Estate Planning Blog Articles

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What are Digital Assets in an Estate?

Planning for what would happen to our intangible, digital assets in the event of incapacity or death is now as important as planning for traditional assets, like real property, IRAs, and investment accounts. How to accomplish estate planning for digital assets is explained in the article, aptly named, “Estate planning for your digital assets” from the Baltimore Business Journal.

Digital asset is the term used to describe all electronically stored information and online accounts. Some digital assets have monetary value, like cryptocurrency and accounts with gaming or gambling winnings, and some may be transferrable to heirs. These include bank accounts, domains, event tickets, airline miles, etc.

Ownership issues are part of the confusion about digital assets. Your social media accounts, family photos, emails and even business records, may be on platforms where the content itself is considered to belong to you, but the platform strictly controls access and may not permit anyone but the original owner to gain control.

Until recently, there was little legal guidance in managing a person digital files and accounts in the event of incapacity and death. Accessing accounts, managing contents and understanding the owner, user and licensing agreements have become complex issues.

In 2014, the Uniform Law Commission proposed the Uniform Fiduciary Access to Digital Assets Act (UFADAA) to provide fiduciaries with some clarity and direction. The law, which was revised in 2015 and is now referred to as RUFADAA (Revised UFADAA) was created as a guideline for states and almost every state has adopted these laws, providing estate planning attorneys with the legal guidelines to help create a digital estate plan.

A digital estate plan starts with considering how many digital accounts you actually own—everything from online banking, music files, books, businesses, emails, apps, utility and bill payment programs. What would happen if you were incapacitated? Would a trusted person have the credentials and technical knowledge to access and manage your digital accounts? What would you want them to do with them? In case of your demise, who would you want to have ownership or access to your digital assets?

Once you have created a comprehensive list of all of your assets—digital and otherwise—an estate planning attorney will be able to update your estate planning documents to include your digital assets. You may need only a will, or you may need any of the many planning tools and strategies available, depending upon the type, location and value of your assets.

Not having a digital asset estate plan leaves your estate vulnerable to many problems, including costs. Identity theft against deceased people is rampant, once their death is noted online. The ability to pay bills to keep a household running may take hours of detective work on your surviving spouse’s part. If your executor doesn’t know about accounts with automatic payments, your estate could give up hundreds or thousands in charges without anyone’s knowledge.

There are more complex digital assets, including cryptocurrency and NFTs (Non-Fungible Tokens) with values from a few hundred dollars to millions of dollars. The rules on the valuation, sale and transfers of these assets are as yet largely undefined. There are also many reports of people who lose large sums because of a lack of planning for these assets.

Speak with your estate planning attorney about your state’s laws concerning digital assets and protect them with an estate plan that includes this new asset class.

Reference: Baltimore Business Journal (Sep. 16, 2021) “Estate planning for your digital assets”

What Is a Power of Attorney?

Any responsible adult can act as your agent. South Florida Reporter’s recent article entitled “Everything You Should Know About Power of Attorney” says this is an important decision that shouldn’t be handled lightly.

A power of attorney or “POA” is a legal document that authorizes a trusted person (the “agent” or “attorney-in-fact”) to make decisions on your behalf (the “donor” or “grantor”).

The authority can be broad, or it can be narrow for only specific actions.

There are two basic types of powers of attorney: one for finances and another for medical decisions.

A financial POA provides your agent with the authority to make financial and property decisions on your behalf. This may include handling your bank or building society accounts, collecting a pension or benefits, paying bills, or selling your house. Once registered, you can use it right away or keep it till you lose your mental capacity.

A medical POA lets your agent make decisions about your medical care and placement in a care facility, including life-sustaining medical care. It should only be used if you’re incapable of making your own decisions, and you must agree to it while you are still capable of doing so.

These specifics may vary, but the following are general guidelines that typically apply:

  • Write it down
  • Determine the parties
  • Delegate the authority
  • Define the term “durability”; and
  • Get the POA notarized.

Appoint a person as your representative who’s both trustworthy and capable.

Reference: South Florida Reporter (July 18, 2021) “Everything You Should Know About Power of Attorney”

What Your Need to Know about 529 College Savings Plans

You might think that tax-deferred savings is the main benefit, along with tax-free withdrawals for qualifying higher education expenses. However, there are also state tax incentives, such as tax deductions, credits, grants, or exemption from financial aid consideration from in-state schools in certain states .

Forbes’ recent article entitled “7 Benefits You Didn’t Know About 529 College Savings Plans (But Should)” says there are many more advantages to the college savings programs than simple tax benefits.

1) Registered Apprenticeship Programs Qualify. You can make qualified withdrawals from a 529 plan for registered apprenticeship programs. These programs cover a wide range of areas with an average annual salary for those that complete their apprenticeship of $70,000.

2) International Schools Usually Qualify. More than 400 schools outside of the US are considered to be qualified higher education institutions. You can, therefore, make tax-free withdrawals from a 529 plan for qualifying expenses at those colleges.

3) Gap Year and College Credit Classes for High School. Some gap year programs have partnered with higher education institutions to qualify for funding from 529 accounts. This includes some international and domestic gap year, outdoor education, study-abroad, wilderness survival, sustainable living trades and art programs. Primary school students over 14 can also use 529 funds for college credit classes, where available.

4) Get Your Money Back if Not Going to College. If your beneficiary meets certain criteria, it’s possible to avoid a 10% penalty and changing the plan from tax-free to tax-deferred. For this to happen, the beneficiary must:

  • Receive a tax-free scholarship or grant
  • Attend a US military academy
  • Die or become disabled; or
  • Get assistance through a qualifying employer-assisted college savings program.

Note that 529 plans are technically revocable. Therefore, you can rescind the gift and pull the assets back into the estate of the account owner. However, there are tax consequences, including tax on earnings plus a 10% penalty tax.

5) Private K–12 Tuition Is Qualified. 529 withdrawals can be used for up to $10,000 of tuition expenses at private K–12 schools. However, other expenses, such as computers, supplies, travel and other costs are not qualified.

6) Pay Off Your Student Loans. If you graduate with some money leftover in a 529 account, it can be used for up to $10,000 in certain student loan repayments.

7) Estate Planning. Contributions to a 529 plan are completed gifts to the beneficiary. These can be “superfunded” for up to $75,000 per beneficiary in a single year, effectively using five years’ worth of annual gift tax exemption up front. For retirees with significant RMDs (required minimum distributions) from qualified accounts, such as 401(k)s and traditional IRAs, the 529 plan offers high contribution limits across multiple beneficiaries, while retaining control of the assets during the lifetime of the account owner. Assets also pass by contract upon death, avoiding probate and estate tax.

Reference: Forbes (July 15, 2021) “7 Benefits You Didn’t Know About 529 College Savings Plans (But Should)”

New Rules for Burial at Arlington National Cemetery

In testimony before the House Appropriations Committee, Karen Durham-Aguilera, Executive Director of Army National Military Cemeteries and Arlington National Cemetery, said she expects revisions to those rules in coming months, but would not say whether that would tighten or loosen the proposed eligibility restrictions.

Military Times’ recent article entitled “As space dwindles, final rules on burial eligibility for Arlington Cemetery expected this fall,” reports that new eligibility rules for Arlington Cemetery would exclude most non-combat veterans.

“We continue to explore all viable options to ensure Arlington National Cemetery continues to honor our nation’s heroes for generations to come,” she said. “It’s really an impossible problem for us. The eligible population is more than 22 million … currently today, we have less than 85,000 spaces.”

The proposed changes are aimed at extending the use of the cemetery for several more decades.

In 2019, Army officials suggested restricting all below-ground burial sites to combat heroes, battle casualties and a small pool of notable dignitaries. Other veterans would be eligible for placement of cremated remains in above-ground structures at the cemetery. However, many veteran groups were against this, saying it could upset numerous families’ end-of-life plans and risks the perception that certain military experiences are more valuable than others.

About 400,000 individuals are buried at Arlington now, and roughly 7,000 individuals are interred at the cemetery annually.  those numbers were reduced last year due to COVID restrictions.

The expansion plans are expected to add about 80,000 new burial spaces to the cemetery.

“Without changes to eligibility, Arlington National Cemetery will run out of space for new burials in the early 2040s or the mid-2060s with the construction of the Southern Expansion project, even for those service members who are killed in action or are recipients of the Medal of Honor.”

With the eligibility changes, officials estimate the site can remain an active cemetery for more than 150 years.

These proposed rule changes for Arlington wouldn’t change the veterans cemetery sites run by the Department of Veterans Affairs across the country.

Reference: Military Times (May 5, 2021) “As space dwindles, final rules on burial eligibility for Arlington Cemetery expected this fall”

Does My Family have to Pay My Credit Cards when I Die?

Market Realist’s recent article entitled “What Happens to Credit Card Debt When You Die?” says that the short answer is that the deceased’s estate pays off any credit card debt they have left behind. Credit card debt and other debts can pass on to others in some cases, which is a big reason why estate planning is so important.

When a person dies, their assets are frozen until his or her will is verified, their debts are settled and their beneficiaries are identified in the probate process.

Then, the state will order that the deceased’s remaining assets (such as leftover cash and property with cash value) be used to pay off the credit card debt. However, retirement accounts, eligible brokerage accounts, and life insurance payouts are usually protected from this debt reconciliation. Once the debts are settled, the beneficiaries get their inheritance.

The debts are paid off until they’re all settled, or until the estate runs out of money. Unsecured debts, like credit cards, are usually paid off after secured debts, administrative fees and attorney fees.

There are some circumstances in which another person is legally obligated to pay the deceased’s debt.

Typically, no one is legally required to pay off a deceased individual’s debts, but there are some exceptions:

  • Co-signers must pay loans
  • Joint account holders must pay the debt on credit card accounts
  • Spouses have to pay particular types of debt in some states; and
  • Executors of an estate must pay outstanding bills out of property jointly owned by the surviving and deceased spouses in some states.

In addition, surviving spouses may be required to use community property to pay their deceased spouse’s debt in certain states.

The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska would also be included in this list, if a special agreement is in place.

If there was no joint account, co-signer, or other exception, only the estate of the deceased person owes the debt.

Reference: Market Realist (Feb. 11, 2021) “What Happens to Credit Card Debt When You Die?”

Does Living Trust Help with Probate and Inheritance Taxes?

A living trust is a trust that’s created during a person’s lifetime, explains nj.com’s recent article entitled “Will a living trust help with probate and inheritance taxes?”

For example, New Jersey’s Uniform Trust Code governs the creation and validity of trusts. A real benefit of a trust is that its assets aren’t subject to the probate process. However, the New Jersey probate process is simple, so most people in the Garden State don’t have a need for a living trust.

In Kansas, a living trust can be created if the “settlor” or creator of the trust:

  • Resides in Kansas
  • The trustee lives or works in Kansas; or
  • The trust property is located in the state.

Under Florida law, a revocable living trust is governed by Florida Statute § 736.0402. To create a valid revocable trust in Florida, these elements are required:

  • The settlor must have capacity to create the trust
  • The settlor must indicate an intent to create a trust
  • The trust must have a definite beneficiary
  • The trustee must have duties to perform; and
  • The same person can’t be the sole trustee and sole beneficiary.

Ask an experienced estate planning attorney and he or she will tell you that no matter where you’re residing, the element that most estate planning attorneys concentrate on is the first—the capacity to create the trust. In most states, the capacity to create a revocable trust is the same capacity required to create a last will and testament.

Ask an experienced estate planning attorney about the mental capacity required to make a will in your state. Some state laws say that it’s a significantly lower threshold than the legal standards for other capacity requirements, like making a contract.

However, if a person lacks capacity when making a will, then the validity of the will can be questioned. The person contesting the will has the burden to prove that the testator’s mental capacity impacted the creation of the will.

Note that the assets in a trust may be subject to income tax and may be includable in the grantor’s estate for purposes of determining whether estate or inheritance taxes are owed. State laws differ on this. There are many different types of living trusts that have different tax consequences, so you should talk to an experienced estate planning attorney to see if a living trust is right for your specific situation.

Reference: nj.com (Jan. 11, 2021) “Will a living trust help with probate and inheritance taxes?”

Should I Worry about Medicaid Estate Recovery?

What is It? The Medicaid Estate Recovery Program (MERP) may be used to recoup costs paid toward long-term care. It’s designed to help make the program affordable for the government, but it can financially affect the beneficiaries of Medicaid recipients.

AOL’s article entitled “What Is Medicaid Estate Recovery?” explains that’s where Medicaid can help fill the void. Medicaid can assist with paying the costs of long-term care for aging seniors. It can be used when someone doesn’t have long-term care insurance coverage, or they don’t have the assets to pay for long-term care out of pocket. It can also be used to pay for nursing home care, if you’ve taken steps to protect assets using a trust or other estate planning tools.

However, the benefits you (or an aging parent) receive from Medicaid are not necessarily free. The Medicaid Recovery Program lets Medicaid recoup or get back the money spent on behalf of an aging senior to cover long-term care costs. Federal law requires states to attempt to seek reimbursement from a Medicaid beneficiary’s estate when they die.

How It Works. The Medicaid Estate Recovery Program lets Medicaid seek recompense for a variety of costs, including:

  • Nursing home-related expenses or other long-term care facility stays
  • Home- and community-based services
  • Medical services from a hospital (when the recipient is a long-term care patient); and
  • Prescription drug services for long-term care recipients.

If you (or an aging parent) die after receiving long-term care or other benefits through Medicaid, the recovery program allows Medicaid to pursue any eligible assets held by your estate. Exactly what that includes depends on your state, but generally any assets that would be subject to the probate process after you pass away are fair game.

That may include bank accounts you own, your home or other real estate and vehicles or other real property. Each state makes its own rules. Medicaid can’t take someone’s home or assets before they pass away, but it’s possible for a lien to be placed upon the property.

What Medicaid Estate Recovery Means for Heirs. The biggest thing about the Medicaid estate recovery for heirs of Medicaid recipients is that they might inherit a reduced estate. Medicaid estate recovery rules also exclude you personally from paying for your parents’ long-term care costs. However, filial responsibility laws don’t. It is rare, but the laws of some states let healthcare providers sue the children of long-term care recipients to recover nursing care costs.

How to Avoid Medicaid Estate Recovery. Strategic planning with the help of an elder law attorney can help you or your family avoid financial impacts from Medicaid estate recovery. You should think about buying long-term care insurance for yourself. A long-term care insurance policy can pay for the costs of nursing home care, so you can avoid the need for Medicaid altogether.

Another way to avoid Medicaid estate recovery is to remove assets from the probate process. For example, married couples can do this by making certain that assets are jointly owned with right of survivorship or using assets to purchase an annuity to transfer benefits to the surviving spouse when the other spouse passes away. You should know which assets are and are not subject to probate in your state and whether your state allows for an expanded definition of recoverable assets for Medicaid. Speak with an experienced elder law lawyer for assistance.

Medicaid estate recovery may not be something you have to concern yourself with, if your aging parents leave little or no assets in their estate. However, you should still be aware of it, if you expect to inherit assets from your parents when they die.

Reference: AOL (Feb. 5, 2021) “What Is Medicaid Estate Recovery?”

How to Be an Effective Advocate for Elderly Parents

Family caregivers must also understand their loved one’s wishes for care and quality of life. They must also be sure those wishes are respected. Further, it means helping them manage financial and legal matters, and making sure they receive appropriate services and treatments when they need them.

AARP’s recent article entitled “How to Be an Effective Advocate for Aging Parents” says if the thought of being an advocate for others seems overwhelming, take it easy. You probably already have the skills you need to be effective. You may just need to develop and apply them in new ways. AARP gives us the five most important attributes.

  1. Observation. Caregivers can be too busy or tired, to see small changes, but even slightest shifts in a person’s abilities, health, moods, safety needs, or wants may be a sign of a much more serious medical or mental health issue. You should also monitor the services your family member is getting. You can take notes on your observations about your loved one to track any changes over time.
  2. Organization. It’s hard to keep track of every aspect of a caregiving plan, but as an advocate, you must manage your loved one’s caregiving team. This includes creating task lists and organizing the paperwork associated with health, legal, and financial matters. You’ll need to have easy access to all legal documents, like powers of attorney for finances and health care. If needed, you might take an organizing course or work with a professional organizer. There are also many caregiving apps. You should also, make digital copies of key documents, such as medication lists, medical history, powers of attorney and living wills, so you can access them from anywhere.
  3. Communication. This may be the most important attribute. You need communication for building relationships with other caregivers, family members, attorneys and healthcare professionals. Be prepared for meetings with lawyers, medical professionals and other providers.
  4. Probing. Caregivers need to gather information, so don’t be shy about it. Educate yourself about your loved one’s health conditions, finances and legal affairs. Create a list of questions for conversations with doctors and other professionals.
  5. Tenacity. Facing a dysfunctional and frustrating health care system can be discouraging. You must be tenacious. Here are a few suggestions on how to do that:
  • Set clear goals and focus on the end result you want.
  • Keep company with positive and encouraging people.
  • Heed the advice of experienced caregivers’ stories, so you understand the triumphs and the challenges.
  • Be positive and be resilient.

Reference: AARP (Sep. 24, 2020) “How to Be an Effective Advocate for Aging Parents”

The Difference between Power of Attorney and Guardianship for Elderly Parents

The primary difference between guardianship and power of attorney is in the level of decision-making power, although there are many intricacies specific to each appointment, explains Presswire’s recent article entitled “Power of Attorney and Guardianship of an Elderly Parent.”

The interactions with adult protective services, the probate court, elder law attorneys and healthcare providers can create a huge task for an agent under a power of attorney or court-appointed guardian. Children acting as agents or guardians are surprised about the degree of interference by family members who disagree with decisions.

Doctors and healthcare providers don’t always recognize the decision-making power of an agent or guardian. Guardians or agents may find themselves fighting the healthcare system because of the difference between legal capacity and medical or clinical capacity.

A family caregiver accepts a legal appointment to provide or oversee care. An agent under power of attorney isn’t appointed to do what he or she wishes. The agent must fulfill the wishes of the principal. In addition, court-appointed guardians are required to deliver regular reports to the court detailing the activities they have completed for elderly parents. Both roles must work in the best interest of the parent.

Some popular misperceptions about power of attorney and guardianship of a parent include:

  • An agent under power of attorney can make decisions that go against the wishes of the principal
  • An agent can’t be removed or fired by the principal for abuse
  • Adult protective services assumes control of family matters and gives power to the government; and
  • Guardians have a responsibility to save money for care, so family members can receive an inheritance.

Those who have a financial interest in inheritance can be upset when an agent under a power of attorney or a court-appointed guardian is appointed. Agents and guardians must make sure of the proper care for an elderly parent. A potential inheritance may be totally spent over time on care.

In truth, the objective isn’t to conserve money for family inheritances, if saving money means that a parent’s care will be in jeopardy.

Adult protective services workers will also look into cases to make certain that vulnerable elderly persons are protected—including being protected from irresponsible family members. In addition, a family member serving as an agent or family court-appointed guardian can be removed, if actions are harmful.

Agents under a medical power of attorney and court-appointed guardians have a duty to go beyond normal efforts in caring for an elderly parent or adult. They must understand the aspects of the health conditions and daily needs of the parent, as well as learning advocacy and other skills to ensure that the care provided is appropriate.

Ask an experienced elder law attorney about your family’s situation and your need for power of attorney documents with a provision for guardianship.

Reference: Presswire (Jan. 14, 2021) “Power of Attorney and Guardianship of an Elderly Parent”

debts after death

What Debts Must Be Paid after I Die?

When you pass away, your assets become your estate, and the process of dividing up debt after your death is part of probate. Creditors only have a certain amount of time to make a claim against the estate (usually three months to nine months).

Kiplinger’s recent article entitled “Debt After Death: What You Should Know” explains that beyond those basics, here are some situations where debts are forgiven after death, and some others where they still are required to be paid in some fashion:

  1. The beneficiaries’ money is partially protected if properly named. If you designated a beneficiary on an account — such as your life insurance policy and 401(k) — unsecured creditors typically can’t collect any money from those sources of funds. However, if beneficiaries weren’t determined before death, the funds would then go to the estate, which creditors tap.
  2. Credit card debt depends on what you signed. Most of the time, credit card debt doesn’t disappear when you die. The deceased’s estate will typically pay the credit card debt from the estate’s assets. Children won’t inherit the credit card debt, unless they’re a joint holder on the account. Likewise, a surviving spouse is responsible for their deceased spouse’s debt, if he or she is a joint borrower. Moreover, if you live in a community property state, you could be responsible for the credit card debt of a deceased spouse. This is not to be confused with being an authorized user on a credit card, which has different rules. Talk to an experienced estate planning attorney, if a creditor asks you to pay off a credit card. Don’t just assume you’re liable, just because someone says you are.
  3. Federal student loan forgiveness. This applies both to federal loans taken out by parents on behalf of their children and loans taken out by the students themselves. If the borrower dies, federal student loans are forgiven. If the student passes away, the loan is discharged. However, for private student loans, there’s no law requiring lenders to cancel a loan, so ask the loan servicer.
  4. Passing a mortgage to heirs. If you leave a mortgage behind for your children, under federal law, lenders must let family members assume a mortgage when they inherit residential property. This law prevents heirs from having to qualify for the mortgage. The heirs aren’t required to keep the mortgage, so they can refinance or pay off the debt entirely. For married couples who are joint borrowers on a mortgage, the surviving spouse can take over the loan, refinance, or pay it off.
  5. Marriage issues. If your spouse passes, you’re legally required to pay any joint tax owed to the state and federal government. In community property states, the surviving spouse must pay off any debt your partner acquired while you were married. However, in other states, you may only be responsible for a select amount of debt, like medical bills.

You may want to purchase more life insurance to pay for your debts at death or pay off the debts while you’re alive.

Reference: Kiplinger (Nov. 2, 2020) “Debt After Death: What You Should Know”