Category Archives: Financial Planning

Digital Assets

I’m almost 50, I use computers every day.  My life is more organized and more efficient because of on-line banking, automatic bill pay, PayPal, and my smart phone.  What happens to my life if I get hit in the head and forget my passwords?  Have you ever forgotten the secret questions for the ITunes account you opened 8 years ago?  Have you ever had a small child “re-set” your security code on  your Iphone?  Have  you had a loved one pass away and have no way to access their email account or banking services?  If any of these things have happened to you, you know that digital assets are an important part of life today.

All these services, data, and passwords are part of  your digital assets.  Your music collection on ITunes is a digital asset, as are photos and albums you store on the internet, blogs you write for personal enjoyment or for business, content that is published on YouTube or on Twitter.   In many cases, these assets are licensed to you personally.  If you die, your heirs may have not rights to them.  If you become incapacitated and no one knows about them or how to access them, they may be lost.  It makes sense to keep track of passwords, account numbers and names, security questions, where your domain is hosted, what email it was associated with when  you set it up, and much more.  It may also make sense to designate someone who can control these assets if you are not able to.  Many estate planning attorneys are adding rights to digital assets to durable powers of attorney.  Others are specifying what happens to digital assets in wills or trusts.  Everyone should have a digital asset organizer that you update on a regular basis, preferably kept somewhere that a friend or loved one will be able to find it if they ever need to.

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Do We Need a Trust?

Trusts come in different shapes and sizes, and some will work for you and some will not.  A good estate planning attorney, or perhaps your banker or financial planner, will need to know quite a bit about your individual situation before being able to recommend a trust. 

Trusts can be invaluable for asset management purposes.  Suppose for example, that your 25 year old son is not good with money right now. An inheritance held in trust and managed by a family friend or a professional trustee can help him manage his funds so that he has a nest egg for his first home or a bit tucked away to help him through a layoff later in life.  Or perhaps you are concerned that an adult child’s marriage is  rocky, and want to see that your money goes to your children and grandchildren, not to the soon-to-be-former spouse.  A correctly drafted trust can help with that.

It also is a good tool for incapacity planning.   If you create a trust and put assets into it, your trustee can see that the assets are managed if you ever become incapacitated.

Assets held in trust also avoid probate.  Because a trust is an entity, not an individual, when the person who funded the trust dies, the trust can continue to operate according to its terms.  This can provide privacy (probate filings are public), and continuing access to trust assets by the beneficiaries or the  remaining spouse.

Irrevocable trusts (ones that can’t be changed or revoked) can be used for estate tax planning, to hold life insurance policies, for Medicaid planning, or for other types of asset protection. 

When you think about doing a trust, think about your goals, who would be a good trustee, and find someone who is knowledgeable about tax law and estate planning to help you with the process.  Think about what assets should go into the trust, and how the beneficiaries are likely benefit (or not) by having assets held in trust.  Not every situation is right for trust planning; sometimes the simple approach is the best one.  Estate planning, whether trust based or will based, should be carefully tailored to reflect your situation, because each family, each inheritance, and each set of goals are a little bit different.

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Why Women need to think about Estate Planning

Statistically, women outlive men.  That means that the estate plan, or lack of estate plan, will often be played out by us.  If there is no will, no power of attorney, no trust protecting our assets, women are often left holding the bag, with no good results.  Often women do not manage the money side of things, and when pushed into that role by the illness or death of a spouse, all the grief and dislocation can be magnified by a sense of panic – needing to deal immediately with complex legal and financial concepts which can have long term consequences – sometimes impacting the rest of our lives.

Educate yourself, find an estate planning lawyer that you trust, and who can explain your options.  Find a financial planner, again, someone you trust, who will take the time to explain things until they really make sense.  Know who you want to call when you need them; don’t be in the position of having to find an advisor when you are desperate.  Put a plan in place.  This can be easier than you think, and while there will be some costs involved, consider what could happen without any planning.  An old plan (you know the one you did when the kids were little) may not work now that you are 62 and thinking about retirement. 

Start planning now, before there is a crisis,  and save yourself money, stress and time. 

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Estate planning and divorce

I know that neither of these topics is particularly cheery, but in some cases they do go hand in hand.  If your marriage is going downhill, and you anticipate a divorce, or are in the process of getting divorced, it makes sense to take two immediate steps:

Name someone other than your spouse as your healthcare proxy; and

Revoke any durable power of attorney that allows your spouse to sign papers on your behalf, and designate a new power of attorney to act for you if you are incapacitated.

These two steps should be taken right away.  As long as you are still legally married, these documents generally continue to be in effect, and as you probably know, a divorce can take a long time to finalize.

Comprehensive estate planning is important, but it is unrealistic to think that most couples can deal with it while going through a separation or divorce.  Estate planning can wait a bit, but these other steps cannot wait.  My office is happy to assist you with this, and credit the amount towards an estate plan, or if you are working with a family law attorney, he or she should be able to assist you with a new health care proxy and power of attorney.

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I’ve GOT a will…

But I made it two spouses, three children, and two businesses ago.  When your life changes, your estate plan should ideally keep up with those changes.  You do not need to revise a will every time something changes in your life –many documents are drafted to take some changes into account.  However, as part of your financial planning, you should revisit your estate plan every 3-5 years, and definitely in the case of a divorce or marriage

Divorce:  In some states marriage or divorce nullifies a will, health care proxy or power of attorney.  In other cases it may not.  If you and your spouse are on good terms and you want him or her to make the decisions about your medical care, it is best to revise your health care proxy to make it clear that this is your desire.  Similarly, you may not want your soon to be former spouse to have the ability to write checks from your bank account, but even if divorce nullifies a power of attorney, simply being in the process of divorcing will not.  Revoke or change your health care proxy, will, and power of attorney if you realize that your spouse is no longer a trusted partner and you are heading your separate ways.

Wills, trusts, health care proxies and powers of attorney are powerful documents; take a look at them from time to time and be sure they are still relevant to your life.

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Digital Asset Planning

Usually when you visit an estate planning attorney, there is a LONG form to fill out describing family, last wishes, assets and liabilities, and who should be your executor, trustee, or guardian of minor children.  There are often conversations about health care choices, nursing homes, and how the primary residence should be owned.

When was the last time your attorney asked you to write down your Facebook username?  Probably never.  In our rapidly changing relationship with technology, what we own and how we own it is also changing.  I heard on the radio this morning that 60% of bills are paid on-line now (this is why the U.S. Post Office needs to shrink).

Think about how that will affect the person who probates your estate…We used to hope that there would be an organized file with bills and account numbers, we’d count on the mail coming with statements and other account numbers.  How do we find the electronic accounts that “Aunt Edna” kept on her office computer?  How will we find the beautiful photo albums that mom kept in her Flickr account?  What about the software that has three years left on its license – who owns that, and what is it worth?  How on earth do you cancel the monthly Xbox Live account?  (Anyone who can provide this information to currently living mothers will also score some major points!)

Let’s get started on our digital asset planning.  I’ve got another long form that I’m happy to e-mail to anyone who requests one.  Please put “digital asset planning” in the subject line and send a request to bridget@bmurraylaw.com.

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Planning for Incompetence

One of the scariest scenarios we face is the prospect of no longer being able to make our own decisions and to think for ourselves.  Often this is a process of gradual decline, and either we, or those close to us, can see the changes and understand what is happening.  If you have not done advanced planning, that’s a good time to get moving.  There are some fairly straightforward documents that you can draft and execute which will allow those you love and trust to make important decisions. 

1.  Health Care Proxy:  this document names the person who can make medical decisions for you in the event that you are unable to make them yourself.  In Massachusetts, only one person can be named at a time, but you can have successor agents in case the first person is not available.  I recommend that everyone have a Health Care Proxy (including young adults so that doctors must listen to their parents, or to the person they have designated).

If you do not have a Health Care Proxy and there is a disagreement about your care, it is possible that a Guardian will have to be appointed by the probate court.  This is a process that can be time consuming, complex, and expensive.  In the end, the court decides who will make decisions about your care, not you.

2.  Durable Power of Attorney:  this document names a person who can sign documents on your behalf, and who can make financial and administrative decisions on your behalf.  This can be effective now, or it can come into effect upon your incapacity. 

Like a Health Care Proxy, if you do not have a Durable Power of Attorney, and become incompetent, a family member or caregiver will have to go to court to be named to represent you.  This person is called a Conservator, and this process, like naming a Guardian, requires court involvement and much expense.  It also means that the court makes the final decision about the person best suited to manage  your affairs.  Judges are wise and thoughtful, but they don’t know you or your family members the way that you do – don’t you think you’ll make a better decision?

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Digital Property

What happens to  your Facebook account, Paypal transactions, or Ebay account if you pass away or become incapacitated?  Who has access to that “bill pay” function?  You have beautiful photo albums that you keep and update on-line, will your children still be able to see them?  You do your business back ups to the cloud, can your business partners get to your documents?

There are practical answers and legal answers here.  The legal pieces are probably still a murky tangle.  Presumably title transfers as a type of intangible property in some cases, in others, the cash will flow through probate like other types of financial accounts.

However, some practical steps are necessary before you even get to that point.

  • Make a list of digital accounts and passwords
  • Store them somewhere non-digital (like your desk drawer)
  • Update them when you change your passwords or add accounts

 

In some ways this goes against the grain of keeping our information secure, but I think that it is far more likely that an account will be hacked than that someone will rifle through your desk drawer for the list of digital account information.  (Of course, if you have middle school children and you control the XBox Live account, this may not apply…)

Some financial and legal professionals offer services that store this type of information along with copies of your important documents. It’s a little like a digital safety deposit box, and you create a password and pin that would allow another to see the information in the event of a crisis. 

However you decide to keep track, this type of information gains in importance every day, make sure someone can get to it if they need to.

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But Doesn’t Everyone Need a Trust?

I recently had a client explain that they wanted a trust because Suze Orman said that everyone needed a trust.  Now, in general, trusts meet many needs, and are often a good idea.  Especially if there are minor children, adult children who might do better with structured payments, or long term care planning concerns, trusts can fill a valuable need.  However, just as not everyone NEEDS a prenuptial agreement, not everyone needs a trust. 

Trusts help  you avoid much of the probate process, but there are other ways to do this, too.  If your assets are jointly held with your spouse, and one of you dies, the assets will go “by operation of law” to your spouse without going through probate.  In a similar way, anything with a beneficiary designation (life insurance, annuities, most retirement accounts) will go to that beneficiary directly.  The probate court will oversee any assets that pass through your will, and sometimes this can be a good thing.  It does take time to probate an estate, but if the assets are fairly limited, the cost of setting up a trust may not be appropriate.

Regardless of whether you do or do not need a trust, please call an advisor you trust before you make important estate planning decisions, I know that you aren’t cookie cutter clients, why should you have a cookie cutter estate plan?

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Getting organized…

I want to re-finance my house, consolidate all those little IRAs and 401k’s from old jobs, get a new passport, make a will…What’s the common denominator?  When you start on any of these tasks, you need to be able to put your hands on paperwork, sometimes LOTS of paperwork.  Do you know where your birth certificate, bank statements, investment statements for the last three months are?  And I mean you can hand them to someone easily, not that you’re sure that they are in the big pile over there.

Or, could you tell someone else where to find your life insurance policy, homeowner’s policy, or auto insurance policy if you were away on vacation and you needed to file a claim? 

Join us for a complimentary seminar on May 26th, 2011 at 5 pm at the Cape Ann Savings Bank in Gloucester.  Gail Ramos, Senior Trust Officer at the 
Cape Ann Savings Bank and I will talk about getting a grip on organizing some of that paperwork…Networking from 5 to 5:30 and the program will go from 5:30 – 6:30.

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