abrupt end when you pass away, according to The Wall Street Journal’s article “A Thorny Inheritance Issue: Frequent-Flier Miles.”

Many airlines simply close the accounts. Others may make an exception, if you plead, but this adds more stress during a time of grief. Like everything associated with airlines, there’s likely to be a fee to transfer miles to an heir’s account, diminishing the value of the miles.

United and American Airlines say their miles are not transferable. Except, if they are. At the airlines’ discretion, they may allow it with proper documentation, like a death certificate, executed will and maybe fees. Spokespeople for both airlines say they have stopped collecting fees in recent years, and United reports that it’s going to update terms and conditions to remove fees in the case of death.

Others, like Qantas, British Airways, Singapore, and Korean, say that miles die when you do. Southwest gives you 24 months to use miles after the owner dies, assuming you have the right login information. Emirates and All Nippon are among those who require a request to transfer miles within six months of a death. Some airlines require both a death certificate and a will or a court order showing who was named to inherit the miles.

In 2013, Delta changed its rules to state that miles die with users, unless there is written permission from a Delta officer. That means a vice president and above. Delta doesn’t share the info of what you’d need to have for an exemption. Before the rule changed, Delta’s policy was that miles were owned by the member and could be inherited. However, the language is now far stricter, and the tone is not encouraging. A statement responding to questions, says that Delta encourages customers to reach out and the airline will review them on a case-by-case basis.

For travelers, this is a no-win situation. For one user, who unexpectedly lost her husband, using his miles by accessing his account got her and her son to a family wedding a year after his death. When a spouse dies, there are many issues and big decisions. That’s the last time anyone should have to be on the phone with an impersonal airline, begging a clerk to transfer miles.

It would be a kindness for airlines to show a human side and allow miles to be transferred with a death certificate. However, at the heart of the issue is an industry-wide policy that customers don’t own those frequent-flier miles. The airlines do. You’re awarded miles for flying, whether they come from a credit card company or from the airline. The U.S. Supreme Court and lower courts have consistently held that airlines have the right to create the rules and customers must live by them.

Jet Blue and British Airways allow families to “pool” their miles by linking together accounts of family members and sharing miles or points. However, you must sign up before any of the owners die.

These are some tips that might help:

• Put explicit instructions in your will, as to who should inherit your miles. It may help with airline’s “case by case” consideration.
• Make sure that someone has your account information, passwords and access to the credit card and email that is associated with the account.
• Don’t pay to transfer miles. If the airline won’t relent, then make sure the fee doesn’t wipe out the value of the miles.
• If you can sign up for family pooling with an airline, do it.

Reference: The Wall Street Journal (June 19, 2019) “A Thorny Inheritance Issue: Frequent-Flier Miles.”

Estate Plan? Don’t Forget Your Digital Assets

We are living more and more online and digital should be considered, in addition to real life.

Since it is very likely you have digital assets, it is a good idea to think about your digital legacy, according to The Scotsman in “The ghost in the machine—what will happen to online you after death?” Most of us have digital assets and online accounts. It’s time to think about what will happen to them when we die.

Estate planning attorneys are now talking with clients about their digital assets and leaving specific instructions about what to do with these online accounts and social media, after they pass.

There’s a trend of creating video messages to loved ones and posting them online for the family to see after they pass. Facebook has a feature that allows the page owner to set a legacy contact to manage the account, after the account owner has died. Other technologies are emerging to allow you to gather your digital assets and assign an individual or individuals to manage them after you die.

It is now just as important to think about what you want to happen to your digital assets, as it is to your tangible, earth-bound assets when you die. What’s also important: considering what you want to happen to your data, how accessible and enduring you want it to be, and how it will be protected.

People in their older years have seen amazing leaps and changes in technologies. We’ve moved from transistor radios to VHS to DVD to Blu-Ray. We’ve gone from land line home phones to smart phones that have the same computing power or more than a desktop. The first social media site was launched in 1997, and websites like Myspace have come and gone.

Will the current websites and software still be available and commonly used in five, ten, fifty, or one hundred years? It’s impossible to know what the world will look like then. However, unless a plan is made for digital legacies, it’s unlikely that your digital legacy will be accessible to others in the near and far future.

Here’s the problem: even if your executor does succeed in memorializing your Facebook page, will there be things on the page that you don’t want anyone to see after you’ve gone? There’s a wealth of data on social media to sift through, including items you may not want to be part of your digital legacy.

Consider the comparison to people who lived during previous ages. We may not be able to see their lives online, but they have left behind physical artifacts—letters, diaries, photographs—that we can hold in our hands and that tell us their stories. These artifacts will survive through the generations.

An estate planning attorney can advise you on creating an estate plan that fits your unique circumstances and includes your digital assets. 

Reference: The Scotsman (May 16, 2019) “The ghost in the machine—what will happen to online you after death?”

Going Crypto? Estate Plan Needs Extra Care

If you haven’t made good plans, the funds may not be available to your heirs.

There can be strong returns in cryptocurrency. However, there can also be dangers, if your estate plan is not designed to deal with the digital world, according to Bloomberg in “Crypto Exchange Founder Filed Will 12 Days Before He Died.”

The unexpected death of 30-year-old cryptocurrency exchange founder Gerald Cotten left $145 million in Bitcoin and other digital assets protected by his passwords. No provisions were made for anyone to retrieve the assets. His wife Jennifer Robertson was his sole heir and executor to his estate.

The Canadian press reported that a Nova Scotia Supreme Court Justice granted the company a 30-day stay to halt any lawsuits from proceeding at this time, and the Vancouver-based firm was granted protection from creditors.

The business was launched late in 2013, and users deposited cash or cryptocurrency through its online trading platform, storing digital currency on blockchain ledgers that are only accessible through a code. There were 363,000 registered users and 92,000 have account balances owing to them, in either cash or cryptocurrencies.

Cotten, the sole owner and director, did an excellent job of protecting his assets. This was fine while he was alive, but now presents a serious situation for account holders. He was very conscious about security. Everything, from his laptop, email addresses and messaging system, was encrypted. He was the only one who handled funds, coins and the banking and accounting side of the business. He also moved most of the digital coins into storage that was not connected to the internet, to avoid being hacked.

His wife can’t find his passwords or any business records for the company. Experts who attempted to hack into the system were only partially able to do so. Attempts to open an encrypted USB key have also failed. Some clients who claim that they are owed money, have retained counsel to represent them during creditor protection proceedings.

Cotten and his wife had no children. The assets that he left to her include several properties, an airplane, a yacht, a luxury car and his two pet dogs. He died as a result of complications due to Crohn’s disease.

This is an extreme example of what can go wrong, when digital assets are not made part of an estate plan. Most people today do have digital assets and need to address them in their estate plan.

We can help. You can read more about how our process works, how we can make sure we are a good fit for your needs, and how to get started today right here.

Reference: Bloomberg (Feb. 5, 2019) “Crypto Exchange Founder Filed Will 12 Days Before He Died”

Are New Technologies Acceptable for Creating Wills?

A will traditionally has to be in writing.

New technologies, such as cell phones and videos, make our life easier. However, are they acceptable for creating wills or estate plans? The question signifies some real issues being presented to courts, according to My San Antonio in “Can a video be used as a Will?”

The article concerns the questions of a grandmother making a statement, while in an intensive care unit, that she wanted everything she owned to go to a grandchild and a brother-in-law, and what if that statement was captured on a cellphone as a video?

There are two reasons why a cellphone video is unlikely to be accepted as a will by any court. One is that the cellphone video does not follow the formality of how a will is created and executed. Another is the statue of frauds, which basically says that to be lawfully valid, certain promises must be in writing.

Not only does a will need to be in writing, it must show clear intent to dispose of assets after death. The writing must be dated and signed by the person who is making the promise (the testator). If the will is written by the testator in his or her handwriting, it is known as a “holographic” will. If the will is typed or in someone else’s handwriting other than the testator, which is known as a “formal will,” then it must also be signed by two independent witnesses and must be notarized. The person who is having the will created (again, the testator), must also have legal capacity for the will to be valid.

In some states, including Texas, there was a time when a spoken will, known an a “nuncupative will” could have been recognized. However, that is no longer the case and a verbal will is no longer valid. Even when a nuncupative will was accepted, it was only accepted for inexpensive personal effects, not large assets or real property.

Some states, including Florida and Nevada, now allow a person to make a will online or on their computer and never have it transferred to paper. These are called “digital” or “electronic” wills. In these cases, e-signatures are allowed to be used. Other states have considered bills allowing digital wills, but the bills did not pass. The Florida law allows the digital will to be e-signed, but it must be witnessed by two independent individuals and it must be e-notarized. It should be noted that the will process is not permitted to be used by a person, who is in an end-stage illness or who is legally considered a “vulnerable adult.”

In the state of Texas, the grandmother in the example above is considered to have died without a will, meaning that she died “intestate.” Texas law will determine how her assets are distributed, and that will depend on her relationships and her survivors. If she was married and all children are from that marriage, her assets go to her spouse. If she was married and had children from a prior marriage, her assets are split unevenly between those children and her spouse. If there is no spouse, assets go to her children. There is a tremendous burden placed on the heirs of those who die without a will, since it does take a long time to figure out who their heirs are.

You can read more about how our process for estate planning works, how we can make sure we are a good fit for your needs, and how to get started today right here.

Reference: My San Antonio (Feb. 18, 2019) “Can a video be used as a Will?”

Organize Your Digital Assets for Estate Plan

Your digital assets should be gathered, as well as tangible assets.

There are many digital assets that frequently make the news, such as Bitcoin, but what about the less complicated digital assets, such as family photos? Those should also be considered when creating your estate plan, according to The Eagle in “Your digital estate: 3 tips for the seasoned crowd.”

There are some important steps to take to protect your digital life, including e-books to social pages to your finances. Most people know they need to double check their account titles, wills, trusts, insurance policies and powers of attorney, but they don’t all realize how much of their lives is conducted online.

Digital estate planning focuses on organizing digital assets of all kinds and making the correct arrangements for what will happen to them, after you either pass away or become incapacitated.

You don’t own any cryptocurrency? Do you have a Facebook page? Have you ever created a website or a blog? What about a LinkedIn profile? See—you have digital assets. You need a plan.

The best way to start is similar to what you do with tangible assets. Start with a list:

• Hard assets, including computers, laptops, digital readers like Kindle or Nook, smart phones and external data storage drives.
• Social media and networking sites—everything from Facebook, LinkedIn, Twitter, Instagram, Snapchat, etc. Be sure to also include any gaming websites.
• Online data storage accounts, like Dropbox.
• Domain names, regardless of if you built a website for the name.
• Intellectual property

There’s sentimental value to many of these accounts, like the photos stored in the cloud. There’s also practical value. If you pass away and your family is widespread and connects regularly on social media, would it be helpful for a family member to log into your social media accounts and share information about your passing? We used to have obituaries published in local newspapers, but today we post information online.

There may be financial value as well. If you own a website that contains copyrighted material or intellectual property, you will want an executor to gain access. You’ll also want to address the issue of your emails, especially if you are a business owner.

The next step is to review the list and see what, if any accounts, you don’t use anymore and would like to shut down. Then begin looking at each digital account you have and find out how each platform addresses access, after the owner has died or become incapacitated. Facebook allows users to memorialize the account and preserve the space for friends and families to share memories. Twitter allows immediate family members to deactivate the account, as long as proof-of-death can be documented. Google has an Inactive Account Manager service that permits the account to be transferred to a designated person, after a certain period of account inactivity.

Social media websites are increasingly aware of the issue of account owners dying, and every platform has its own process, so you’ll need to go through each, one by one.

You may also want to name a digital executor. This is not, as yet, a legally enforceable role, but it will make winding things down much easier. Your digital executor will need your passwords and user names, but they will not be able to simply log in and make changes using that information.

An estate planning attorney can advise you in creating an estate plan that fits your unique circumstances and can include your digital assets.

Reference: The Eagle (Nov. 8, 2018) “Your digital estate: 3 tips for the seasoned crowd”

How Do You Pass on Cryptocurrencies?

Just how do you handle digital assets?

Advancing technology has brought us digital assets and they most likely are here to stay. Therefore, cryptocurrency investors need to know how to pass on those assets through the use of estate planning, according to ThinkAdvisor, in “4 Key Steps for Estate Planning with Cryptocurrencies.”

Here are a few facts about cryptocurrency assets:

Record Private-Key Custody and All Access Details. Digital currency is not the same as bank or investment accounts. The information can be lost permanently if the investor fails to share the access information. Here’s what needs to be shared for most cryptocurrencies:

Private Key – A public-private key system is used to ensure transactional validity. The public key becomes public every time the cryptocurrency is bought and sold but only the owner knows the private key. This is used to verify ownership and access accounts. A physical record of the key must be created and maintained. Keeping it in a bank safety deposit box or home safe insulates the private key from hacking.

Passwords – Investors who do not secure their digital assets in “hardware wallets,” often have their cryptocurrency stored on default digital wallets provided by an exchange. The owner must share their user name, password and security question information with the exchange, so that digital assets can be retrieved.

Two-Factor Authentication – Many exchanges require investors to use two-factor authentication, usually via a mobile app that provides a unique time to gain access. User name, password and security system must be recorded for anyone else to access.

Use a Hardware Wallet. Once digital currency is purchased on an exchange, it is automatically stored on the exchange’s default wallet so the investor can access them. However, these default wallets are susceptible to hackers. Investors should immediately transfer their currency to a hardware wallet. Purchased online, they are generally encrypted flash drives that require a password or PIN code to gain access. If you lose that flash drive, or password or PIN code, you may have lost all the assets. However, some hardware wallets support 24-word recovery phrases to help investors restore their accounts. Investors are advised to buy a secondary hardware wallet and make an exact duplicate to have another means of access.

Uniform Fiduciary Access. Roughly 24 states have passed some version of the Uniform Fiduciary Access to Digital Access Act. These laws empower fiduciaries to manage digital assets. However, they may not yet provide that same level of power for cryptocurrencies.

Determine Tax Liability. The IRS treats digital assets as property, rather than currency for tax purposes, so any capital gains or losses in digital asset transactions must be reported. Many online digital asset exchanges provide data that tracks sales and purchases. However, they don’t always provide enough information to determine the tax basis. Record and save information on every transaction to be able to do the calculations on your tax liability.

Reference: ThinkAdvisor (Oct. 22, 2018) “4 Key Steps for Estate Planning with Cryptocurrencies”