Category Archives: Newsletters

Preventing Will Contests and Estate Disputes

By Edward H. Miller, Esq. & Gregory M. Pomije, Esq.

 One of the greatest threats to an individual’s legacy is a Will contest. A variety of sociological factors have made Will contests more common over recent decades. Due to the increase in divorce in America, there are more blended families from second marriages today than in years past. Many members of modern families live far away from one another. Distance within a family increases the chance of miscommunication. It is harder to convey honesty and emotional empathy over the telephone. If a family is geographically spread out, an elderly person may become more susceptible to elder abuse, fraud, and undue influence, any of which can promulgate litigation. Of course, our society has become quite litigious. Will contests are often depicted in Hollywood films as dramatic and quick judicial matters with a clear winner; in reality, they are often drawn out negotiations that last for many seasons, with a “victory” being pyrrhic in nature, having come at too great a cost. Thus, Will contests are a serious threat that each family, even those that are harmonious, should take steps to avoid.

The Terminology of Estate Disputes

The terminology of litigation can be confusing. Estate litigation is a relatively arcane type of law. Many disputes today are not “Will contests” because they involved Trusts, instead of Wills. Trusts can be created as freestanding instruments, which generally do not mandate the involvement and oversight of a Commissioner of Accounts. (Trusts can also be created pursuant to a Will; these Trusts are called “testamentary” Trusts, and are subject to the accounting requirements of a Commissioner of Accounts.) There are procedural and technical differences in how litigation unfolds depending on whether the instrument in dispute is a freestanding Trust, a testamentary Trust, or a traditional Will. Thus, prior to responding to any litigious situation, or the threat of litigation, it is important to understand the legal background of what is technically occurring.

“No Contest” Clauses

Wills and Trusts sometimes include in terrorem “No Contest” clauses which are intended to stop a beneficiary from receiving funds if he or she disputes the estate plan. Such clauses should not be utilized lightly. There are some situations, such as drafting errors, which may require a petition for aid and assistance. A “No Contest” clause that is too broad may stop a family from receiving a final answer on a question about the instrument.

Family Circumstances Can Prompt Litigation

If a family faces special circumstances, it is important to consider ways to keep such circumstances private. Wills are publicly recorded documents. If a beneficiary of a Will receives an inheritance, but such inheritance is placed in trust for a private reason, such as past

drug abuse or alcoholism, the beneficiary will feel that his or her “dirty laundry” has become a matter of public record. However, the other option, creating a Trust for the beneficiary pursuant to a revocable trust, has some caveats as well. The Trust should include language requiring that the beneficiary be “kept in the loop” regarding any major decisions and should include language relating to any special circumstances that the beneficiary faces. This language can be a moving target and should be revisited on an annual basis.

Asset Related Litigation

While estate litigation often results from personal circumstances, sometimes the assets in an estate can lead to litigation. Examples of this phenomenon include 1) issues due to a lack of liquidity or a lack of a fair market for an asset, 2) differences in how family members value an asset, 3) differences in how an asset in taxed between the time an estate plan is drafted and when it is implemented, and 4) issues of waste, such as environmental impacts upon real property holdings. Certain assets are rife for litigation, and experienced attorneys know how to plan around such assets. Family farms and vacation homes often have dramatically different carrying costs between one generation and another. Things and emotions are often deeply intertwined, and older generations should give younger generations that ability to articulate differences of opinion in a non-judgmental environment. Many children fear alienating parents if they say that a family vacation home should be sold. A family business is usually “worth” a lot more to family members who work in the business on a day to day basis than it is to those who do not. Experienced attorneys know how to incorporate valuations, buy-sell agreements, or life insurance policies into an estate plan to avoid such tensions.

Inherited Interest Litigation

Some forms of inheritance are more likely to be litigated than others. One of the most problematic examples of this kind of interest is the life estate. A person who receives a life estate is in a tough position; he or she has to bear the burden of carrying costs without the benefit of true ownership. Fractional interests are also likely to lead to litigation.

It is important to consider steps to avoid estate litigation when reviewing one’s estate plan. Although some family circumstances and assets make litigation more probable, litigation can occur in even the most cordial families. Consistently reviewing an estate plan to ensure that it meets your wishes as effectively as possible will help to prevent litigation.

Speeches and Events

Mr. Miller spoke about counseling families at the University of Richmond School of Law at 6:00 P.M. on October 6.

The annual “Treasures of the Earth” Gem, Mineral, and Jewelry Show will occur on October 14-16 this fall. http://treasuresoftheearth.com/events/

Mr. Edward “Ted’ H. Miller, Esq. will be speaking to the Tidewater Chapter of The Virginia Society of CPAs at 10:30 A.M. on October 18 at the Chesapeake Convention Center.

The Portsmouth Olde Towne Civic League will host the Ghost Walk on October 28 at 7 P.M., 500 Court Street, Portsmouth, Virginia 23704. http://portsmouthghostwalk.com/contact-us/.

Getting A Grip On “Digital” Assets In An Estate Plan

By Seth B. Royster and Edward “Ted” H. Miller

The digital age has added new twists on the road to a proper estate plan. Much of our lives are interconnected through laptops, tablets, and cellular phones. How does one best handle online accounts when serving as an Executor? What can one do to assist family members with such online accounts and social media profiles? This article will review common challenges that our modern lives present from an estate planning perspective.

What are “Digital” Assets Anyway?

Do not feel alone if you find digital assets confusing; there is a windstorm of confusion in our society relating to these accounts and their impact on estate administration. Thus, let us first define these assets and accounts by categories. There are four primary classifications:

Category 1: Personal Digital Accounts

Digital assets include assets that are associated with a digital device or interface, such as a Facebook account, a digital photography system such as Moments, or an online “profile,” such as a LinkedIn profile. The best way to manage such accounts is to prevent an inappropriate amount of information from ever being integrated into such accounts. Loose lips sink ships, and a substantive amount of the internet’s content will likely be there in perpetuity. Once something is on the internet, it will likely stay there forever. Each year people are victims of crimes, such as human trafficking and identity theft, due to information that is obtained by wrongdoers on the internet. An Executor or Agent under a Power of Attorney should be empowered to manage such accounts, but since they are sometimes of a deeply personal nature, important “posts” should be printed in hard copy and put in scrapbooks for future generations to enjoy after an account is closed.

Category 2: Digital Accounts Of Financial Value

Many assets appear to exist solely in digital form, such as frequent flier accounts, but are really digitized intangible assets, as opposed to assets that are solely computerized. A frequent flyer account has actual economic value. Some banks, such as Ally Bank, exist solely in digital form. While a bank that is solely digital can still offer FDIC insurance, it is important to be sure that you trust a bank exists before opening an account. One way to verify existence is through physical presence of one form or another. There is a serious cost to the convenience of online banking, mobile banking and check deposit, and having generally having everything in one place – you only need to lose one device for your financial life to be in turmoil.

Category 3: Personal Digital Accounts With Financial Sub-Accounts

There are also assets which are linked to a digital asset account, such as a social media account, but have financial value by way of a sub-account. For example, those who advertise within Facebook could have remaining dollars in their advertisement sub-account. Since

Facebook does not send monthly statements regarding account value, the asset exists only digitally, but it has a financial value in terms of dollars and cents.

Category 4: Physical Assets Which Relate To The Digital World

There is a fourth category which must be considered – the hard assets which correlate to this new world of computers. Such assets include computers, hard drives, printers, tablets, cell phones, and physical manifestations of the online world. These assets sometimes retain personal and confidential information and therefore must be “scrubbed down” in order to prevent dumpster thieves from obtaining personal information. Even if a computer is no longer functional, it may be operational from the perspective of an identity thief.

Self-Directed Account Termination

Some providers have internal setting which allow for a digital account to be managed prior to death. On Google and Gmail, the system is called the Inactive Account Manager. It is in the Google Account Settings page. This allows somebody to decide what they want to have happen with their account if the account becomes “inactive.” One can pick from among a series of times before the account is deleted. The internet is full of these “do it yourself” solutions, but they are often inflexible since they do not allow for changes in circumstances. For example, if somebody were to die by unknown causes, the authorities would want to see an email account to look for any motives from suspects; an account with a determined shelf-life may end up deleted, and thus evidence may be deleted. Although there are many self-directed options of this nature, please be sure to consider the different impacts that may occur if one is selected.

Empowering An Agent Or Executor

Your digital Agent or Executor should be empowered to deal with all four digital categories. A digital Executor should review potentially have access to email accounts to ensure that all online banking is in order, review online photographs, and monitor any website where the decedent participated digitally. Sadly, some people who pass away do not have their digital lives in order, but have a substantial online presence. Since many online providers are not based in Virginia, family members can have a terrible time notifying these digital providers of death. It is arguably easier for a family member to use a Power of Attorney when you are still alive, as opposed to a Will in an Estate context, to manage digital assets. Consider a password management system, whether a piece of paper or a website, which lists all digital assets along with log-in information. Access to this information can be turned over to a designated person when you pass away by way of a safe deposit box with the access code or the piece of paper.

Conclusion

Managing digital assets takes time, thought, and careful consideration of the different interrelated issues that these assets present. If you have any questions about this topic, please feel free to contact us to discuss your situation. We have extensive experience in reading the fine print of websites, preserving privacy, and helping families manage digital assets.

ANNOUNCEMENTS

CSD law clerk Seth B. Royster is now engaged! He proposed to his fiancé Margarita Davidyan in Moscow in August. Congratulations Seth!

SUBSCRIPTION MANAGEMENT Please contact Denise Williams at dwilliams@portslaw.com if you would like to receive the newsletter electronically or would like to unsubscribe.

ESTATE PLANNING GLOSSARY

Administration – The process during which the executor or personal representative collects the decedent’s assets, pays all debts and claims, and distributes the residue of the estate according to the will or the state law intestacy rules (when there is no will).

Administrator – The individual or corporate fiduciary appointed by the court to manage an estate if no executor or personal representative has been appointed or if the named executor or personal representative is unable or unwilling to serve.

Beneficiary – A person who will receive the benefit of property from an estate or trust through the right to receive a bequest or to receive income or trust principal over a period of time.

Codicil – A formally executed document that amends the terms of a will so that a complete rewriting of the will is not necessary.

Decedent – An individual who has died.

Descendants – An individual’s children, grandchildren, and more remote persons who are related by blood or because of legal adoption. An individual’s spouse, stepchildren, parents, grandparents, brothers, or sisters are not included. The term “descendants” and “issue” have the same meaning.

Durable power of attorney – A power of attorney that does not terminate upon the incapacity of the person making the power of attorney.

Estate planning – A process by which an individual designs a strategy and executes a will, trust agreement, or other documents to provide for the administration of his or her assets upon his or her incapacity or death. Tax and liquidity planning are part of this process.

Executor – A person named in a will and appointed by the court to carry out the terms of the will and to administer the decedent’s estate. May also be called a personal representative. If a female, may be referred to as the executrix.

Fiduciary – An individual or a bank or trust company designated to manage money or property for beneficiaries and required to exercise the standard of care set forth in the governing document under which the fiduciary acts and state law. Fiduciaries include executors and trustees.

Guardian – An individual or bank or trust company appointed by a court to act for an incapacitated person (the “incapacitated person”). A guardian of the person is empowered to make personal decisions for the ward. A guardian of the property manages the property of the ward.

Income – The earnings from principal, such as interest, rent, and cash dividends. This is a fiduciary trust accounting concept and is not the same as taxable income for income tax purposes.

Insurance trust – An irrevocable trust created to own life insurance on an individual or couple and designed to exclude the proceeds of the policy from the insured’s gross estate at death.

Intestate – When one dies without a valid will, such that the decedent’s estate is distributed in accordance with a state’s intestacy law.

Inventory – A list of the assets of a decedent or trust that is filed with the court.

Irrevocable trust – A trust that cannot be terminated or revoked or otherwise modified or amended by the grantor. As modern trust law continues to evolve, however, it may be possible to effect changes to irrevocable trusts through court actions or a process called decanting, which allows the assets of an existing irrevocable trust to be transferred to a new trust with different provisions.

Joint tenancy – An ownership arrangement in which two or more persons own property, usually with rights of survivorship.

Life estate – The interest in property owned by a life beneficiary (also called life tenant) with the legal right under state law to use the property for his or her lifetime, after which title fully vests in the remainderman (the person named in the deed, trust agreement, or other legal document as being the ultimate owner when the life estate ends).

Living trust – A trust created by an individual during his or her lifetime, typically as a revocable trust. Also referred to as an “inter vivos” trust, “revocable living trust” or “living trust.”

Marital deduction – An unlimited federal estate and gift tax deduction for property passing to a spouse in a qualified manner. In other words, property transfers between spouses generally are not taxable transfers because of the marital deduction.

No-Contest Clause – A provision in a will or trust agreement that provides that someone who sues to receive more from the estate or trust or overturn the governing document will lose any inheritance rights he or she has. These clauses are not permissible in all instances or in all states.

Personal representative – An executor or administrator of a decedent’s estate.

Per stirpes – A Latin phrase meaning “per branch” and is a method for distributing property according to the family tree whereby descendants take the share their deceased ancestor would have taken if the ancestor were living. Each branch of the named person’s family is to receive an equal share of the estate. If all children are living, each child would receive a share, but if a child is not living, that child’s share would be divided equally among the deceased child’s children.

Pour over will – A will used in conjunction with a revocable trust to pass title at death to property not transferred to the trust during lifetime.

Power of attorney – Authorization, by a written document, that one individual may act in another’s place as agent or attorney-in-fact with respect to some or all legal and financial matters. The scope of authority granted is specified in the document and may be limited by statute in some states. A power of attorney terminates on the death of the person granting the power (unless “coupled with an interest”) and may terminate on the subsequent disability of the person granting the power (unless the power is “durable” under the instrument or state law).

Probate – The court supervised process of proving the validity of a will and distributing property under the terms of the will or in accordance with a state’s intestacy law in the absence of a will.

Revocable trust – A trust created during lifetime over which the grantor reserves the right to terminate, revoke, modify, or amend.

Special needs trust – Trust established for the benefit of a disabled individual that is designed to allow him or her to be eligible for government financial aid by limiting the use of trust assets for purposes other than the beneficiary’s basic care.

Spendthrift provision – A trust provision restricting both voluntary and involuntary transfers of a beneficiary’s interest, frequently in order to protect assets from claims of the beneficiary’s creditors.

Tenancy by the entirety – A joint ownership arrangement between a husband and wife, generally with respect to real property, under which the entire property passes to the survivor at the first death and while both are alive, may not be sold without the approval of both.

Tenancy in common – A co-ownership arrangement under which each owner possesses rights and ownership of an undivided interest in the property, which may be sold or transferred by gift during lifetime or at death.

Testamentary trust – A trust established in a person’s will to come into operation after the will has been probated and the assets have been distributed to it in accordance with the terms of the will.

Transfer on death designation – A beneficiary designation for a financial account (and in some states, for real estate) that automatically passes title to the assets at death to a named individual or revocable trust without probate. Frequently referred to as a TOD (transfer on death) or POD (payable on death) designation.

Trustee – The individual or bank or trust company designated to hold and administer trust property (also generally referred to as a “fiduciary”). The term usually includes original (initial),

additional, and successor trustees. A trustee has the duty to act in the best interests of the trust and its beneficiaries and in accordance with the terms of the trust instrument. A trustee must act personally (unless delegation is expressly permitted in the trust instrument), with the exception of certain administrative functions.

Will – A writing specifying the beneficiaries who are to inherit the testator’s assets and naming a representative to administer the estate and be responsible for distributing the assets to the beneficiaries.