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2013 Estate Planning Update

Paperless Peril

Planning for Your Digital Assets

Until now, those charged with managing the affairs of a loved one have shared the common experience of sorting through box after box of paper files, pictures, family videos and hand-written letters to inventory a person's assets and determine how they are to be managed/distributed. A person's entire life was once captured in this tangible property, making it fairly easy to locate assets upon death or incapacity. However, now that we are fully settled into the digital age, is this a thing of the past?

Thanks to computers and smart phones, online accounts and digital drop boxes, photo and music sharing web sites, and the growing prevalence of social media, many of our keepsakes now take the form of digital files. Our love letters are now emails, our photos and videos are now files on our computers and phones, and our asset information is no longer in a file folder at home, but a password-protected location somewhere in the cloud.

The problem is, locating these assets for our loved ones who have passed away or become unable to manage their own affairs is no longer as easy as opening the door to their home office or searching through their attic. Figuring out what a person's digital portfolio looks like is a daunting task for even the most tech-savvy representative. On top of that, digital assets such as domain names, Web sites, pictures and blogs may have marketable value, some or all of which might be lost if these assets are not located and preserved in a timely fashion.

To make matters worse, the rules and regulations governing how and when digital assets get transferred to or managed by a third party are a patchwork of outdated statutes drafted in a time when today's technologies were inconceivable and inconsistent terms of service established by the companies holding this information. Only a few states (not including Wisconsin) have passed laws to deal with these issues. There are proposed laws presently being drafted to resolve these issues in a uniform way, but they are several years away from passage. Often times this leaves loved ones at the whim of unclear corporate policies resulting in a virtual lockdown of personal accounts or a loss of digital information upon a person's death or incapacity.

So, what do we do now? How do we make sure these assets are not lost in the shuffle? The answer is…plan. Incorporating your digital assets into your estate plan will not only make things easier for your executors or family members, but will also help to ensure your personal keepsakes are not lost forever.

  1. Create a List of Your On-Line Accounts. The easiest way to start is to compile a list of your digital assets including the company or host's name and online location, your account numbers/usernames, and your passwords (including the answers to any security questions). This document should be kept in a secure location, but one that can be accessed by your representative upon your death or incapacity.
  2. Identify Online Accounts That Require Annual Renewal/ Maintenance Fees. If there are certain items that require ongoing maintenance (such as the annual renewal of a domain name), this should be noted as well. You should familiarize yourself with the policies of your domain registrar with regard to transfer of the ownership upon your death or incapacity.
  3. Know the Terms of Use For Your Online Accounts. It is also important to become informed regarding the terms of service or user policies of the services you use the most. Almost all online services, from e-mail programs to social media companies, require you to agree to their terms of service when you establish an account. What many people do not realize is that most of these service contracts include terms restricting the transfer of accounts to third parties or dictating how account information will transfer on death. By hitting "I agree", you are agreeing to be contractually bound by these terms, many times without even reading them. While it is unrealistic to think we will familiarize ourselves with each and every service contract out there, if there is a particular service that contains assets important to you (such as an e-mail program or photo sharing Web site), you should understand what will happen to that account and the information contained therein upon your death or incapacity.
  4. Include a Consent to Access Digital Assets as Part of Your Plan. Specifically granting a family member or close advisor access to your digital assets is something to consider. This can be done by including specific authorizations regarding digital assets in your power of attorney documents or possibly by transferring some or all of these assets to your revocable trust. Choosing a person who is familiar with digital assets or, at the very least, comfortable working with today's technology is important.
  5. Avoid Embarrassment. If there is digital content that you would not want others to view upon your death or incapacity, now is the time to resolve those issues.

Please note that the laws regarding this area remain uncertain and it is possible that even the most well-drafted grant of authority may not be respected in all cases.

Soft Landing

Estate Tax Legislation Update

The end of 2012 was dominated by discussions of the impending doom created by the fiscal cliff, but from an estate tax standpoint 2013 has delivered a soft landing for many. New Year's Day was a busy one in Washington, as both the U.S. Senate and the House of Representatives approved the American Taxpayer Relief Act of 2012 ("2012 Tax Relief Act"), which the President promptly signed into law on January 2, 2013. While this tax legislation has drawn both praise and criticism, it did deliver certainty regarding the estate and gift tax exemptions, an area that has been facing phase outs and looming "sunsets" for the past decade.

Among other things, the 2012 Tax Relief Act permanently extended the $5 million ($10 million per married couple) estate, gift, and generation skipping transfer tax exemptions with adjustments for inflation (indexed to $5.250 million per person for 2013). This was considered a positive outcome for many who feared inaction would result in the exemption amount falling back to the $1 million mark or that, at the very least, a bill addressing the exemption amount would result in its reduction to the $3.5 million rate previously in place. The portability concept (whereby a spouse may assume the unused exemption amount of his or her deceased spouse) was also made permanent.

However, with the higher exemption amount does come higher taxes on those estates exceeding the exemption. The estate tax has been increased from 35% to 40% beginning immediately. This was seen as a compromise to the 35% and 45% rates previously proposed.

The 2012 Tax Relief Act provides clients with some great opportunities to engage in planning that not only takes advantage of the highest exemptions this country has ever seen, but also incorporates new techniques more appropriate now that we have permanent legislation in place. However, this new law makes the review of older estate plans crucial. Specifically, formula based estate plans that were drafted when exemptions were lower should be reviewed to ensure that they still make sense in the current tax climate. In addition, as estate taxes become less of a worry for many people, it will become more and more important to incorporate income tax planning into your estate plan.

©2019 von Briesen & Roper, s.c


About this Author

Megan Jerabek, von Briesen Roper Law Firm, Madison and Milwaukee Corporate, Real Estate and Family Estate Law Attorney

Megan Jerabek is the co-chair of the Trusts and Estates Section and a Shareholder in the Business Practice Group. Her practice focuses on the following areas:

  • Estate Planning;

  • Trust Administration;

  • Business Formation;

  • Business Transactions;

  • Real Estate and Commercial Leasing; and

  • Business Succession Planning.