How to Protect Digital Property

When people built wealth, assets were usually tangible: real estate, investments, cash, or jewelry. However, the last year has seen a huge jump in digital assets, which includes cryptocurrency and NFTs (Non-Fungible Tokens). Combine this growing asset class with the coming biggest wealth transfer in history, says the article “What happens to your NFTs and crypto assets after you die?” from Tech Crunch, and the problems of inheriting assets will take more than a complete search of the family attic.

One survey found only one in four consumers have someone in their life who knows the details of their digital assets, from the location of the online accounts to passwords. However, digital assets that require two factor authentication or biometrics to gain access may make even this information useless.

There are many reports about people who purchased digital assets like Bitcoin and then lost their passwords or threw away their computers. More than $250 million in client assets vanished when a cryptocurrency exchange founder died and private keys to these accounts could not be found.

Digital assets need to be a part of anyone’s estate plan. A last will and testament is used to dictate how assets are to be distributed. If there is no will, the state’s estate law will distribute assets. A complete list of accounts and assets should not be part of a will, since it becomes a public document when it goes through probate. However, a complete list of assets and accounts needs to be prepared and shared with a trusted person.

Even traditional assets, like bank accounts and investment accounts, are lost when no one knows of their existence. If a family or executor doesn’t know about accounts, and if there are no paper statements mailed to the decedent’s home, it’s not likely that the assets will be found.

Things get more complicated with digital assets. By their nature, digital assets are decentralized.  This is part of their attraction for many people. Knowing that the accounts or digital property exists is only part one. Knowing how to access them after death is difficult. Account names, private keys to digital assets and passwords need to be gathered and protected. Directives or directions for what you want to happen to the accounts after you die need to be created, but not every platform has policies to do this.

Password sharing is explicitly prohibited by most website and app owners. Privacy laws also prohibit using someone else’s password, which is technically “account holder impersonation.” Digital accounts that require two factor authentication or use biometrics, like facial recognition, make it impossible for an executor to gain access to the data.

Some platforms have created a means of identifying a person who may be in charge of your digital assets, including Facebook and more recently, LinkedIn. Some exchanges, like Ethereum, have procedures for death-management. Some will require a copy of the will as part of their process to release funds to an estate, so you will need to name the asset (although not the account number).

A digital wallet can be used to store access information for digital assets, if the family is reasonably comfortable using one. A complete list of assets should include tangible and digital assets. It needs to be updated annually or whenever you add new assets.

Consult a qualified estate planning attorney about how to protect your digital assets. They will be able to help you create a plan to assure your assets are protected properly.

Reference: Tech Crunch (April 5, 2021) “What happens to your NFTs and crypto assets after you die?”

What can a Power of Attorney Do—or Not Do?

Power of attorney is an important tool in estate planning. The recent article “Top Ten Facts About Powers of Attorney” from My Prime Time News, explains how a POA works, what it can and cannot do and how it helps families with loved ones who are incapacitated.

The agent’s authority to powers of attorney (POA) is only effective while the person is living. It ends upon the death of the principal. At that point in time, the executor named in the last will or an administrator named by a court are the only persons legally permitted to act on behalf of the decent.

An incapacitated person may not sign a POA.

Powers of Attorney can be broad or narrow. A person may be granted POA to manage a single transaction, for example, the sale of a home. They may also be named POA to handle all of a person’s financial and legal affairs. In some states, such as Colorado, general language in a POA may not be enough to authorize certain transactions. A POA should be created with an estate planning attorney as part of a strategic plan to manage the principal’s assets. A generic POA could create more problems than it solves.

You can have more than one agent to serve under your POA. If you prefer that two people serve as POA, the POA documents will need to state that requirement.

Banks and financial institutions have not always been compliant with POAs. In some cases, they insist that only their POA forms may be used. This has created problems for many families over the years, when POAs were not created in a timely fashion.

In 2010, Colorado law set penalties for third parties (banks, etc.) that refused to honor current POAs without reasonable cause. A similar law was passed in New York State in 2009. Rules and requirements are different from state to state, so speak with a local estate planning attorney to ensure that your POA is valid.

Your POA is effective immediately, once it is executed. A Springing POA becomes effective when the conditions specified in the POA are met. This often includes having a treating physician sign a document attesting to your being incapacitated. An estate planning attorney will be able to create a POA that best suits your situation.

If you anticipate needing a trust in the future, you may grant your agent the ability to create a trust in your POA. The language must align with your state’s laws to achieve this.

Your agent is charged with reporting any financial abuse and taking appropriate action to safeguard your best interests. If your agent fails to notify you of abuse or take actions to stop the abuser, they may be liable for reasonably foreseeable damages that could have been avoided.

The agent must never use your property to benefit himself, unless given authority to do so. This gets sticky, if you own property together. You may need additional documents to ensure that the proper authority is granted, if your POA and you are in business together, for example.

Every situation is different, and every state’s laws and requirements are different. It will be worthwhile to meet with an estate planning attorney to ensure that the documents created will be valid and to perform as desired.

Reference: My Prime-Time News (April 10, 2021) “Top Ten Facts About Powers of Attorney”

Can I Get a Tax Break for Long-Term Care?

The skyrocketing costs of long-term care (LTC) can ruin your retirement savings. The U.S. Department of Health and Human Services found that 27% of Americans turning 65 this year will have at least $100,000 in long-term-care costs, and 18% will require care costing more than $250,000. However, the IRS allows some limited tax breaks on medical expenses and insurance premiums related to long-term care.

Kiplinger’s recent article entitled “Deduct Expenses for Long-Term Care on Your Tax Return” says that if you need LTC, you may be able to deduct a portion of the costs on your tax return. If you purchased a long-term-care insurance (LTCI) policy to cover the costs, you may also be able to deduct some of your premium payments. Since retirement planning includes long-term care, it’s important to know how these tax deductions can help to offset overall costs.

Long-Term-Care Costs

The IRS allows you to deduct unreimbursed costs for long-term care as a medical expense, if certain requirements are met. This includes eligible expenses for in-home, assisted living and nursing-home services. The long-term care must be medically necessary and may include preventive, therapeutic, treating, rehabilitative, personal care, or other services. The cost of meals and lodging at an assisted-living facility or nursing home is also included, if the primary reason for being there is to receive qualified medical care.

The care must also be for a chronically ill person and provided under a care plan prescribed by a doctor. The IRS says that a person is “chronically ill,” if he or she can’t perform at least two activities of daily living. These are things like eating, bathing, or dressing. They must be unable to do these without help for at least 90 days. This condition must be certified in writing within the last year. A person with a severe cognitive impairment, like dementia, is also considered chronically ill, if supervision is needed to protect his or her health and safety.

To get the deduction, you have to itemize deductions on your tax return. However, itemized deductions for medical expenses are only allowed to the extent they exceed 7.5% of your adjusted gross income.

An adult child can claim a medical expense deduction on his own tax return for the cost of a parent’s care, if he can claim the parent as a dependent.

Insurance Premiums

The IRS also allows a limited deduction for certain LTCI premiums. Similar to the deduction for long-term-care services, this has to be an itemized deduction for medical expenses. Again, only premiums exceeding the 7.5% of AGI threshold are deductible. (Note that self-employed individuals may be able to deduct premiums paid for LTCI as an adjustment to income without having to itemize.)

In addition, the LTCI policy is required to satisfy certain requirements for the premiums to be deductible. The policy can only cover long-term-care services, so the deduction only applies to traditional LTCI policies, not “hybrid” policies that combine life insurance with long-term-care benefits. This deduction also has an age-related cap. For 2021, the cap is $5,640 if you’re older than 70, $4,520 if you’re 61 to 70 and $1,690 if you’re 51 to 60. (For those 41 to 50, it’s $850, and for 40 or younger, it’s $450.)

These deductions can be valuable for people in their seventies and older.

Reference: Kiplinger (March 23, 2021) “Deduct Expenses for Long-Term Care on Your Tax Return”

How Do Special Needs Trusts Work?

A trust of any kind is a document that expresses your wishes while you are alive and after you have passed. The need for a dedicated trust for loved ones differs with the situations or issues of the family. Getting this wrong can lead to financial devastation, explains the article “Take special care with Special Needs trusts” from the Herald Bulletin.

A Special Needs Trust or supplemental trust provides protection and management for assets for specific beneficiaries. The trustee is in charge of the assets in the trust during the grantor’s life or at his death and distributes to the beneficiary as directed by the trust.

The purpose of a Special Needs or supplemental trust is to help people who receive government benefits because they are physically or mentally challenged or are chronically ill. Most of these benefits are means-tested. The rules about outside income are very strict. An inheritance would disqualify a Special Needs person from receiving these benefits, possibly putting them in dire circumstances.

The value of assets placed in a Special Needs trust does not count against the benefits. However, this area of the law is complex, and requires the help of an experienced elder law estate planning attorney. Mistakes could have lifelong consequences.

The trustee manages assets and disperses funds when needed, or at the direction of the trust. Selecting a trustee is extremely important, since the duties of a Special Needs trust could span decades. The person in charge must be familiar with the government programs and benefits and stay up to date with any changes that might impact the decisions of when to release funds.

These are just a few of the considerations for a trustee:

  • How should disbursements be made, balancing current needs and future longevity?
  • Does the request align with the rules of the trust and the assistance program requirements?
  • Will anyone else benefit from the expenditure, family members or the trustee? The trustee has a fiduciary responsibility to protect the beneficiary, first and foremost.

Parents who leave life insurance, stocks, bonds, or cash to all children equally may be putting their Special Needs child in jeopardy. Well-meaning family members who wish to take care of their relative must be made aware of the risk of leaving assets to a Special Needs individual. These conversations should take place, no matter how awkward.

An experienced elder law estate planning attorney will be able to create a Special Needs trust that will work for the individual and for the family.

Reference: Herald Bulletin (March 13, 2021) “Take special care with Special Needs trusts”

Do I Make Too Much Money for Medicaid?

A 73-year-old single retiree is collecting Social Security and a small state pension. He recently was told that he probably collects too much money to be eligible for Medicaid assistance to help with any kind of long-term care, if it was required in the future. He owns a house with a mortgage.

What options does he have, except for buying a long-term care insurance policy, which may be extremely expensive at his age.

Nj.com’s recent article entitled “I think I make too much money for Medicaid. What can I do?” says that there are some steps a person can take. However, it may take time before these actions will help your situation.

Medicaid has a five-year lookback. Therefore, if the Medicaid applicant gave away all of his assets this year and went into a nursing home expecting Medicaid to pay, the program would “look back” over five years at what he owned. The program can claw back what it spends on the applicant.

But just because you are not eligible for Medicaid and its long-term care benefits today, that does not mean that you will not be eligible in the future.

That is because even if your income is above the limit, you still might be able to qualify for Medicaid, if you have significant medical expenses.

In order to qualify financially, you need to have very limited resources.

In many states, for long-term care, an applicant’s assets cannot be more than a certain amount, such as $2,000 if you are single. However, not all property counts towards the resource limit. A home may be exempt, if it is your primary residence and worth less than the limit.

One option is a reverse mortgage which would free up some of the equity in the home to use towards a long-term care insurance policy.

Long term care policies can still be issued for people in their 70s, but the premiums will be higher than if you had enrolled 10 or 20 years ago. However, it is still an option and would keep the retiree in his home.

There are also a number of federal and state-funded programs that make it easier for seniors to live in the community and in their homes as long as possible.

If you would like to know more about this or other topics from Calvin Curtis, click here.

Reference: nj.com (March 11, 2021) “I think I make too much money for Medicaid. What can I do?”

Can I Revoke a Power of Attorney?

Spouses and partners chosen by adult children often lead to estate planning challenges. In one case, a parent worries that a second husband may be a poor influence and wants to revoke the power of attorney originally granted to a daughter. How to do that legally and without any hurt feelings is examined in the article Estate Planning: Revoking a power of attorney” from nwi.com.

A Power of Attorney is a document that allows another person to act on your behalf. The person designated is referred to as the “Attorney in Fact” or the “Agent.”

The problem this family faces, is that any revocation of a POA must be in writing, must identify the person who is to be revoked as the POA and must be signed by the person who is revoking the POA. Here’s where the hurt feelings come in: the revocation is not legal, until and unless the agent has actual knowledge of the revocation.

You can’t slip off to your estate planning lawyer’s office, revoke the POA and hope the family member will never know.

Another way to revoke a POA is to execute a new one. In most states, most durable POAs include a provision that the new POA revokes any prior POAs. By executing a new POA that revokes the prior ones, you have a valid revocation that is in writing and signed by the principal.

However, a daughter who is duly appointed must be notified. If she is currently acting under the POA and has a copy of it, there’s no way to avoid her learning of the parent’s decision.

If, however, the daughter has never seen a copy of the POA and she is not currently acting on it, then you may be able to make a new POA without notifying her. However, it may create a sticky situation in the future. Notification may be your only option.

If the POA has been recorded for any reason, the revocation must reference the book, page and instrument number assigned by the recorder’s office and be recorded. If the POA has been provided to any individuals or financial institutions, such as banks, life insurance companies, financial advisors, etc., they will need to be properly notified that it has been revoked or replaced.

Two cautions: not telling the daughter and having her find out after the parent has passed or is incapacitated might be a painful blow, with no resolution. Telling the daughter while the parent can discuss the change may be challenging but reaching an understanding will at least be possible. A diplomatic approach is best: the parent wishes to adjust her estate plan and the attorney made some recommendations, this revocation among them, should suffice.

Not revoking the power of attorney correctly could also lead to an estate planning disaster, with the daughter challenging whoever was named as the POA without her knowledge.

Talk with your estate planning lawyer to ensure that the POA is changed properly, and that all POAs have been updated.

Reference: nwi.com (March 7, 2021) “Estate Planning: Revoking a power of attorney”

Estate Planning and a Second Marriage

In California, a community property state, a resident can bequeath (leave) 100% of their separate property assets and half of their community property assets. A resident may only bequeath the entirety of a community property asset to someone other than their spouse with their spouse’s consent or acquiescence. This can be extremely important to those in second marriages with prior children.

Wealth Advisor’s recent article entitled “Estate planning for second marriages” asks, first, does the individual’s (the testator) spouse even need support? If they don’t, a testator typically leaves his or her separate property assets directly to his or her own children. However, because the surviving spouse is an heir of the testator, his or her will and/or trust must acknowledge the marriage and say that the spouse is not inheriting. Otherwise, the surviving spouse as heir may be entitled either to a one-half or one-third share in the testator’s separate property, along with all of the couple’s community property assets. The surviving spouse would inherit, if the testator died intestate (with no will) or he or she passed with an outdated will he or she signed before this marriage that left out the current spouse.

If the spouse needs support, consider the assets and family relationships. Determine if the assets are the surviving spouse’s separate property from prior to marriage or from inheritance while married. It is also important to know if the testator’s spouse and children get along and whether it’s possible for the beneficiaries to inherit separate assets. If the testator’s surviving spouse and children aren’t on good terms and/or are close in age, and if it’s possible for separate assets to go to each party, perhaps they should inherit separate assets outright and part company. If not, it can get heated and complicated quickly. For example, the testator’s house could be left to his or her children and a retirement plan goes to the testator’s spouse.

If that type of set-up doesn’t work, a testator might consider making the spouse a lifetime beneficiary of a trust that owns some or all of an individual’s assets. A trust requires careful drafting, so work with an experienced estate planning attorney.

Next, determine if the children need support, and if so, what kind of support, such as Supplemental Security Income. Also think about whether the children can manage an outright inheritance or if a special needs or a support trust is required.

This just scratches the surface of this complex topic. Talk to an experienced estate planning attorney about your specific situation.

Reference: Wealth Advisor (Feb. 23, 2021) “Estate planning for second marriages”

Why Do I Need Estate Planning?

Many people who failed to plan their estate with the help of an experienced estate planning attorney have their assets tied up in lengthy, and often messy, legal battles that were decided by people not of their choosing.

Forbes’ recent article entitled “Everyone Needs An Estate Plan: Here’s What You Need To Know” says that although many of us don’t have quite as much at stake financially, it doesn’t mean that estate planning is any less important. In fact, leaving a legacy, passing down wealth and helping family aren’t things that are just for the ultra-rich.

The biggest misstep is not creating an estate plan at all. This is more than just a last will and includes powers of attorney, healthcare directives, a living will and a HIPAA waiver. People put this important responsibility off because they do not want to contemplate their own death. They try to avoid the subject. Some others may have complex family dynamics, and still others are hesitant to confide their complicated relationships with a lawyer. However, all these are just excuses.

We know that life is full of changes, and people get married, divorced, have children and grandchildren, relocate to different states, change careers and get inheritances. Each of these events could make you reconsider your goals. This may necessitate an update to your estate plan.

You need to review the beneficiaries on your IRAs, life insurance policies and pensions. You should look at how you want your heirs to receive your assets and any charitable or philanthropic notions. With powers of attorney, healthcare directives, living wills and HIPAA waivers, you need to think about who you’ll entrust to make important medical and financial decisions for you, if you become incapacitated. You see these critical questions and many others are fluid and prone to change every few years as your life changes.

Remember that your assets receive different treatment from the IRS based on the type and who owns legally owns them. For example, individual retirement accounts (IRAs), Roth IRAs, traditional brokerage accounts, life insurance policies and bank accounts are different than the family home. Therefore, it’s important to be mindful of which assets are left to whom.

Don’t wait. Speak to an experienced estate planning attorney to be certain that you give this process the attention it deserves for the well-being of you and your family.

Reference: Forbes (Feb. 26, 2021) “Everyone Needs An Estate Plan: Here’s What You Need To Know”

How to Manage a Will and Trust
Estate Plan, Living Will, and Healthcare Power of Attorney documents

How to Manage a Will and Trust

A last will and testament is used to point out the beneficiaries and trustees and the legal professionals you want to be involved with your estate when you have passed, explains this recent article What You Need To Know About Handling a Will and Trust from Your Dearly Departed Loved One” from North Forty News. If there are minor children in the picture, the last will is used to direct who will be their guardians.

A trust is different than the last will. A trust is a legal entity where one person places assets in the trust and names a trustee to be in charge of the assets in the trust on behalf of the beneficiaries. The assets are legally protected and must be distributed as per the instructions in the trust document. Trusts are a good way to reduce paperwork, save time and reduce estate taxes.

Don’t go it alone. If your loved one had a last will and trust, chances are they were prepared by an estate planning lawyer. The estate planning attorney can help you go through the legal process. The attorney also knows how to prepare for any possible disputes from relatives.

It may be more complicated than you expect. There are times when honoring the wishes of the deceased about how their property is distributed becomes difficult. Sometimes, there are issues between the beneficiaries and the last will and trust custodians. If you locate the attorney who was present at the time the last will was signed and the trusts created, she may be able to make the process easier.

Be prepared to get organized. There’s usually a lot of paperwork. First, gather all of the documents—an original last will, the death certificate, life insurance policies, marriage certificates, real estate titles, military discharge papers, divorce papers (if any) and any trust documents. Review the last will and trust with an estate planning attorney to understand what you will need to do.

Protect personal property and assets. Homes, boats, vehicles and other large assets will need to be secured to protect them from theft. Once the funeral has taken place, you’ll need to identify all of the property owned by the deceased and make sure they are property insured and valued. If a home is going to be empty, changing the locks is a reasonable precaution. You don’t know who has keys or feels entitled to its contents.

Distribution of assets. If there is a last will, it must be filed with the probate court and all beneficiaries—everyone mentioned in the last will has to be notified of the decedent’s passing. As the executor, you are responsible for ensuring that every person gets what they have been assigned. You will need to prepare a document that accounts for the distribution of all properties, which the court has to certify before the estate can be closed.

Taking on the responsibility of finalizing a person’s estate is not without challenges. An estate planning attorney can help you through the process, making sure you are managing all the details according to the last will and the state’s laws. There may be personal liability attached to serving as the executor, so you’ll want to make sure to have good guidance on your side.

Reference: North Forty News (Feb. 3, 2021) What You Need To Know About Handling a Will and Trust from Your Dearly Departed Loved One”

Am I a Senior Citizen?

Here are some milestones that could signal that you have become a senior citizen, according to US News and World Report’s recent article entitled “When Do You Become a Senior Citizen?”

Eligibility for Senior Benefits. There are exact ages when you qualify for a host of retirement benefits. In some ways, society makes it very clear when we become senior citizens. For example, we know that at age 65, we qualify for Medicare. Social Security benefits can begin as early as age 62 or as late as age 70. And senior discounts begin at some retailers and restaurants for those who are 55 or older.

If you’re 50 or older, you’re eligible to become an AARP member.

Spending Retirement Savings. Retirement accounts are developed to motivate workers to save for their retirement. Thus, accounts like a 401(k) plan or IRA usually impose a penalty for early withdrawals. If you take money out before age 59½, you’ll typically be hit with a 10% penalty. You may consider yourself a senior citizen when you no longer have to concern yourself with that 10% penalty for early withdrawals from your IRA or 401(k).

However, when you hit a certain age, you will need to take required minimum distributions from retirement accounts. Also called “RMDs,” these withdraws from traditional IRAs and 401(k) plans must be taken each year after age 72. Once you reach 72, you may think of yourself as a senior citizen because you have to start taking your RMDs from your retirement account.

Retirement. After you retire from working every day, your family and friends may consider you to have attained senior citizen status. The transition might bring on a feeling of meaning and purpose. Once you reach a certain age, you look back and go through self-reflection.

As you stop going to the office every day, you might feel a sense of gratitude for the years you were able to work and pursue a passion.

Health Issues. Medical conditions like arthritis, hypertension, or hearing loss may cause you to feel like you have reached senior citizen land. A person that is battling several age-related medical issues can feel olde,r just by the number and type of medications or medical devices they use.

It’s not easy to feel young when you are being fitted with a walker or hearing aid, and you’re lining up pill bottles every morning and evening. Feeling fatigued or ready for bed by 9 p.m. might be signals that you are getting older.

For more information about this or other topics, click here.

Reference: US News and World Report (Jan. 27, 2021) “When Do You Become a Senior Citizen?”