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A benefit of working hard is sharing the fruits of your labor with your loved ones. However, gift or estate tax consequences may impact high net worth clients when they share their wealth. By crafting a comprehensive estate plan, we can address these concerns and protect high net worth clients and their loved ones. The following three types of trusts may assist high net worth clients in sharing their wealth in a tax-advantageous way.

Grantor Retained Annuity Trust

A grantor retained annuity trust (GRAT) is an irrevocable trust you can use to make large financial gifts to your loved ones while also minimizing gift tax liability. These financial gifts remove future appreciation from your estate, reducing the amount that will be subject to estate tax at your death. However, there may be gift tax liability, which would be owed and paid at the trust’s creation. You create a GRAT and then fund it with accounts and property, such as those that are expected to appreciate in value over the GRAT’s term. Then, you receive a fixed annuity payment, based on the trust’s original value, for a specified time period. Once the period has terminated, the remainder of the trust’s accounts and property are transferred to your named beneficiary.

The rate of return that you receive is based on the specific rate determined by the Internal Revenue Service, known as the Internal Revenue Code (I.R.C.) § 7520 rate. The key to saving taxes and having money available to be transferred to the beneficiary is for the trust’s accounts and property to outperform this rate. To limit or eliminate the gift tax that would be due when making a gift to someone, the value you retain (the amount that is ultimately distributed back to you) is subtracted from the value of what was transferred to the trust. This is also known as the subtraction method. Ultimately, the goal is for this number to be zero (known as a zeroed out GRAT) or as close to zero as possible. This means that any appreciation is transferred to your beneficiary at the trust’s termination gift-tax free. 

Let’s look at what a possible outcome could be when using a GRAT. In this situation, let’s say you make a $1 million gift to a GRAT, the current I.R.C. § 7520 rate is 4.2 percent, and the annuity will be paid over five years. If the trust only makes 4.2 percent, then the client will be in roughly the same position as it was when it was created because everything will be returned to the client. If the trust makes 7.5 percent, then there will be approximately $123,562 remaining that will be transferred to the beneficiaries with no gift tax (assuming a zeroed out GRAT). If the trust does even better and makes 10 percent over the course of five years, then the beneficiaries will receive $231,419.¹

Grantor Retained Unitrust

A grantor retained unitrust (GRUT) is an irrevocable trust that is like a GRAT. Accounts and property are transferred to the trust and you retain a right to receive an annuity for a fixed time period. Then, at the trust’s termination, the trust’s remaining accounts and property are given to your named beneficiary. However, with a GRUT, the annuity payment that you receive each year is calculated based upon a fixed percentage of the trust’s value that year. Therefore, since the trust’s value can vary from year to year, the annuity amount can vary even though the same percentage is used each year to calculate the annuity.

Like a GRAT, the gift tax is due at the time the accounts and property are transferred to the trust, and the gift tax liability is based on using the subtraction method. Because the annuity is based on the trust value that year, it is unlikely that the difference between what you give and retain will be zero, which will require that some gift tax be paid. 

Qualified Personal Residence Trust

A qualified personal residence trust (QPRT) is an irrevocable trust that you can use to remove your residence from your overall estate. Ownership of the residence is transferred to the trust, and you retain the right to use and enjoy the property for a specified time period. Then, once that time terminates, the residence is transferred to your named beneficiary. If you would like to continue living in or using the residence, you will have to pay the beneficiary rent. You may need to consider your relationship with the beneficiary when evaluating whether this tool would serve your needs.

Although this transfer reduces the amount subject to estate tax at your death, gift tax will still be owed when the property is transferred to the QPRT. The value of what is transferred to the trust (the amount subject to gift tax) is the residence’s value less the value of what you keep (because you have the right to continue using it). This estate planning tool’s effectiveness depends on the federal interest rate when the trust is created. The higher the interest rate, the lower the gift value and the lower the potential gift tax liability. 

You can establish a QPRT for no more than two residences. It can be funded using a principal residence or a vacation home or secondary residence, or a fractional interest in these types of residences. It is also important to note that if the residence currently has a mortgage, it may be advisable to pay off the mortgage before transferring ownership to the QPRT to avoid complications in administering the trust.

The important thing to note with all three types of trusts is that you must survive the trust term. When trying to determine the length of the trust, it is important to consider your current age and life expectancy. If you die before the trust terminates, the tax benefits will be undone and the full value of the account or property will be counted towards your estate tax liability.

Because each transaction is subject to taxation, it is important that you evaluate the gift tax, estate tax, and nontax considerations before making a decision. We are available to meet with you, discuss your unique situation, and craft a plan that leaves your hard-earned wealth to those you care about as you wish. To learn more, please give us a call.

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Footnote:

1. Grantor Retained Annuity Trust Calculator, Roger Healey, https://rogerhealy.com/GRATCalculator.aspx (last visited July 24, 2023).

About two out of three Americans will die without a will. This is known as dying intestate. 

While the reasons for not having a will vary, the end result is the same for everyone: they do not get to choose who receives their property when they die. Instead, their money and property are distributed according to the laws of their state in a process called intestate succession. 

This is not necessarily a bad thing. In most states, a person’s spouse, children, parents, and siblings are given priority in the line of succession. But even if someone is fine with their next of kin receiving all of their money and property, a beneficiary can still be required to go through a long and costly court process when there is no will. 

State law can only assume how the typical person would dispose of their estate. When a state’s default intestacy laws do not align with the actual preferences of the decedent about who should get what, this can lead to a number of issues. 

Sample State Intestacy Laws

It is understandable why people do not want to talk or think about death. But dying without a will takes power out of the individual’s hands and puts it in the hands of the state and its one-size-fits-all intestacy laws. 

For a general idea of what happens when a person dies intestate, here is how intestacy law works in a few states: 

New York

• If the decedent has a spouse, the spouse inherits everything.
• If the decedent has children but no spouse, the children inherit everything.
• If the decedent has a spouse and children, the spouse inherits the first $50,000 plus half of the balance, and the children inherit the rest. 
• If the decedent has no spouse and no children, the decedent’s parents inherit everything. 
• If the decedent has no spouse, children, or parents, the decedent’s siblings inherit everything. 
• If the decedent has no living family, their property goes to New York State. 

Things can get trickier when children inherit by law from their parents. Adopted children have the same rights as biological children, but foster children and stepchildren do not unless they are legally adopted.¹ 

California

The state of California differentiates between community property and separate property.² The former generally includes all property acquired by either spouse during the marriage, while the latter is property obtained prior to or outside of the marriage. 

When a person dies intestate in California while married and they have one child or grandchild, the spouse inherits all of the community property and half of the separate property; the child or grandchild inherits the rest. If they die married and intestate with two or more children, the spouse gets all of the community property and one-third of the separate property, with the rest split equally among the children. 

California also has a few unique intestacy laws. For example, half-siblings who share a parent are treated as whole siblings for intestacy purposes,³ and children born after the decedent’s death are treated as heirs.⁴ 

Florida

In Florida, intestate succession hinges on whether a person is married and has children with their spouse. 

• If the decedent is married and they have children together, the spouse inherits 100 percent of the estate. 
• If the decedent is married and has children from a previous relationship, the spouse inherits 50 percent of the estate and their children receive the other 50 percent. 

Note that in Florida, if the spouse has children from another relationship, they inherit nothing under intestacy laws. The decedent’s biological children, even those from another marriage, are given preference over a surviving spouse’s children from another relationship.⁵ 

Florida places legally adopted children on the same level as biological children. Grandchildren only receive an intestate share if their parent (i.e., the decedent’s son or daughter) is not alive to receive their share. 

Potential Consequences of Dying Intestate

The above examples should be sufficient to show how state intestacy laws, while largely similar from state to state, vary in the details and can quickly get complicated, especially when a family is blended and does not have a typical nuclear structure. In fact, because more than half of marriages now end in divorce, most families have shifted from having a biologically bonded mom, dad, and kids to a blended family structure.⁶

Nonblood Beneficiaries

Default intestacy laws can leave out not only stepchildren, foster children, and children placed for adoption, but also close family friends, charities, and others not related by blood. 

Who Receives the Money and Property—and How Much

Intestacy laws are rigid about who receives how much. Intestate shares are statutorily determined and do not consider special circumstances, such as an heir who is receiving income-based financial aid and may be disqualified from further benefits due to an estate disbursement. This could be avoided by placing money and property in a trust for that individual’s benefit. 

Parents commonly divide their money and property equally among their children, but no law requires this, and there are good reasons why some parents do not want equal distributions. State intestacy laws preclude unequal distribution as well as intentional disinheritance of a child. 

Other Problems

All of these special circumstances require nuance in an estate plan, but state intestacy laws are not nuanced. Intestacy can also give rise to the following additional issues: 

• Loved ones are unable to make specific funeral arrangements.
• The probate court chooses a personal representative to manage the estate, who may not be somebody the decedent would choose for this role
• The court decides who raises minor children. 
• Small business owners can lose control of what happens to the business when they die.
• Property that the decedent intended to keep in the family could be sold.
• The probate process can be lengthy and delay how soon loved ones receive money and property.
• Probate costs can drain money and property that otherwise would have gone to heirs.
• Arguments can break out between heirs about what the decedent would have wanted.
• Digital assets like social media accounts and fintech accounts could be left in limbo.
• There are no instructions for end-of-life care or incapacity. 

To clarify, not all accounts and property pass through probate when somebody dies without a will. Some accounts and property bypass probate, including those jointly owned with survivorship rights, accounts with beneficiary designations, and transfer-on-death and payable-on-death accounts. Anything owned by the decedent in their name at death without a beneficiary designation, though, passes through the probate court and is subject to intestacy law. 

Do Not Leave Your Legacy Up to the State

There is much about death we cannot control. We do not know when, where, or how we will meet our end. But we can control our legacy and make our final wishes known through an estate plan. 

There are many reasons for not making an estate plan. You may think you are too young, do not have enough money and property, or cannot afford estate planning. But a better question might be, Can you afford not to have a plan? A basic estate plan can fit your budget and allow you to rest easy knowing your money and property will end up where you want them to go. 

Do not leave your legacy up to the state. Create an estate plan while you still can and make your wishes known. 

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Footnotes:

1. When There Is No Will, NYCourts.gov, https://nycourts.gov/courthelp/whensomeonedies/intestacy.shtml (last visited July 26, 2023).
2. Cal. Prob. Code § 6401 (West 2022), https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=PROB&sectionNum=6401.
3. Cal. Prob. Code § 6406 (West 2022), https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=PROB&sectionNum=6406.
4. Cal. Prob. Code § 6407 (West 2022), https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=PROB&sectionNum=6407.
5. Fla. Stat. § 732.102, http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0700-0799/0732/Sections/0732.102.html.
6. Stepfamily Statistics, The Step Family Foundation, https://www.stepfamily.org/stepfamily-statistics.html (last visited July 26, 2023).

When you create a trust, choosing a trustee is one of the most important decisions you will make. If you create a revocable living trust—that is, a trust that you establish during your lifetime and can revoke or amend—you may opt to act as trustee for your trust, retaining the full control over and benefit of the money and property it holds. However, what happens if you develop a health issue or are injured in a car accident and are unable to manage your own affairs? With today’s longer life expectancies, it is much more likely that you will experience dementia in your later years, making it impossible for you to handle your own finances. And what will happen when you pass away? It is crucial that you name a successor trustee (and an alternate in case the first successor is unable or unwilling to serve) who will step into the role of trustee to manage the trust on your behalf if you become incapacitated or die. 

There are certain characteristics you should look for in any trustee. They should be trustworthy and responsible, capable of making wise financial or investment decisions, and interested in carrying out your wishes as expressed in your trust document. Depending on your particular circumstances, it may be prudent to name different trustees to serve at your incapacity and at your death. On the other hand, some may prefer to have the same trustee serve in the event of both incapacity and death.

Different Trustees at Incapacity and Death

During Incapacity

During your lifetime, you are typically the beneficiary of your revocable living trust, so you may prefer to have a spouse, child, or other close relative serve as your trustee if you become incapacitated. Not only will they have a legal duty to act in your best interest, they are also among the people who know you and your needs best, love you, and understand your wishes. They will have your best interest at heart and will ensure that your affairs are handled in a way that is most beneficial for you. Another possible benefit is that, although a family member who serves as trustee is entitled to charge a reasonable fee for the work they perform in that role, they may forgo compensation. Importantly, because there often are no other trust beneficiaries during your lifetime, there is no risk that a trustee who is also a family member will show or be perceived as showing favoritism or partiality between beneficiaries.

Tip: You should consider naming the same person you have chosen to act as your agent under a financial power of attorney as your trustee. While your trustee will manage the money or property held in your trust, your agent under a financial power of attorney is typically authorized to manage nontrust property, pay bills, enter into contracts, or engage in other financial transactions on your behalf. You may choose to make the financial power of attorney effective immediately, or in some states, only upon a determination that you have become incapacitated. In any case, the person you choose to act as your agent will need to meet the same criteria you should use in naming a successor trustee: your agent should be someone you know is honest, reliable, and capable. 

At Your Death

When you pass away, you are no longer the beneficiary of your trust. Instead, the trust’s beneficiaries are the individuals or organizations you have designated in your trust document to receive distributions from the trust after your death. Other considerations may come into play in choosing who will serve in the role of trustee at that point. For example, if you name your spouse or child as your successor trustee, it may be difficult for them to take on the responsibilities of that role at a time when they are grieving and distraught. 

In addition, if there have been any family rivalries or disharmony, naming one of the children as trustee may create tension, as the other children may suspect that the child who is trustee will not carry out their duties in an unbiased way. These tensions could also occur in blended families. For example, if you have children from both your previous and current marriage and you name your current spouse as trustee, your children from your first marriage may suspect that they will not be treated fairly. This situation could even lead to disharmony for families who have always gotten along well in the past.

To avoid family squabbles, you may want to name someone whom you can count on to act fairly and impartially—perhaps a good friend, a trusted business associate, or a professional trustee—to act as your successor trustee upon your death.

Same Trustee at Incapacity and Death

If you think there is little risk of family disunity, you may opt to have the same person serve as successor trustee during your incapacity and at your death. There are some definite benefits to this approach. First, if only one person will serve as your successor trustee, less preparation is necessary for the occurrence of either circumstance: instead of bringing two individuals up to speed on your affairs, you only need to involve one person who knows they are next in line to serve as trustee. Having one individual serve as successor trustee will avoid the need to transition from one trustee to the next if you become incapacitated before your death, making management of the trust more seamless. Because the trustee will already be in that role, there will be no sudden need for them to assume a new, potentially stressful role when you die.

We Can Help

Determining who will serve as your successor trustee is a crucial decision when you create your estate plan. Whether you need to decide between having the same trustee or different trustees at your incapacity or death, to name more than one trustee, or to appoint a professional trustee, we can guide you to make the best choice for your particular situation. Our aim is to help you achieve your goals and avoid conflict in your family after you pass away. Call us today to set up an appointment so we can advise you as you make this and other important decisions about your estate plan.

Adding a payable-on-death (POD) or transfer-on-death (TOD) designation to an account allows the assets (money and property) in that account to be passed to a named beneficiary when the original account holder dies. 

Like trusts, POD and TOD accounts bypass probate. They are also fast, easy, and usually free to set up. However, they do not provide the full range of benefits that a traditional trust does and can have some unintended consequences. 

Before deciding whether to set up a POD or TOD account, it is important to know the difference between them, understand their pros and cons, and talk to an attorney about how they fit into your estate planning goals. 

POD versus TOD (versus a Trust)

Payable on death and transfer on death sound ominous; and while the topic of death is always somewhat gloomy, POD and TOD are estate planning terms that financial account holders should be familiar with. 

A goal of most estate plans is to avoid probate—the legal process by which an estate is settled. Probate can be time-consuming and costly, but there are ways to avoid it, such as placing assets in trusts that pass outside of probate. 

Another way to avoid probate is to use POD and TOD accounts for asset transfers. The major difference between POD and TOD accounts is the type of assets held in the account. 

• POD is a designation added to a bank account, such as a checking account, savings account, certificate of deposit (CD), and money market account. 
• TOD applies to an investment account, such as an individual retirement account, 401(k), brokerage account, and other accounts holding securities. 

An additional difference between POD and TOD accounts is that, with a POD designation, the account assets are transferred to a beneficiary (or beneficiaries), while with a TOD designation, account ownership transfers to a beneficiary. 

Financial institutions may refer to a POD account as a Totten trust, a type of revocable trust (aka a living trust) that is set up as a POD account. PODs and TODs are, like Totten trusts, able to be revoked during the owner’s lifetime; that is, the POD or TOD designation can be removed up until the owner passes away. And with all three, while the owner is alive, they retain account ownership and can manage the account as they see fit. It is only when the owner dies that the beneficiaries have a claim to a TOD, POD, or revocable trust.

However, unlike a Totten trust or a revocable trust, there is no trustee who manages a POD or TOD account. The POD or TOD account or assets transfer directly to the beneficiary. Assets transferred in this way have no protection from a beneficiary’s creditors or their poor spending habits. 

Pros and Cons of PODs and TODs

It is important to note that, in the case of jointly held accounts, a POD or TOD account designation does not kick in until both account holders have passed away. For example, if spouses jointly own a bank account that is set up as a POD account, the surviving spouse becomes the sole owner of the account when the first spouse dies, and it only passes to named beneficiaries after the surviving spouse dies.

Others benefits may include the following: 

• Setup is straightforward and there is generally no cost. 
• Designated beneficiaries receive the funds without having to wait for probate to conclude, which can take months. A POD or TOD account allows loved ones to get money almost immediately. Typically, all they need to provide is the death certificate and identification to the account-holding institution. 
• A bank account has Federal Deposit Insurance Corporation (FDIC) insurance up to the standard $250,000, but banks allow account owners to specify multiple unique beneficiaries for an informal revocable trust (i.e., a POD account), which provides additional FDIC coverage.¹ 
• The account owner has the flexibility to change, add, or revoke a beneficiary designation. 
• For added flexibility, a durable power of attorney can be added to a POD or TOD account, allowing somebody other than the beneficiary to handle the account. 
• Trusts can also be named POD beneficiaries.² 

The probate avoidance offered by a POD or TOD account is its main appeal, but this and other benefits should be weighed against the following potential pitfalls:

• A POD or TOD account is not effective if the owner becomes incapacitated. 
• Backup beneficiaries cannot be named, so if a beneficiary predeceases the account owner, their share of the account could be automatically reallocated to the remaining surviving beneficiaries or subject to probate. 
• POD and TOD accounts are established through a financial institution and outside the rest of the estate plan. If a will is updated but POD or TOD beneficiaries are not, there could be inconsistencies in the overall estate plan. 
• Because POD bank accounts avoid probate and pass outside of the estate, the funds in them are not available to settle claims or debts of the estate, such as estate taxes. This can make things harder on the executor, who may need to ask for voluntary contributions from a POD beneficiary. 
• If there are insufficient probate assets to pay the debts of the estate, creditors may be able to claim certain nonprobate assets, including POD and TOD accounts. 

Is a POD or TOD Account Right for My Estate Plan? 

An estate plan is a highly individual matter that reflects your personal wishes and family dynamics. As such, there is no “one size fits all” advice for an estate plan. The pros and cons of any estate planning vehicle—be it a POD, TOD, revocable trust, will, or power of attorney—must be weighed against your values and goals. 

Transferring a bank account to a POD account, or an investment account to a TOD account, may be as easy as signing a document with your financial institution. But the ease of a POD or TOD designation must be considered alongside fiscal considerations such as taxes and personal considerations such as whether heirs would be better served by placing the accounts in a trust. 

During a meeting with our estate planning attorneys, we can discuss POD and TOD accounts and how they may align with your overarching estate planning objectives. Call or contact us to start planning today.

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Footnotes:

1. Your Insured Deposits, FDIC (Oct. 27, 2015), https://www.fdic.gov/regulations/resources/brochures/your_insured_deposits-english.html.
2. Beneficiary FAQs, Bank of America, https://www.bankofamerica.com/deposits/beneficiaries-faqs/ (last visited July 21, 2023).

One of the main reasons that a person creates a revocable living trust (a trust established during a person’s lifetime that they can amend or revoke) instead of relying on a will to transfer their money and property to their beneficiaries is to avoid probate. Probate is the court process during which a person’s will is found to be legally valid and their money and property are distributed to the individuals or organizations named in their will. There are pros and cons to probate, and after weighing them, some people may prefer to establish a testamentary trust, which is a trust created through a will—even if this means that the person’s money and property must go through probate before the trust is funded and money is given to beneficiaries. There are other reasons why a testamentary trust may be a great option; for example, they allow you to direct the amounts and timing of distributions to beneficiaries and reduce the upfront costs associated with the creation of the trust.

To Avoid Probate or Not to Avoid Probate: That Is the Question

In deciding whether a testamentary trust is right for your family or loved ones, consider whether avoiding probate is a priority for you and evaluate the pros and cons, which may vary depending on jurisdiction and the size of your estate.

The fees your estate must pay during the probate process will vary depending on the size and complexity of the estate as well as state law, which sets the amounts charged for court filings. In some states and for larger estates, probate can be very expensive. During the probate process, an estate may have to pay court fees, executor’s fees, attorney’s fees, accounting fees, appraisal and valuation fees, a probate bond, and other miscellaneous fees. These expenses can quickly add up and reduce the amount your beneficiaries will ultimately receive. However, for smaller estates and in some states, the probate process is relatively inexpensive and may not be a significant consideration in determining whether to choose a will that establishes a testamentary trust at death over a revocable living trust.

In addition, depending upon the process established in each state and the complexity of the estate, probate may be time-consuming and delay the distribution of funds from the testamentary trust for months or years. In states in which procedures allow probate to be expedited in many situations, this may be less of a concern.

Because probate is a matter of public record, some documents, including your will and information about the testamentary trust it creates upon your death, can be accessed by any member of the public, resulting in a lack of privacy. As a result, personal information about your family and other beneficiaries, including who is inheriting and the types of money and property they are inheriting, is available for anyone to see. In contrast, a revocable living trust does not become part of the public record, allowing the identities of your beneficiaries and the details about your estate to remain private.

Because it is a court process, probate involves oversight by a judge or court clerk until all distributions have been made. Trustees of a testamentary trust may need to meet regularly with the probate court, which will monitor its administration until the trust expires. While some may find this oversight burdensome, it may provide peace of mind for those who want additional assurance that the trust will be administered as they intended.

Maintain Control Over the Distribution of Money and Property

Beneficiaries under a will generally receive the money or property outright as soon as distributions are authorized by the probate court (except for minor children, whose inheritance may be held in a custodial account until they reach the age of majority). However, if you include a testamentary trust in your will, the terms of the trust can specify the timing and amounts of the distributions to your beneficiaries. Although a testamentary trust is created when you pass away, you outline the instructions for the trust in your will during your lifetime and can change them at any time while you are alive. 

A testamentary trust may be beneficial for parents of young children, adult children who have many creditors or poor spending habits, or disabled children who need ongoing support and need to maintain eligibility for government benefits. It may also protect beneficiaries in the event of divorce by safeguarding their inheritance during division of property. The trustee you name in your will has a responsibility to make distributions in accordance with the instructions you provide in your will. As a result, you can provide your family members with resources they need over time until the trust terminates. You can specify if you want the trust to continue until your children reach a certain age or meet a particular milestone. In addition, you can instruct what distributions should be used for, such as costs associated with your children’s health, education, maintenance, or support.

Defer Creation of the Trust Until You Pass Away

A revocable living trust is typically more expensive to create, so a testamentary trust is a good option if you need to minimize costs now but think a trust will ultimately benefit your family members and loved ones. A testamentary trust will be created and funded after you pass away and the costs of establishing it will be borne by your estate, making it a more affordable option during your lifetime. This also means that you will not have to change ownership of any accounts and property during your lifetime, since this will be part of the funding process after your death. Your wealth may have time to grow over the course of your lifetime, and your estate may be better able to cover the costs when you pass away.

We Can Help

Revocable living trusts and testamentary trusts both offer benefits that can ensure that your wishes are carried out and your family and loved ones are cared for. If you are unsure about which type of trust you should include in your estate plan, call us today to set up an appointment. We can help you think through what will work best for your unique circumstances.

One important purpose of estate planning is to facilitate the transfer of ownership of your money and property to your family and loved ones when you pass away. For this transfer to be as stress-free and efficient as possible, it is crucial that estate planning documents be thorough and provide the necessary information. Nevertheless, there is some information that should never be included in your estate planning documents. 

Social Security Numbers

You may think that it would make sense to refer to yourself and your family members or loved ones by using their Social Security numbers to ensure that they are correctly identified when the time comes. It is important to provide information in your estate planning documents that is sufficient to properly identify your beneficiaries, but using full legal names, including middle name or initial, is typically adequate. Providing Social Security numbers would leave the individual vulnerable to the risk of identity theft because there are several estate planning documents that may become part of the public record. A will may need to be filed with the probate court at your death, or a power of attorney or certificate of trust may need to be recorded if real estate is transferred. Once these documents are part of the public record, complete strangers will have access to this private information by making a simple request of the probate court or recording office and paying a small fee. Considering that in 2022 alone, the Federal Trade Commission received 1.1 million reports of identity theft,¹ Social Security numbers should never be included in anyone’s estate plan.

Keep in mind that you may need to provide your family members’ Social Security numbers when you designate them as beneficiaries of your retirement or other accounts, but those forms never become part of the public record and therefore are not as vulnerable to identity thieves.

Account Numbers

Similarly, unauthorized people may use account numbers to steal money from your accounts if those numbers are listed in your estate plan and become part of the public record. It is important to keep your account numbers in a secure location rather than including them in your will. You also should be cautious about making them readily available to family members unless you have designated one or more of them to act as your agent under a power of attorney, guardian, trustee, or a similar role that imposes a duty on them to act in the best interests of both you and your future beneficiaries. 

Think carefully about who you choose to act in these roles because they will have access to important financial information. Keep in mind that although a family member may often be the best choice, sometimes even family members prove to be untrustworthy. In October 2022, Kile and Debra Madsen were found guilty in New Hampshire of theft after they made unauthorized purchases, payments, and withdrawals from Kile’s father’s bank account between December 2015 and August 2016.² Kile’s father, who was eighty-six when he died in 2018, suffered from dementia. The pair were sentenced to serve several years in state prison and forbidden from caring for any elderly, disabled, or impaired adult.

Rather than including account numbers in your estate plan, you should protect yourself by taking steps to avoid the disclosure of account numbers and other financial information except to someone you trust and have legally designated to act on your behalf.

Disparaging Remarks

Many people have difficult family relationships. It may be tempting for a willmaker to “deliberately and needlessly render[] articulate by his Will all his pent up frustrations, his desire for revenge unanswerable by the living victim, his unreasoned prejudices, his desires for spite past the grave.”³ The 1912 book Ancient, Curious and Famous Wills⁴ mentions the following barbed bequest included in the will of Philip, Fifth Earl of Pembroke, who died in 1669: “I give nothing to my Lord Saye, and I do make him this legacy willingly, because I know that he will faithfully distribute it unto the poor.” 

Some may think that their will is a means by which they can have the last word, so to speak, in a contentious relationship. However, a few courts have held an estate or the executor of an estate liable for testamentary libel, that is, publishing a false statement that is damaging to a person’s reputation in a will. For example, in the 1914 case Harris v. Nashville Trust Co.,⁵ the plaintiff’s uncle included the following in a codicil to his will: “And this sum of two hundred and fifty (250) Dollars to John Woodfin, $1.00 to William Woodfin, and $1.00 to Cleo Woodfin, the illegitimate children of my brother James Woodfin, is all that they are ever to have of my estate.” At that time, illegitimacy was viewed very negatively, so Cleo filed suit against the executor of the estate for damages, alleging that she was the legitimate child of her parents and that the codicil had been maliciously added to the will to “blacken her character.” Although the executor claimed that no cause of action existed against the executor allowing Cleo to pursue her claim for damages, the court disagreed and allowed the case to proceed. So it is prudent to call upon the better angels of your nature and use your will as a means of blessing those you love instead of blasting those you dislike.

We Can Help 

As experienced estate planning attorneys, we will make sure that the information necessary to achieve your wishes is included in your estate planning documents and that anything that would risk damage to your estate and ultimately, your beneficiaries, is excluded. Call us today to set up an appointment so you can look forward to gaining the peace of mind that comes with knowing you have put a plan in place that protects you and your loved ones.

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Footnotes

1. New FTC Data Show Consumers Reported Losing Nearly $8.8 Billion to Scams in 2022, Fed. Trade Comm’n (Feb. 23, 2023), https://www.ftc.gov/news-events/news/press-releases/2023/02/new-ftc-data-show-consumers-reported-losing-nearly-88-billion-scams-2022.
2. N.H. Dep’t of Justice, Kile and Debora Madsen Sentenced to State Prison for Stealing from Elderly Relative, Off. Att’y Gen. (Oct. 3, 2022), https://www.doj.nh.gov/news/2022/20221003-madsen-sentenced.htm#:~:text=Madsen%20to%20each%20serve%20one,years%20after%20release%20from%20incarceration.
3. In re Croker’s Will, 105 N.Y.S. 190, 191 (N.Y. Sup. Ct. 1951).
4. Virgil M. Harris, Ancient, Curious and Famous Wills 290, https://archive.org/stream/ancientcuriousfa00harrrich/ancientcuriousfa00harrrich_djvu.txt.
5. 162 S.W. 584 (Tenn. 1918).

Estate planning helps bring peace of mind and a sense of security, both in our lifetime and beyond. While we cannot predict our fate, we can at least dictate how our money and property will be distributed and ensure that we provide for our loved ones. 

Physical security is a big part of feeling emotionally, psychologically, and spiritually secure. More Americans have a home security system than have an estate plan. If we do not protect our property in the here and now, it will not be there to pass on later. 

End-of-life situations can present thieves with opportunities to take advantage of vulnerable families. A home security system can fit nicely into estate planning goals, providing an extra layer of protection when we are gone—both temporarily and permanently. 

Are You Protected from Property Crime? 

Property crimes are the leading type of crime in the United States. Every year, around 2.5 million homes are burglarized. A break-in occurs every twenty-six seconds, and a burglary occurs every fifteen seconds. Yet fewer than half of Americans have a home security system. 

In 2021, approximately $737 billion worth of property was reported stolen in residential burglaries. The top items taken by thieves were vehicles, cash, clothing, jewelry, household goods, office equipment, and electronics. Police solve only about one out of eight reported burglary cases. 

Criminals are keenly aware of which homes have a security system and which do not. According to criminology research, more than 80 percent of would-be burglars check for an alarm before attempting a burglary, and 60 percent say they look for an alternate target if a property has an alarm. Most burglars say they would break off an intrusion in progress upon discovering a home security system.

Incorporating a Security System into Your Estate Plan

Those who have a home security system are ahead of the curve. A survey commissioned by YouGov found that just 38 percent of Americans own a home security product. However, that number is higher than the roughly one-third of Americans who have an estate plan.

If you have both a home security system and an estate plan, then you are probably proactive about planning for possible contingencies. But if you have not incorporated your security system into your estate plan, you should do so as soon as possible. 

Give Access to a Trusted Decision-Maker

You may have already given a house sitter, pet sitter, friend, or neighbor access to your security system. While they can enable and disable the alarm on an emergency basis, decision-makers you have designated in your estate plan to act on your behalf—such as a personal representative, trustee, guardian, or financial or medical power of attorney agent—may need access as well. 

In fact, a trusted decision-maker may have a legal duty to keep your property secure in accordance with your wishes, which can include using the security system. Or, if you do not have a system currently but wish to incorporate security technology as an added layer of protection after your death or incapacity, you can specify that in your estate plan. 

When providing access to a security system that you installed, make sure the person you are entrusting has all the information they need. 

• Wired systems are typically operated with a password-protected control pad.
• Wireless systems can be controlled through a smart device app that requires login credentials. 
• There are also systems monitored 24/7 by a professional security company that calls you—or a neighbor, friend, or family member—to verify an alert. With a monitored system, provide the company with the contact information of somebody other than you who can receive alerts. 

An Empty and Unsecured House Is Enticing to Criminals

Security system costs are an expense of the estate. Depending on their features, they run between $250 to $2,000, exclusive of monthly fees. 

This may be money well spent protecting your property. Authorities have warned in recent years of thieves using public obituaries and social media posts to target the homes of deceased people. 

Burglars are more likely to break into a home that they know is unoccupied. It can take months for a family to go through a loved one’s home and inventory everything in it as part of the estate administration process. In between visits, the property may be more prone to break-ins.  

In addition to installing a security system to deter crime, you might also instruct your family and friends to avoid excessive sharing of obituary information. Keep the circle of trust close, because cyber snoops could be digitally casing your house, ready to strike at a vulnerable moment. 

Security and Peace of Mind Go Hand in Hand

Having a plan in place that incorporates wills, trust, powers of attorney, advance directives, and other legal documentation helps eliminate some of life’s uncertainty. Without an estate plan, you are leaving your legacy to chance. 

In death as in life, the smallest details can make the biggest difference. A will is just the beginning of a strong, well-thought-out estate plan. When the time comes for your loved ones to deal with your estate, your estate plan may prove ineffective if they do not have access to your home security system and other account information. 

Our lawyers can help you put together an estate plan that leaves nothing out, including your digital property, home systems, and personal accounts. To ensure that every “t” is crossed and every “i” is dotted in your estate plan, reach out to our office to schedule an appointment.

It has been said that nothing ever dies on the Internet. While this dictum is typically used as a warning that what we put online may come back to haunt us, it is also true that our online accounts can outlive us, and even live in perpetuity. Having a digital estate plan that makes arrangements for what happens to these accounts when we die is essential. 

In modern estate planning, digital accounts such as PayPal, Venmo, and Apple Pay must be considered every bit as much as bank accounts, retirement accounts, and other traditional financial and payment accounts. Digital accounts can be conveniently closed upon the account holder’s death, provided they plan ahead. These types of accounts can still be closed without a digital estate plan, but not having an estate plan could make things harder for your loved ones. 

Closing a PayPal Account

Founded in 1998, PayPal was not the first company to offer online payments, but it was the first to obtain widespread adoption and is the top payment application among Americans today, with around three out of four respondents saying they are active users.¹ 

According to PayPal, only the authorized administrator or executor of a deceased person’s estate can take the necessary steps to close the decedent’s account.² These steps entail providing the following documentation to the company’s Deceased Account Team: 

• A cover sheet from the requestor identifying the primary email address associated with the PayPal account
• The requestor’s email address and a copy of their government-issued identification
• A copy of the account holder’s death certificate 
• Legal documentation, such as a copy of the will, identifying the estate executor

Once PayPal receives this information via email or physical mail, the requester will either be issued a check or given access to the deceased customer’s linked bank account to transfer the balance. PayPal will then close or lock the account. 

Closing an Apple Pay Account

Apple Pay is a relatively new player in digital payments but since launching in 2013 has seen rapid adoption and reportedly surpassed MasterCard recently in the dollar value of annual transactions.³

It is more appropriate to call Apple Pay a system rather than an app. CNET describes Apple Pay as the linchpin that makes digital iPhone payments possible using debit and credit cards, an Apple Card, or Apple Cash.⁴ 

Apple ID is the account used to access all Apple services, including Apple Pay. The company offers three ways to gain access to, and delete, a loved one’s Apple ID and associated data. The most burdensome way requires a court order that verifies the following information:⁵ 

• The deceased’s name and Apple ID
• The name of the next of kin requesting access to the decedent’s account
• That the decedent was the user of all Apple ID-associated accounts
• That the requestor is legally authorized to act on behalf of the decedent
• That Apple is required to provide access to the decedent’s account

The easier way for an Apple user to give someone access to their Apple ID is to add a Legacy Contact.⁶ This method involves an access key provided to a trusted person and a copy of the Apple ID account holder’s death certificate. Once inside the account, the Legacy Contact can delete the Apple ID.

Apple also allows someone with an Apple ID and the required legal documentation to permanently delete a deceased person’s Apple ID. Deletion requests are made on the Digital Legacy – Delete Apple ID page. 

Closing a Venmo Account

Venmo came out in 2009, and four years later was bought by PayPal. Users, which number around 80 million and are mostly based in the United States, can pay for goods and services in the Venmo app, transfer funds to friends, and receive direct deposits.⁷ The Venmo digital wallet, like PayPal, can be linked to a user’s credit card and bank account. 

The Venmo help center provides details about submitting a deceased customer notification for the Venmo Credit Card issued by Synchrony Bank.⁸ It links to a form that asks for the cardholder’s name, address, account number, and Social Security number, as well as information about the executor, next of kin, and requestor. 

The Venmo support team must be contacted for assistance with the cardholder’s Venmo account. Two options are provided on the help request form, one for customers who need help with their account and one for non-Venmo customers. There is also a place for adding attachments. This could include documents necessary to close out the account, such as a copy of the decedent’s death certificate and legal documentation authorizing the requestor to act on the decedent’s behalf. 

The Venmo support team can be reached at (855) 812-4430.

Avoiding Complications with a Digital Estate Plan

While Apple, PayPal, and other companies have automated systems for accessing or closing a deceased user’s account, some companies, like Venmo, are not so clear about how to access digital assets and may need to be contacted directly for assistance. 

A digital estate plan that contains account login credentials can speed up the process of settling online payment accounts. Login passwords can be stored in a password manager, such as 1Password or LastPass, and shared with family members for easy access. As an alternative, this information can be placed in a password-protected digital spreadsheet or handwritten list. 

• Regardless of the method, make sure that family members know how to access account logins. The digital estate plan should be regularly updated to reflect changes to login credentials. If a list of passwords is out of date, it will be effectively useless. 
• An account may require additional access information (e.g., a personal identification number (PIN) or two-factor authorization). Alongside usernames and passwords, be sure to list this information to provide full access. For example, two-factor authentication requires an associated phone number or email address. 
• The digital estate plan should also specify whether online payment accounts are linked to recurring bills so that automatic bill payments can be canceled. As part of settling the estate, payees must be contacted separately to settle any outstanding payments. 
• If an Apple Cash, PayPal, or Venmo account has a positive balance, that money can be transferred to an associated bank account; or, a digital estate plan can specify transfer of account ownership to an individual heir. PayPal allows ownership transfer of a business account; ownership of a Venmo group account be transferred; and Apple Card Family can have co-owners. Alternatively, the balance of a PayPal, Venmo, or Apple Pay account can be gifted to an heir. 

Ideally, a digital estate plan lists all devices and online accounts, instructions for accessing them (e.g., the associated email address, username, password, or PIN), and how to settle each account. 

If you do not want anyone to access your accounts after you die, then that can be part of your legacy, too. Just make sure everything is spelled out in detail through consultation with an estate planning attorney. 

Most states have adopted rules that govern how an executor, agent, or trustee can access a person’s online accounts when they die or become incapacitated. To take control of your digital estate in a way that conforms with your wishes—and the law—get in touch with our office and schedule a meeting. 

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Footnotes

1. Radovan Sekulic, How Many People Use PayPal in 2023?, Moneyzine (Feb. 27, 2023), https://moneyzine.com/personal-finance-resources/how-many-people-use-paypal/.
2. Help Center – Personal Account, How do I close the PayPal account of a deceased relative?, PayPal, https://www.paypal.com/us/cshelp/article/how-do-i-close-the-paypal-account-of-a-deceased-relative-help220 (last visited June 28, 2023).
3. William Gallagher, Apple Pay processes $6 trillion annually, edges out Mastercard, Apple Insider (Sept. 7, 2022), https://appleinsider.com/articles/22/09/07/apple-pay-processes-6-trillion-annually-edges-out-mastercard.
4. Katie Teague & Jessica Dolcourt, Apple Pay, Apple Card and Apple Cash: Disentangling the Payment Features Apple Wallet houses all three — but what do they do and how do they work together?, CNET (Mar. 29, 2022), https://www.cnet.com/personal-finance/credit-cards/apple-card-vs-apple-pay-vs-apple-cash-differences-you-need-to-know/.
5. How to request access to a deceased family member’s Apple account, Apple Support (Apr. 4, 2022), https://support.apple.com/en-us/HT208510.
6. How to add a Legacy Contact for your Apple ID, Apple Support (Sept. 12, 2022), https://support.apple.com/en-us/HT212360.
7. David Curry, Venmo Revenue and Usage Statistics (2023), Business of Apps (Feb. 13, 2023), https://www.businessofapps.com/data/venmo-statistics/.
8. Updating your Venmo Credit Card, Venmo Help Center (last visited June 28, 2023) https://help.venmo.com/hc/en-us/articles/360061172554-Updating-your-Venmo-Credit-Card-.

If you are thinking about creating an estate plan, you may hear some new and confusing terms that make your brain hurt. To add to your bewilderment, not only are some of the words unfamiliar, they may also be homophones—words that are pronounced the same as other words, but have different meanings and spellings. For example, an heir is a person who legally (under a will or according to state law) receives money or property from another person when that person dies. In contrast, air is an invisible gaseous substance made up primarily of oxygen and nitrogen that surrounds the earth. The two words sound alike, but obviously have vastly different meanings.

Likewise, if you have heard an estate planning attorney mention a devise, it is very different from a device—which usually refers to a piece of electronic or mechanical equipment. So exactly what is a devise in your estate plan? A devise is a legal term that traditionally has referred to a gift of real estate made by a will. However, in common usage, it has been used interchangeably with other legal terms such as a bequest, which traditionally refers to a gift made in a will of personal property—that is, property other than real estate. Courts will uphold the use of either term for a gift of real or personal property in a will if the will clearly shows that the person who created it (the willmaker) intended to make the gift. 

Types of Devises

There are several different types of devises: general, specific, demonstrative, and residuary. The distinction between them is important, so we will provide a definition of each type.

A general devise (or general bequest) is a gift made in a will that does not direct the transfer of a specific piece of property, but rather is a gift of a specified quantity or value that is to be made from any property of the same general type that is part of the willmaker’s estate. For example, if Ward leaves his sons Beaver and Wally each a gift of $10,000, those gifts are general devises, and the executor of Ward’s estate may pay out those gifts from any account or other source of funds that Ward owns.

A specific devise (or specific bequest) is a gift made in a will of a particular account, parcel of real estate, or other item that that the willmaker intends for a beneficiary to receive. The executor may only satisfy a specific devise by delivering that exact account or other item: the gift may not be made from any other accounts or items in the willmaker’s estate, even if the specific account mentioned no longer contains any funds or the item has been sold or destroyed. For example, if Fred’s will specifies that his Canopysaurus Flintmobile is devised to his daughter Pebbles, the executor can satisfy the specific devise only by transferring that exact vehicle to Pebbles.

A demonstrative devise (or bequest) has elements of both general and specific devises because it is a general gift but the will specifies that it is payable from a specified fund or source of property. For example, if Mario’s will specifies that he leaves his brother Luigi a gift of $25,000 but also directs that the gift should be paid from the funds in Mario’s Bank of Mushroom Kingdom savings account, he has made a demonstrative devise. Similarly, if Mario’s will provides Luigi a gift of any three plungers in Mario’s extensive plunger collection, this is a demonstrative devise.

A residuary devise is a gift of all property or money that remains in an estate after all of the specific, general, and demonstrative devises have been made and all expenses, debts, taxes, and any other obligations of the estate have been paid. Typically, a will includes a residuary clause naming a beneficiary who will receive any remaining money or property to ensure that nothing, even property the willmaker has forgotten they own, will pass according to the state’s default rules, which may not reflect the wishes of the willmaker. For example, Lord Grantham’s will could contain a residuary clause stating “I give all of the residue of my estate to my third cousin once-removed, Matthew Crawley. If Matthew Crawley does not survive me, I give all of the residue of my estate to my heretofore unacknowledged son, Thomas Barrow.”

Why Does the Type of Devise Matter?

You might be surprised to learn that the type of devise has very significant implications. A legal concept called ademption refers to the withdrawal or nullification of a gift made by a will because the property identified in the will is no longer in the willmaker’s estate. Ademption does not apply to general or demonstrative devises; however it does apply to specific devises where the property described in a will is no longer in the willmaker’s estate when they die. It does not matter whether the property was intentionally or unintentionally removed from the estate. For example, if Fred’s Canopysaurus Flintmobile is stolen and never recovered, it will obviously be impossible for Pebbles to receive it as part of her inheritance. In some states, the law does not permit the substitution of other property to replace the specific devise that is no longer available. So, if the Canopysaurus Flintmobile was a substantial part of Pebble’s inheritance, she may receive much less than Fred intended. Fortunately, some states have nonademption statutes that provide certain exceptions, so that, in our example, Pebbles could receive insurance proceeds that have not yet been paid to Fred at his death because the Canopysaurus Flintmobile was totaled in an accident or receive the unpaid proceeds if Fred sold the vehicle to Barney but had not yet received the amount owed before his death.

Another situation in which the type of devise matters is when an estate is not large enough to cover all the gifts made by the will, administration expenses, creditors’ claims, and other obligations it may owe. Under the law, the doctrine of abatement determines the order in which types of devises are reduced (or even eliminated depending on the circumstances). Generally, the residuary devise is reduced first, then general devises, then demonstrative devises, and lastly, specific devises. This amounts to a presumption under the law that the highest priority of an estate is to make specific devises and that the other types of devises are progressively lower priorities. So, if after administration expenses, creditors’ claims, and other obligations are paid, Fred’s Canopysaurus Flintmobile is the only property left in his estate, Pebbles will receive her inheritance—but no other beneficiaries named in Fred’s will would receive an inheritance, even if that was not his intention.

Let Us Devise an Estate Plan that Achieves Your Goals!

Wait—what? Yes, the word devise has yet another meaning that conveys the idea of carefully planning something out. Give us a call today so we can devise an estate plan that will ensure all of your loved ones receive the money and property that you wish to leave them in the amounts that you intend.