Estate Planning for Social Media and Digital Assets

An important but often overlooked concern when undertaking estate planning is what happens to your social media accounts and other digital assets upon death. Many individuals have a significant presence on Facebook, Instagram, LinkedIn and other social media accounts but rarely consider what happens to those accounts upon our passing. Complicating matters are the numerous digital files, passwords, domain names, websites and online records that are now part of our daily lives and interactions with commerce. Failing to address these concerns with quality estate planning can make things difficult for our loved ones and those we leave behind responsible for handling our affairs.

Fortunately, many of the social media platforms have recognized the issue and instituted internal policies to allow access to social media accounts upon the passing of the account owner. In a nutshell, account holders are allowed to name a legacy contact who has limited authority under the account. However, many of the policies instituted by the leading technology companies restrict what another can do on your behalf and most, if not all do not allow for closing of the account or complete access for which to manage the account. Relying on these legacy policies does not solve the problem altogether. For your protection, thoughtful planning for these assets will go a long way to accomplishing your desires regarding these accounts.

Either during or after competing an estate plan it is advisable to compile a list of social media accounts, computer files and cloud storage sites along with their passwords for those who are responsible to handle your affairs after you have passed. Of course, significant consideration must be given to security issues to ensure this list doesn’t fall into the wrong hands and ironclad security protocols must be instituted to protect the sensitive and important information. Additionally, notes as to your wishes for the accounts will be much very appreciated by those left behind. Do you want the accounts closed and all information deleted or is it your wish for those left behind to have the ability to continue posting to your sites, perhaps to leave a memorial or other thoughts regarding your life and pursuits or closing down of the accounts altogether.

When working with an estate planning attorney it may important to incorporate your wishes in your estate planning documents depending on the circumstances and the nature and scope of your estate and extent of social media activity. Lastly, you should consider if there are websites or services that have recurring or automatic debits on credit cards or financial accounts that must be cancelled or addressed. While social media and digital assets are very much part of our daily lives careful thought must be given to how those assets are handled in the estate planning arena.

Removing an Incapacitated Trustee

One of the most sensitive issues in family trusts is what happens when our parents or other loved ones have succumb to dementia or other debilitating illnesses that reduce their ability to handle their financial affairs in a responsible manner. While it is important to stay vigilant in these circumstances most persons will not want to admit they are suffering from limited capacity and will not desire to give up control and management of their own property. Undisputedly, it is in their best interests for someone to have authority to step in when the need arises but often the act of assuming control of a loved ones property is not thought out very well when the trust is drafted.

In some cases, a parent or loved one can resign as trustee before their illness progresses further as long as the resignation is voluntary and knowing. However, in many cases that is not always an option. While a reluctance to give up control over ones own property is certainly understandable, forces ranging from mismanagement of assets to elder financial abuse necessitate some form of action to protect the parent or loved one and their property.

Often the attorney drafting the trust will explain these issues when the trust is drafted and the person will select provisions to address how trustee removal is handled when the person is no longer competent to act but might not recognize or acknowledge the incapacity. Options include the naming of a family member or friend who can make a determination of a lack of capacity or require an affidavit of one or more physicians to make a determination. While requiring an affidavit of one or more physicians is attractive, it can be expensive and time consuming. Furthermore, as a result of medical privacy laws the trust instrument must specifically authorize the physician or physicians to discuss the person’s medical condition with third parties.

If a family member or other party who is also a beneficiary is granted authority to remove the trustee care must be taken to ensure that that person does not have power to name a successor trustee, otherwise the IRS may deem that person to hold a general power of appointment over trust property depending on the distribution powers set forth in the trust and held by the successor trustee. When drafting provisions along these lines competent legal advice is paramount to avoid unintended tax consequences.

When the trust document is silent as to removal of an incapacitated trustee and the trustee is not capable of executing a knowing and voluntary resignation matters become more difficult. In this case, family members will have no choice but to hire an attorney and petition the court for removal of the trustee based on grounds that the trustee is unfit to administer the trust and substantially able to manage the trust assets and exercise their duties as trustee.

California Courts Rule on Funding of Revocable Trusts

Having a revocable trust is an essential part of good estate planning. However, it doesn’t stop there…good estate planning also encompasses very thorough planning and decision making about which assets are to be held in the revocable trust and the process for which to transfer those assets to the trustee of the revocable trust.

One of the benefits of using the revocable trust is that upon the death of the property owner the property passes by operation of law to the next named trustee, to be managed and/or distributed as the property owner established in the terms of the trust without the involvement of a probate court or other court procedures. This saves significant amounts of money and time and keeps the nature and scope of the assets private.

The problem is, what happens when a property owner dies before transferring those assets intended to be held in trust to the trustee. In most cases the remaining family members had to probate the will if other means were not available to handle the distribution of the property. One of the most common assets often left out the trust is real estate. Or in some cases, parties will prepare a trust, convey the house to the trustee and later on refinance their home mortgage. Quite often the mortgage lender would require that the home be conveyed out of the trust and the loan closed in the owners name individually. The mortgage officers always tell their borrowers to have the house conveyed back into the trust after the escrow closes but unfortunately that doesn’t always happen and this is not discovered until the property owner has passed.

Fortunately, the California Court of Appeal issued a ruling in 1993 providing some relief for those who failed to convey property to their revocable trust before passing in the case Estate of Heggstad (1993) 16 Cal.App.4th 943. In that case, Mr Heggstad executed a revocable trust and attached to the trust a Schedule A, specifically identifying property that was to be held and owned by the trust. Included in the Schedule A were several pieces of real estate that were identified with either an address or other descriptive information. During his lifetime, Mr. Heggstad never signed a separate deed conveying the parcels of property to his revocable trust.

After his death, disputes arose as to whether the real estate was held in trust or not due to the lack of a separate deed. Essentially, the Court ruled that because Mr. Heggstad named the properties in his trust, sufficiently described them and expressed his intent that they be held in trust, the lack of a deed did matter as relevant principles of law dictated that the property was in fact owned by the trustee. This has led to many attorneys filing “Heggstad Petitions” on behalf of their clients when someone dies without transferring real estate to their revocable trust as long as it was sufficiently identified in the revocable trust document as being held in trust.

While the Heggstad Petition is very useful it only works when the property is real property that was never conveyed to the trustee and does not apply when the property at hand is personal property. However, in 2011 the California Court of Appeal handed down another decision that expands the underlying premise of the Heggstad case and applies it to personal property with a few twists. The case, Kucker v. Kucker involved a property owner that executed a general assignment, assigning all of their personal and real property to their trust. Upon Mr. Kucker’s passing his heirs discovered several shares of stock that were never assigned to the trustee during Mr. Kucker’s lifetime. Therefore, his heirs filed a petition with the Superior Court seeking a determination, in part, that as a consequence of Mr. Kucker signing a general assignment, assigning his personal and real property to the trustee, the stock was actually held in trust even though a separate assignment, specifically identifying the shares was never signed. In part, the Court held that a general assignment, duly executed buy the property owner is sufficient under law to act as an assignment of the property to their revocable trust.

As a result of the Heggstad and Kucker cases, practitioners have strong tools for assisting clients in avoiding full probate administration when clients have failed to convey property to themselves as trustee. Heggsatd can be used for real property when it is specifically identified in the trust document and Kucker can be cited when personal property is generally described in the trust document or in an generl ssignment. However, until recently, these tools were not much help when the client owns real property that was never deeded to the trustee and only mentioned in the trust and not specifically described well enough to determine the property without referring to extrinsic evidence outside of the trust document.

This month, the California Fourth District Court of Appeal has ruled in the case Ukkestad v. RBS Asset Finance, which expands and clarifies on the holdings in the Heggstad and Kucker cases. In this most recent case, Mr. Ukkestad owned two pieces of property that were assigned to the trustee via a general assignment in the revocable trust rather than a separate deed. Furthermore, the trust assignment did not identify the pieces of real estate with specific identifying information. After his death, the parties filed a petition with the Superior Court seeking an order that Mr. Ukkestad’s two pieces of property were held in the trust despite the fact that a deed was never signed based on the holdings in the Heggstad and Kucker cases. Expanding on the prior cases the Court has now held where evidence outside of the trust exists, it can be used to specifically identify real property that is subject to a general assignment and thus held in trust in the absence of a deed.

While these cases are beneficial they still require loved ones to hire attorneys and file petitions for relief and should not be relied upon when undertaking estate planning. Taking the extra time to adequately address trust funding and other techniques for avoiding probate courts will make settling your estate that much easier for those who are left behind and charged with responsibility of doing so.

Benefits of a Professional Fiduciary Trustee

Implementing a revocable trust is the foundation of any good estate plan and most if not all persons undertaking estate planning should not be without one. The trustee of the revocable trust is the person who manages the trust property akin to a chief executive of an organization. In most cases the person creating the revocable trust is named as the initial trustee and will perform that role for many years without much difficulty. The problem arises when the person who created the trust and is serving as the initial trustee dies or suffers and accident or disability that renders them incapacitated and unable to serve.

When the revocable trust is prepared, detailed provisions should be incorporated in the trust document providing for a successor trustee to assume the office and perform the functions when the initial trustee is no longer able. The person creating the trust should nominate others to serve as successor trustees when that time comes. However, many times suitable candidates may not come to mind due to factors such as family members that are not capable of performing the role for one reason or another and a lack of acquaintances that are not good candidates for nomination. Furthermore, sound estate planning warrants that more than one person should be named as successor trustee if the first person nominated is not able to serve.

In that event a professional trustee or professional fiduciary may be a beneficial option for a successor trustee of the revocable trust. A professional fiduciary is a person who performs trustee duties and other fiduciary roles as an occupation. In California, professional fiduciaries are licensed and regulated by the Department of Consumer Affairs Professional Fiduciaries Bureau. Additionally, many are members of professional associations and some carry either errors and omission insurance or professional liability insurance. Due to the personal nature of fiduciary services any person considering a professional trustee for their revocable trust should interview several candidates and satisfy themselves as the financial strength, talents, skill, veracity and professionalism of those under consideration.

Understanding the Spousal Probate Property Petition

Probate of a will can be a difficult, time consuming and expensive process. If a deceased party has a will as their estate plan (or no will at all) then generally the will must be probated before it is effective to pass property to the heirs. Under current law, the property left to a surviving spouse outright, without conditions or qualifications, passes to the spouse without the need for a probate administration. This applies whether the person died with a will (testate) or without a will (intestate.) While this may sound attractive circumstances often make this option less attractive.

The probate code has an efficient, regimented and certain process for handling creditor claims of the deceased loved one. If there are outstanding claims then the surviving spouse may wish to take out a probate to avail themselves of the creditor claim statutes to provide certainty as to those creditors asserting claims on the property of the estate. Without a probate then outstanding creditor claims will pass with the property to the surviving spouse who will be responsible for said claims to the extent of the value of the property and personally if the surviving spouse signed the instrument creating the debt or guaranteed it.

Furthermore, many third parties will be reluctant to deal with property passed to a surviving spouse based on claims that the surviving spouse is the lawful owner. For example, if real estate is part of the property passing to the surviving spouse and the spouse wishes to sell the property most, if not all title companies will require some sort of probate or judicial finding that the surviving spouse is the lawful owner. The same goes with many financial accounts and other assets that do not have beneficiary designations. In California, we have the spousal probate property petition to alleviate these concerns.

The proceeding is a summary probate proceeding that seeks a court order confirming property that passes to the surviving spouse. It is important to note that the proceeding does not eliminate claims of the deceased spouse and the surviving spouse must deal with any and all outstanding creditors. The spousal probate property petition can be heard by the court and completed in a much shorter time than a complete probate administration resulting in significant costs to the surviving spouse and in under the right set of facts and circumstances can be a very useful proceeding.

Inventory and Appraisal-Valuing the Probate Estate

One of the many important steps in a probate case is the inventory and appraisal. The executor or personal representative of the probate estate must have a good working knowledge of the property owned by the decedent upon their death as this is the property that will be subject to the probate. Furthermore, with the initial filing of the probate case, the personal representative must make a declaration of the property in the probate petition and an approximate value thereof.

Part of the many responsibilities of the executor is to collect all of the assets if the estate. Thereafter, the executor is charged with building the inventory and appraisal, an itemization of the assets and their valuation, to be filed with the court in the probate case. Extra effort early in the case will lead to a more accurate filing and eliminate the need for additional filings throughout the probate case and probate administration as additional assets are discovered. The inventory aids the executor in fully appreciating the nature and scope of the property subject to probate, informs interested parties as to what property comprises the probate estate and if applicable will be beneficial in the filing of estate or income tax returns. Additionally, an accurate and complete inventory and appraisal will make preparing a petition for final distribution and closing of the probate case that much easier as those items must be specifically detailed as part of the closing process. Fees for the personal representative, probate referee and the attorney for the estate are all based on the value in the inventory and appraisal, exclusive of debts.

As the case progresses, the personal representative must compile an itemization of the assets and submit the itemized inventory to a probate referee who is appointed by the court. The probate referee will appraise those items required by law for them to appraise and the executor will appraise those items that he or she is responsible for. Generally, the personal representative shall be responsible for valuing cash and cash equivalents such as checks, accounts in financial institutions, brokerage accounts and proceeds of life and accident insurance. The probate referee shall value all other property in the estate.

Certification of Trust-Keeping the Bank Out of Your Trust

An important aspect of using a trust is ensuring that the trust is properly funded with assets that are appropriate for being held in trust. While not all assets should be held in trust, particularly those with a tax deferral aspect, most bank and financial accounts should be properly funded in the trust by conveying title of the assets to the trustee. This entails reaching out to the bank or financial institution and transferring existing accounts to the trustee or in some cases re-opening the accounts in the name of the trustee depending on the bank or financial institution’s policies.

Often the bank or financial institution will ask for a copy of the trust. While the question is legitimate so that the financial institution can verify the trustee, its powers and validity, this is an intrusion upon the assets owners privacy and unnecessary. Under the probate code, the asset owner who is desirous of retitling assets in the name of the trustee may present the financial institution with a certificate of trust in lieu of providing a complete copy of the trust instrument.

A certificate of trust is a signed summary of the trust and its relevant terms. At a minimum, the certificate should set forth the name of the person or persons who created the rust, the name of trustee, the tax identification number of the trust, the power of the trustee and whether or not the trust has been revoked or modified. The important matter is that those provisions of the trust that address disposition of the trust assets and distributions do not have to be disclosed and may remain confidential.

Under certain circumstances any bank or financial institution who refuses to accept a properly completed certification and instead demands the trust itself may be sued for damages and attorney fees related to the refusal to accept the certification. While the bank or financial institution has legitimate concerns, anyone outright demanding a complete copy and refusing to accept a certification that complies with law should be seen as probably a good sign that the particular bank or financial institution will not be the best choice in terms of cooperation and ease to work with for the trust accounts. In those cases the trustee should look elsewhere for banking and financial services.

Probate Bond-Do I Need One

A probate bond is an assurance that typically takes the shape of a surety, signed jointly by the Executor/Personal Representative and the bond company. The goal of the bond is to ensure that representative of the estate carries out their responsibilities in strict compliance with the will, probate code and applicable court rules. If the representative falls short of fulfilling their responsibilities then either a creditor, beneficiary, an heir or other protected party may seek redress upon the bond to cover their loss and potentially costs of recovery.

Generally, every representative appointed by the court must post a bond unless there is an exception. Under Section 8481 of the California Probate Code a bond is not normally required if the will waives bond or if all of the beneficiaries waive the requirement of a bond unless the will specifically requires one. However, even if the will waives a bond, the court or an interested party may petition for the requirement that the representative obtain a bond.

This may occur when the estate has creditors and the court may dictate that a bond be procured for the amount of outstanding debts. Additionally, if the representative is not a resident of California the court will require a minimum bond in the amount of $12,000.00.

Because a bond is a surety contract, the issuing company will want to review the credit worthiness of the representative before issuing the bond. If there is the potential that the proposed representative may not be bondable due to poor credit or other matters it is important to consider alternate representatives named in the will, or otherwise, before petitioning for the will to be admitted to probate. If a problem is discovered after filing a petition for probate and a hearing is held, the parties will have to repetition for another party to be appointed which will delay the beginning of the administration for several months and perhaps longer.

Selecting a Trustee

The selection of the right person or institution is key to having a successful trust and is often overlooked when the trust is created. Typically the person who creates the trust will serve as the initial trustee which works well for most and during the period which the trust is revocable. However, what happens when that person passes or suffers a disability or accident that renders them incapacitated is where things become more challenging. At that time the party designated as a successor trustee will succeed to the office and perform the functions and duties as outlined in the trust document and be subject to fiduciary duties imposed by law.

Too many times, parties will name family members or acquaintances without giving much thought to the responsibilities placed upon that party and whether they are capable of performing the duties competently or without reservation. As a general rule, the party selected must have some degree of business acumen and discipline to address pressing issues that arise in administering the trust. An anecdote that I often use with clients is if they are considering naming someone as a successor trustee but when they visit that person and they have weeks of unopened mail unattended to then they probably aren’t the best choice for a successor trustee.

As a guide, the person selected must be able to take all actions that you would normally take in your place, such as paying bills, monitoring investments, filing tax returns, making payments for the benefit of loved ones, addressing insurance concerns and running a business if necessary. Additionally, the probate code places numerous responsibilities on a successor trustee such as proving notices, accounting to beneficiaries and allocating income and expenses among assets held in the trust.

California law imposes numerous fiduciary duties on the trustee, a breach of which can lead to personal liability for the trustee. Therefore the person designated must be capable of diligently performing their role as trustee and willing to do so in a responsible manner. Of additional concern is the makeup of the family members and family dynamics. Are there family members who may be more difficult than others? Is the person named able to handle difficult persons or act impartially amongst the interested persons? If the answer is yes then prudence dictates that selecting a professional trustee or trust company may be the best choice.

Independent Administration in Probate-Smooth Sailing or Choppy Waters?

 

Filing a probate case can at times resemble a maze; one of forms, court rules, procedures and unfamiliar processes. Having an experienced probate attorney is paramount for administering a probate estate timely, efficiently and as smoothly as possible. Navigating the probate court while grieving the loss of loved one can be challenging but is necessary to settle the affairs of the family member who has passed.

California law allows for two types of probate administration, independent and dependent. As the name implies, independent administration is conducted by the personal representative (executor) of the estate with greater independence from the court, but still subject to supervision and oversight by the court for many aspects of the case. This is important as it allows the personal representative to perform many functions without obtaining court authorization, approval, or orders as is required if the personal representative is acting under a dependent administration.

A personal representative may petition the court for one of two types of authority of independent administration, full authority or limited authority. Full authority allows the representative to take all actions and exercise all powers under the probate code whereas a representative with limited authority may take all actions and exercise all powers under the probate code except the authority to sell real property, exchange real property, grant an option to purchase real property and borrow money that is secured with real property belonging to the estate.

As a safeguard and a check upon the personal representative acting under full authority the law requires that a notice a proposed action be given prior to taking action and that any interested party be afforded an opportunity to object prior to the action being taken. Examples of actions that require a notice of proposed action are selling or exchanging real property, selling or exchanging personal property, borrowing money, settling claims against real or personal property, investing money and selling a business or ongoing concern.

Examples of actions that generally do not require a notice of proposed action are listing real property for sale for up to 90 days, leasing real property for less than one year, selling perishable or depreciating property, selling securities, compromise of a claim against the estate, compromise of a debt owed to the estate and allowance or rejection of creditors claims. While a notice of proposed action may not be required in these cases often, due to strategic factors or others reasons a notice may be prudent to protect the personal representative from claims of unhappy beneficiaries or creditors.

While independent administration may lead to less court involvement it should not be assumed there would be less responsibility upon the personal representative. On the contrary, as there is less court involvement, the personal representative and their attorney must stay vigilant in performing their roles to ensure a smooth administration in a short timeframe as possible. Due to the nature of independent administration and the probate code sections authorizing it, the personal representative must careful in discharging their duties as to avoid running afoul of the strict requirements of the independent administration process.