Estate Planning for Digital Assets

Every password-protected account that you own is a digital asset. They should not disappear into a void when you pass. They need to be protected, just as much, and maybe even more, than tangible assets. They can be stolen by cyber-criminals, who can loot bank accounts, retirement funds and more. You can direct that they be transferred, preserved or destroyed, says the Valdosta Daily Times in the article “Preparing an estate strategy for digital assets.”

Digital assets include information on phones and computers, content uploaded to social media sites like Facebook, Instagram and others, creative/intellectual content in digital property and records from online communications, including emails and texts.

Do these accounts really have any value? Yes—according to security software provider McAfee, the average American’s digital assets are worth about $55,000.

Estate strategies for digital assets require an awareness of new and changing laws about digital assets. Almost every state has now passed some version of the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), which has defined a path for the future of digital accounts, when the owner passes. RUFADAA has set a hierarchical structure for the transfer of digital assets.

First, if the service provider has a means of permitting the transfer of the asset to a designated party of the original asset owner’s choice, that takes priority. Gmail and Facebook have a means of creating a directive to state the owner’s wishes.

If no such directives are on the website, then the instructions denoted in traditional estate documents must be followed, assuming that those documents are prepared properly.

If none of that is in place, then the service provider’s Terms of Service Agreement (TOSA) takes priority.  If the providers TOSA says that the account is a nontransferable lifetime lease, its ownership may not be transferred to another person. However, as a result of RUFADAA, the owner has the right to appoint a fiduciary to access, manage or close out an online account. The power may be exercised, if you are dead or if you are incapacitated.

However—you must name this fiduciary and grant the legal power to an individual through your will, power of attorney or trust agreement. Otherwise, no such authority can be given.

What else should you do? Leave a digital road map for your executor: accounts, passwords and username. Note that if the platforms use facial recognition or other biometric markers, they may not be able to gain access to the accounts. Check with social media and merchant websites to see what policies are for transferring or maintaining digital assets, when the owner dies. You should also look at reward points and credits to see how they can be transferred, and find out how pending transactions, like automatic orders, can be handled.

Consider your executor. Are they comfortable with the digital world, or a technophobe? If they may not be able to manage the digital assets, consider naming another person to handle this task. Your estate planning attorney will be able to include them in your estate planning documents.

Reference: Valdosta Daily Times (May 26, 2019) “Preparing an estate strategy for digital assets”

Suggested Key Terms: Digital Assets, Estate Planning, Revised Uniform Fiduciary Access to Digital Assets Act, RUFADAA, Directives

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Can You Bequeath Frequent Flier Miles?

You’ve racked up hundreds of thousands of frequent flier miles. They’re worth thousands of dollars, and you’d like to share them with loved ones after you die. Can you? At many airlines, frequent flier miles die when you do, says 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.”

Suggested Key Terms: Inheritance, Frequent-Flier Miles, Family Pooling, Wills

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Is My Irrevocable Trust Revocable?

Irrevocable trusts aren’t as irrevocable as their name implies, according to Barron’s recent article, “Are Irrevocable Trusts True to Their Name?” The article says that, for both new and existing trusts, there are ways to build in flexibility to make changes to a grantor’s wishes, if terms are no longer appropriate or desirable for beneficiaries.

However, there are strict rules that apply. These rules vary between states. One of the main reasons for an irrevocable trust, is to remove assets from an estate for estate tax purposes. If the rules aren’t followed carefully, a trust can be rendered unlawful. If that happens, the assets may be returned to the grantor’s estate and estate taxes may apply.

If you want to be certain that beneficiaries have some discretion in the future if circumstances change, grantors should build flexibility into the trust when it’s established. This can be accomplished by giving a power of appointment to beneficiaries. However, if the beneficiaries are looking to change the terms or the structure of an existing trust, the trust must be modified, according to state law.

Most states allow trusts to be decanted. When you decant a trust, you pour its terms into a new trust, and leave out the parts that are no longer wanted. Just like decanting a bottle of wine, it’s like the sediment left in the wine bottle.

In a state that doesn’t permit decanting, a trustee can ask a judge to allow it. You should be careful with decanting, because you don’t want to do anything that would adversely affect the original tax attributes of the trust.

The power of appointment in a trust or the ability to decant can’t be given to the person who set up the trust. Thus, grantors can’t have a “re-do” or rescind the terms. It’s only trustees and the beneficiaries that can do that.

If you and your attorney create a trust with a lot of flexibility for the trustee, you may want to appoint an institutional trustee from a bank, trust, or other financial services company.

They can be either the sole trustee or serve as co-trustees with a personal, non-institutional trustee, like a family member. This can help to eliminate future conflicts.

Reference: Barron’s (June 18, 2019) “Are Irrevocable Trusts True to Their Name?”

Suggested Key Terms: Estate Planning Lawyer, Irrevocable Trust, Asset Protection, Probate Court, Inheritance, Power of Appointment, Decanting

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