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Don’t Forget to Include Your Digital Assets In Your Estate Plan—Part 2

Don’t Forget to Include Your Digital Assets In Your Estate Plan—Part 2

In the first part of this series, I discussed the importance of including your digital assets in your estate plan. Here, I’ll talk about the best ways to get started with this process. 

Today, estate planning encompasses not just tangible property like finances and real estate, but also digital assets like cryptocurrency, blogs, and social media. With so much of our lives now lived online, it’s vital you put the proper estate planning provisions in place to ensure your digital assets are effectively protected and passed on in the event of your incapacity or death.

However, because many types of online assets have only been in existence for a handful of years, there are very few laws governing how they should be dealt with through estate planning. And due to their virtual and often anonymous nature, just locating and accessing some of these assets can be extremely difficult for those you leave behind.

Given these unique challenges, in the first part of this series, I discussed some of the most common types of digital assets and the legal landscape surrounding them. Here, I offer some practical tips to ensure all of your digital property is effectively incorporated into your estate plan.

Best practices for including digital assets in your estate plan
If you’re like most people, you probably own numerous digital assets, some of which likely have significant monetary and/or sentimental value. Other types of online property may have no value for anyone other than yourself or be something you’d prefer your family and friends not access or inherit.

To ensure all of your digital assets are accounted for, managed, and passed on in exactly the way you want, you should take the following steps:

  1. Create an inventory: Start by creating a list of all your digital assets, including the related login information and passwords. Password management apps such as LastPass can help simplify this effort. From there, store the list in a secure location, and provide detailed instructions to your fiduciary about how to access it and get into the accounts. Just like money you’ve hidden in a safe, if no one knows where it is or how to unlock it, these assets will likely be lost forever.
  2. Back up assets stored in the cloud: If any of your digital assets are stored in the cloud, back them up to a computer and/or other physical storage device on a regular basis, so fiduciaries and family members can access them with fewer obstacles. That said, don’t forget to also include the location and login info of these cloud-based assets in case you don’t have a chance—or forget—to back them all up.
  3. Add your digital assets to your estate plan: Include specific instructions in your Will, Trust, and/or other Estate Planning documents about the heir(s) you want to inherit each asset, along with how you’d like the accounts managed in the future, if that’s an option. Some assets might be of no value to your family or be something you don’t want them to access, so you should specify that those accounts and files be closed and/or deleted by your fiduciary.

    Do NOT provide the specific account info, logins, or passwords in your estate planning documents, which can be easily read by others. This is especially true for Wills, which become public record upon your death. Keep this information stored in a secure place, and let your fiduciary know how to find and use it. Consider a service such as Directive Communication Systems to support you here.

    It’s also a good idea to include terms in your estate plan allowing your fiduciary to hire an IT consultant if necessary. This will help him or her manage and troubleshoot any technical challenges that come up, particularly with highly complex and/or encrypted assets.

  4. Limit access: In your plan, you should also include instructions for your fiduciary about what level of access you want him or her to have. For example, do you want your executor to be able to read all of your emails and social media posts before deleting them or passing them on to your heirs? If there are any assets you want to limit access to, I can help you include the necessary terms in your plan to ensure your privacy is honored.
  5. Include relevant hardware: Don’t forget that your estate plan should also include provisions for any physical devices—smartphones, computers, tablets, flash drives—on which the digital assets are stored. Having quick access to this equipment will make it much easier for your fiduciary to access, manage, and transfer the online assets. Since the data can be wiped clean, you can even leave these devices to someone other than the person who inherits the digital property stored on it.
  6. Check service providers’ access-authorization tools: Carefully review the terms and conditions for your online accounts. Some service providers like Google, Facebook, and Instagram have tools in place that allow you to easily designate access to others in the event of your death. If such a function is offered, use it to document who you want to have access to these accounts.

    Just make certain the people you named to inherit your digital assets using the providers’ access-authorization tools match those you’ve named in your estate plan. If not, the provider will probably give priority access to the person named with its tool, not your estate plan.

Truly comprehensive estate planning

With technology rapidly evolving, it’s critical that your estate planning strategies evolve at the same time to adapt to this changing environment. With me as your Estate Planning Attorney I can help you update your plan to include not only your physical wealth and property, but all of your digital assets, too.

I know how valuable online property can be, and unlike many lawyers, I have the experience and skills to ensure these assets are preserved and passed on seamlessly.  Moreover, I can do this while respecting and protecting your privacy rights. Contact me at (858) 432-3923 today to get started.

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Don’t Forget to Include Your Digital Assets In Your Estate Plan—Part 1

Don’t Forget to Include Your Digital Assets In Your Estate Plan—Part 1

If you’ve created an estate plan, it likely includes traditional wealth and assets like finances, real estate, personal property, and family heirlooms. But unless your plan also includes your digital assets, there’s a good chance this online property will be lost forever following your death or incapacity.

What’s more, even if these assets are included in your plan, unless your executor and/or trustee knows the accounts exist and how to access them, you risk burdening your family and friends with the often lengthy and expensive process of locating and accessing them. And depending on the terms of service governing your online accounts, your heirs may not be able to inherit some types of digital assets at all.

With our lives increasingly being lived online, our digital assets can be quite extensive and extremely valuable. Given this, it’s more important than ever that your estate plan includes detailed provisions to protect and pass on such property in the event of your incapacity or death.

Types of digital assets
Digital assets generally fall into two categories: those with financial value and those with sentimental value.

Those with financial value typically include cryptocurrency like Bitcoin, online payment accounts like PayPal, domain names, websites and blogs generating revenue, as well as other works like photos, videos, music, and writing that generate royalties. Such assets have real financial worth for your heirs, not only in the immediate aftermath of your death or incapacity, but potentially for years to come.

Digital assets with sentimental value include email accounts, photos, video, music, publications, social media accounts, apps, and websites or blogs with no revenue potential. While this type of property typically won’t be of any monetary value, it can offer incredible sentimental value and comfort for your family when you’re no longer around.

Owned vs licensed

Though you might not know it, you don’t actually own many of your digital assets at all. For example, you do own certain assets like cryptocurrency and PayPal accounts, so you can transfer ownership of these in a Will or Trust. But when you purchase some digital property, such as Kindle e-books and iTunes music files, all you really own is a license to use it. And in many cases, that license is for your personal use only and is non-transferable.

Whether or not you can transfer such licensed property depends almost entirely on the account’s Terms of Service Agreements (TOSA) to which you agreed (or more likely, simply clicked a box without reading) upon opening the account. While many TOSA restrict access to accounts only to the original user, some allow access by heirs or executors in certain situations, while others say nothing about transferability.

Carefully review the TOSA of your online accounts to see whether you own the asset itself or just a license to use it. If the TOSA states the asset is licensed, not owned, and offers no method for transferring your license, you’ll likely have no way to pass the asset to anyone else, even if it’s included in your estate plan.

To make matters more complicated, though you heirs may be able to access your digital assets if you’ve provided them with your account login and passwords, doing so may actually violate the TOSA and/or privacy laws. In order to legally access such accounts, your heirs will have to prove they have the right to access it, a process which up until recently was a major legal grey area.

Fortunately, a growing number of states are adopting a law that helps clarify how your digital assets can be accessed in the event if your death or incapacity.

The Revised Uniform Fiduciary Access to Digital Assets Act

The Revised Uniform Fiduciary Access to Digital Assets Act, which has been adopted in 37 states so far, lays out guidelines under which fiduciaries, such as executors and trustees, can access these digital accounts.  California adopted the Revised Uniform Fiduciary Access to Digital Access Act on September 24, 2016. The Act allows you to grant a fiduciary access to your digital accounts upon your death or incapacity, either by opting them in with an online tool furnished by the service provider or through your estate plan.

The Act offers three-tiers for prioritizing access. The first tier gives priority to the online provider’s access-authorization tool for handling accounts of a decedent. For example, Google’s “inactive account manager” tool lets you choose who can access and manage your account after you pass away. Facebook has a similar tool that allows you to designate someone as a “legacy contact” to manage your personal profile.

If an online tool is not available or if the decedent did not use it, the law’s second tier gives priority to directions given by the decedent in a will, trust, power of attorney, or other means. If no such instructions are provided, then the third tier stipulates the provider’s TOSA will govern access.

As long as you use the provider’s online tool—if one is available—and/or include instructions in your estate plan, your digital assets should be accessible per your wishes in states that have adopted the law. However, all 50 states are expected to adopt the Act soon, so even if the law isn’t on the books in your state, you should take it into serious consideration when planning.

Look to us for guidance
In the second part of this series, we’ll offer practical steps for preserving and passing on your digital assets in your estate plan. Meanwhile, contact me at (858) 432-3923 if you have any questions about your online property or how to include it in your estate plan.

Next week, we’ll continue with part two in this series, discussing the best ways to protect and preserve your digital assets through estate planning.

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When Something is NOT Better Than Nothing—Part 2

When Something is NOT Better Than Nothing—Part 2

Last week, I shared the first part of this series discussing the hidden dangers of do-it-yourself estate planning. In part two, I cover one of the greatest risks posed by DIY documents.

You might think you can save time and money by using do-it-yourself estate planning documents you find online. You’re probably anxious to check estate planning off your life’s to-do list, and these forms offer a seemingly quick and inexpensive way to handle this important task.

You may even realize such generic plans aren’t as high quality as those drafted with an attorney’s help, but with your hectic schedule, a DIY will is just way more convenient. Besides, having “something” in place is better than having nothing, right?

Unfortunately, this is one case in which SOMETHING is not better than nothing.

Indeed, the false sense of security offered by DIY wills can lead you to believe you have things covered and no longer have to worry about estate planning. The reality, however, is that such generic forms could end up costing the loved ones you leave behind more money and heartache than if you’d never gotten around to doing anything at all.

In this way, DIY wills and other legal documents are among the most dangerous choices you can make for the people you love. In part one, I discussed the many ways DIY plans can fail to keep your family out of court and out of conflict, and here I’ll explain how these generic documents can leave the people you love most of all—your children—at risk.

The people you love most
It’s probably distressing to think that by using a DIY will you could force your loved ones into court or conflict in the event of your incapacity or death. And if you’re like most parents, it’s probably downright unimaginable to contemplate your children’s care falling into the wrong hands.

Yet that’s exactly what could happen if you rely on free or low-cost fill-in-the-blank wills found online, or even if you hire a lawyer who isn’t equipped or trained to plan for the needs of parents with minor children.

Naming and legally documenting guardians entails a number of complexities that most people aren’t aware of. Even lawyers with decades of experience frequently make at least one of six common errors when naming long-term legal guardians.

If Wills drafted with the help of a professional are likely to leave your children at risk, the chances that you’ll get things right on your own are pretty much zero.

What could go wrong?
If your DIY will names legal guardians for your kids in the event of your death, that’s great. But does it include back-ups? And if you named a couple to serve, how is that handled? Do you still want one of them if the other is unavailable due to illness, injury, death, or divorce?

And what happens if you become incapacitated and are unable to care for your children? You might assume the guardians named in the DIY will would automatically get custody, but your will isn’t even operative in the event of your incapacity.

Or perhaps the guardians you named in the will live far from your home, so it would take them a few days to get there. If you haven’t made legally-binding arrangements for the immediate care of your children, it’s highly likely that they will be placed with child protective services until those guardians arrive.

Even if you name family who live nearby as guardians, your kids are still at risk because it’s possible they might not be immediately available if and when needed.

And who even knows where your will is or how to access it?

There are simply far too many potential errors you can make when you go it alone.

The Kids Protection Plan®

To ensure your children are never raised by someone you don’t trust or taken into the custody of strangers (even temporarily), consider creating a comprehensive Kids Protection Plan®, which only a select few Estate Planning Attorneys are trained and licensed to counsel you through and prepare.

Get the right “something”
Protecting your family and assets in the event of your death or incapacity is such a monumentally important task you should never consider winging it with a DIY plan. No matter how busy you are or how little wealth you own, the potentially disastrous consequences inherent in such plans are simply too great—often they’re not even worth the paper they’re printed on.

Plus, proper estate planning doesn’t have to be super expensive, stressful, or time consuming. Working with me as your Estate Planning Attorney, planning will not only be as stress-free as possible, but I offer options for all budgets and asset values.

What’s more, many of my clients actually find the process highly rewarding. My proprietary systems provide the type of peace of mind that comes from knowing that you’ve not only checked estate planning off your to-do list, but you’ve done it using the most forethought, experience, and knowledge available.

Act now
If you’ve yet to do any planning, contact me to schedule a Family Wealth Planning Session. This evaluation will allow us to determine if a simple will or some other strategy, such as a living trust, is your best option.

If you’ve already created a plan—whether it’s a DIY job or one created with another lawyer’s help—contact me at (858) 432-3923 to schedule an Estate Plan Review and Check-Up. I’ll ensure your plan is not only properly drafted and updated, but that it has all of the protections in place to prevent your children from ever being placed in the care of strangers or anyone you’d never want raising them.

No matter what you do, make certain you have a “something” that’s actually better than nothing. Contact me as your Estate Planning Attorney today, and I’ll provide you with that level of confidence—and so much more.

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When Something is NOT Better Than Nothing—Part 1

When Something is NOT Better Than Nothing—Part 1

Go online, and you’ll find tons of websites offering do-it-yourself estate planning documents. Such forms are typically quite inexpensive. Simple Wills, for example, are often priced under $50, and you can complete and print them out in a matter of minutes.

In our uber-busy lives and DIY culture, it’s no surprise that this kind of thing might seem like a good deal. You know estate planning is important, and even though you may not be getting the highest quality plan, such documents can make you feel better for having checked this item off your life’s lengthy to-do list.

But this is one case in which SOMETHING is not better than nothing, and here’s why:

A false sense of security
Creating a DIY Will online can lead you to believe that you no longer have to worry about estate planning. You got it done, right?

Except that you didn’t. In fact, you thought you “got it done” because you went online, printed a form, and had it notarized, but you didn’t bother to investigate what would actually happen with that document in place in the event of your incapacity or when you die.

In the end, what seemed like a bargain could end up costing your family more money and heartache than if you’d never gotten around to doing anything at all.

Creating a DIY Will can lead you to believe that you no longer have to worry about estate planning. In the back of your mind, you might even promise that one day you’ll revisit and update your plan with something better, but chances are, having done “something” will lead you to put this off until it’s too late.

By doing nothing, on the other hand, at least you won’t be lulled into a false sense of security, and estate planning will still be at the top of your life’s to-do list, as it should be until you handle it properly.

Not just about filling out forms
Unfortunately, because many people don’t understand that estate planning entails much more than just filling out legal documents, they end up making serious mistakes with DIY plans. Worst of all, these mistakes are only discovered when you become incapacitated or die, and it’s too late. The people left to deal with your mistakes are often the very ones you were trying to do right by.

The primary purpose of Wills and other estate planning tools is to keep your family out of court and out of conflict in the event of your death or incapacity. With the growing popularity of DIY Wills, tens of thousands of families (and millions more to come) have learned the hard way that trying to handle estate planning alone can not only fail to fulfill this purpose, it can make the court cases and conflicts far worse and more expensive.

The hidden dangers of DIY Wills
From the specific state you live in and the wording of the document to the required formalities for how it must be signed and witnessed, there are numerous potential dangers involved with DIY Wills and other estate planning documents. Estate planning is most definitely not a one-size-fits-all deal. Even if you think you have a simple situation, that’s almost never the case.

The following scenarios are just a few of the most common complications that can result from attempting to go it alone with a DIY Will:

  • Improper execution: For a Will to be valid, it must be executed following strict legal procedures. Such procedural requirements are designed to prevent foul play and vary by state. For example, many states require that you and every witness to your Will must sign it in the presence of one another. If your DIY Will doesn’t mention that or you don’t read the fine print and fail to follow this procedure, it can be worthless.
  • Court challenges: Before the assets covered in a Will can be transferred to your heirs, the Will must go through the court process called probate. During probate, creditors, heirs, and other interested parties have the opportunity to contest your Will or make claims against your estate. Though Wills created with an attorney’s guidance can also be contested, DIY Wills are not only far more likely to be challenged, but the chances of those challenges being successful are much greater than if you have an attorney-drafted Will.
  • Thinking a Will is enough: It is almost never the case that a Will alone is sufficient to handle all of your legal affairs. In the event of your incapacity, you would also need a health care directive and/or a living Will plus a durable financial power of attorney. In the event of your death, a Will does nothing to keep your loved one’s out of court. And if you have minor children, having a Will alone could leave your kids’ at risk of being taken out of your home and into the care of strangers, at least temporarily.

In many ways, DIY Will planning is the worst choice you can make for the people you love because you think you’ve got it covered, when you most certainly do not.

Next week, I’ll continue with Part Two in this series on the hidden dangers of DIY estate planning.

If you’ve yet to do any estate planning at all, have DIY documents you aren’t sure about, or have a plan created with another lawyer’s help that hasn’t been updated or reviewed in more than a few years, meet with me, a knowledgeable and experienced Estate Planning Attorney.  Take action to ensure that your family will be kept out of court and out of conflict if something should happen to you. Contact me at (858) 432-3923 today to learn more.

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Estate Planning Considerations for Benefits Open Enrollment

Estate Planning Considerations for Benefits Open Enrollment

The fall, generally late-October or early-November, is the time when employers send out summaries of employee benefits offered by the company and give employees the option to enroll in these benefits. These can generally include retirement plan options, health care, dental, vision, short and/or long-term disability, and life insurance coverage. Your employer may pay 100 percent of the premiums, split the costs with you, or you may have to pay all of the premiums yourself. Below are several considerations you should keep in mind once open enrollment begins.

Benefits Explained

When considering any retirement plan offered through your employer such as a 401(k), 403(b), or 457 plan, you will need to consider: what percentage of income you choose to contribute and whether the contribution must be made pre-tax, after-tax, or to a Roth plan (if available). How much you can contribute, and whether pre- or post-tax, depends on your specific financial circumstances. Remember to also consider any “matching” contributions your employer may make since these contributions can help improve your overall retirement savings.

Healthcare benefits may include the ability to enroll in a Health Savings Account (HSA), in addition to enrolling in the usual healthcare, vision, and/or dental coverage. HSAs allow plan participants to set funds aside, tax-free, for health care costs.

Employer-provided life and disability insurance coverage will provide your beneficiary with a stated amount of money if you die while employed by your employer or become disabled. The coverage generally expires when you no longer work for that employer.

Perhaps the most important thing to do during your employer’s open enrollment period is to review the employer-provided benefit package to determine what should remain and what should be changed. If you do not understand the options being provided to you, contact human resources right away for more information.

Beneficiary Designations

While you are reviewing your benefit package, you should consider your beneficiary elections or those who will inherit these assets upon your death or incapacity. A primary beneficiary is the first to inherit. Should he or she pass before you, or with you, assets would then go to any secondary beneficiary you have designated. These are often referred to as contingent beneficiaries.

Even if you have previously enrolled, you must review your beneficiary designations on your employer-provided benefits to ensure they are still how you want them. Benefits that may require a beneficiary designation are life insurance policies, retirement accounts, health savings accounts (HSA), as well as disability insurance.

If there are any new providers for your employer-sponsored benefits, this means that the insurance company has changed. Keep in mind that your previously chosen beneficiaries, and possibly coverage, may not have carried over. It is always better to review these documents, even if you are not planning any changes.

Estate Planning Concerns

If you are contemplating any changes to your beneficiaries, give me a call at (858) 432-3923 so I can ensure your beneficiary designations work as expected with your current estate plan or so I can properly prepare a plan that carries out your ultimate goals for you and your family. Once you have updated your beneficiaries, make sure to obtain written confirmation of this from your employer’s human resources department and share this information with my office. If you have any questions, please feel free to contact me. We’re here to help.

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Big “Life Changes” Often Mean Big “Estate Plan Changes”

Big “Life Changes” Often Mean Big “Estate Plan Changes”

Many people who put together an estate plan do so when they start a family – assuming they put an estate plan together at all during their lifetime. While putting an estate plan together is a good thing to do, many people make few updates once the plan has been created, despite other key life events happening over the years. This is a major mistake that can place your hard-earned money and assets into a costly probate or into the wrong hands.

Estate planning must be reviewed and updated regularly to ensure that your plan still accomplishes your goals and objectives and will work the way you want it to at incapacity and at death.

To make sure you do not run into these issues and your wishes are followed in the event of your incapacity at at your death, below are nine life decisions or events that should get you thinking about updating — or creating — your estate plan right away.

Important Life Decisions

There are several important life decisions that you should factor into your estate plan. They include:

  1. Getting married: Estate planning after tying the knot does not have to be complicated. Simply updating your beneficiary information, purchasing a life insurance policy, and updating emergency contact information are all things that should happen right away. You should also consider preparing a will and a living will. As your marriage progresses, it may make sense to consider a revocable trust as well. Having discussions with your spouse about how you want your estate to be managed depending on different scenarios is also important.
  2. Getting divorced: While couples do not plan for divorce, many spouses go through this process. For many, the emotional toll and legal complexities of divorce can be overwhelming. Oftentimes estate planning is overshadowed by the divorce, resulting in unintended consequences. Making sure you make changes to your estate plan as soon as your divorce proceedings have been finalized will make sure your ex will not end up with the house, life insurance proceeds or other assets of yours.
  3. Buying life insurance: These policies are present in virtually all estate plans and serve as a useful source of liquidity, education-expense coverage, and financial support for your family or loved ones. Make sure to list all beneficiaries under the policy and make sure to update them as time passes.
  4. Buying a new home: When you purchase or refinance a home or other real estate, you should always make sure the asset is titled appropriately. If you use a trust, sometimes a lender will take a property out of a trust during a refinance. The key is to make sure your title furthers your goals.
  5. Having a child: While adding another member to your family is an exciting time in your life, it is not an excuse to forget to update your estate plan. A new child necessitates major revisions to your estate plan. This not only affects who will inherit your estate upon your death but will also require you deciding who will be the guardian of your children if you should die before they become adults. As your child grows and matures — and more children are added — your estate plan will likely continue to change.
  6. Starting a business: If you start a business or ownership interest changes in a current business, you need to understand what impact these changes have on your estate plan. Even more, there may be tax implications that could affect your heirs without proper planning ahead of time.
  7. Death of a loved one: The passing away of someone listed in your will is often overlooked in estate planning. These individuals may be named guardians to your children, have an inheritance allocated to them, be designated as emergency contacts, or may be named as executors of your estate. Leaving the role vacant can have terrible unintended consequences and necessitates transitioning new people to fill the void left behind by your loved one’s death right away.
  8. Moving to another state or country: When you change your residency from one state to another, you must review your estate plan to make sure it conforms with local laws. The same is true if you move to another country. Likewise, if you have property in more than one state or country, special attention must be paid to how those assets will be distributed according to your estate plan and applicable law.
  9. Change in work benefits: Whether this happened through a promotion, demotion, or your employer just changed the benefits they offer, this could impact the type amount of assets you have available. Look at your estate plan to see if your goals are still achievable or if you can do more with what you have.

Estate Planning Advice

Planning based on your life stages is important because your circumstances over the years will change. The only thing certain in life is change. Your estate plan must be reviewed and updated regularly to reflect your life’s changes. If you have any questions about estate planning — or have had to make a recent big decision in your life — contact me at (858) 432-3923 to learn more about your options.

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How to Choose a Trustee

How to Choose a Trustee

When you establish a Trust, you name someone to be the Trustee. Generally, you are the Initial Trustee for your Revocable Living Trust.  A Successor Trustee steps in your shoes in the event of your incapacity and at your death.  That person does what you do right now with your financial affairs – collect income, pay bills and taxes, save and invest for the future, buy and sell assets, provide for your loved ones, keep accurate records, and generally keep things organized and in good order.

The Key Takeaways

  • You can be Trustee of your Revocable Living Trust. If you are married, your spouse can be co-Trustee.
  • Most Irrevocable Trusts do not allow you to be Trustee.
  • Even though you may be allowed to be your own Trustee, you may not be the best choice.
  • You can also choose an adult child, trusted friend or a professional or corporate Trustee.
  • Naming someone else to be co-Trustee with you is an option should the circumstances call for it.  Some reasons for this include helping them become familiar with your trust, allows them to learn firsthand how you want the trust to operate, and lets you evaluate the co-Trustee’s abilities.

Who Can Be Your Trustee

If you have a Revocable Living Trust, you can be your own Trustee. If you are married, your spouse can be a Trustee with you. This way, if either of you become incapacitated or die, the other can continue to handle your financial affairs without interruption. Most married couples who own assets together, especially those who have been married for some time, are usually co-Trustees.

You don’t have to be your own Trustee. Some people choose an adult son or daughter, a trusted friend or another relative. Some like having the experience and investment skills of a professional or corporate trustee (e.g., a licensed private Professional Fiduciary, a bank Trust department or Trust Company). Naming someone else as Trustee or co-Trustee with you does not mean you lose control. The Trustee you name must follow the instructions in your Trust and report to you. You can even replace your Trustee should you change your mind.

When to Consider a Professional or Corporate Trustee

You may be elderly, widowed, or in declining health and have no children or other trusted relatives living nearby.  Or you may not have friends or family that you fully trust for this important duty.  Or your candidates may not have the time or ability to manage your trust. You may simply not have the time, desire or experience to manage your investments by yourself. Also, certain Irrevocable Trusts will not allow you to be Trustee due to restrictions in the tax laws. In these situations, a professional or corporate trustee may be exactly what you need: they have the experience, time and resources to manage your trust and help you meet your investment goals.

What You Need to Know

Professional or corporate trustees will charge a fee to manage your trust, but generally the fee is quite reasonable, especially when you consider their experience, the services provided, and the investment returns that a professional Trustee can deliver.

Actions to Consider

  • Honestly evaluate if you are the best choice to be your own Trustee. Someone else may truly do a better job than you, especially in investing your assets.
  • Name someone to be co-Trustee with you now. This would eliminate the time a successor would need to become knowledgeable about your trust, your assets, and the needs and personalities of your beneficiaries. It would also let you evaluate if the co-Trustee is the right choice to manage the Trust in your absence.
  • Evaluate your Trustee candidates carefully and realistically.
  • If you are considering a Professional or Corporate Trustee, talk to several. Compare their services, investment returns, and fees.  I have a couple I highly recommend, which will give you a nice starting place.

I can help you select, educate, and advise your Successor Trustees so they will have support and know what to do next to carry out your wishes. Give me a call at 858-432-3923 and I will be happy to serve you.

 

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Rewarding Your Employees By Giving Them the Business

Rewarding Your Employees By Giving Them the Business

Retiring from your business can a tough decision. To ensure that what you have built continues on, there needs to be a plan for succession. For some people, they have spent years grooming a child or other family member to take over, wanting the business to stay in the family. Others look to sell to a third party for a quick way out that will also give them a nest egg for their next phase of life. However, there is a third option–transferring the business to your employees. If you like the idea of transferring your business to long-time faithful employees who have contributed greatly to the company’s success over the years, below are a couple of options for you to consider.

Management Buyout

This type of transfer is a process, not an event. The management team comes together with the financing and arranges a deal with you to buy the assets and operations of the business. A management buyout has the benefit of being quicker and more confidential than a third party transaction, and the structure of the deal can be more flexible. There is also the added benefit that the legacy of the company will continue in the hands of those in management who have earned the opportunity to buy the business with his or her loyalty and hard work.

With this option, you may also be able to provide some continued service to the company as an officer and/or director. In addition, you may even be able to continue in some part of the business that you enjoy. And you may be able to keep some control over the company.

When considering this option, it is important that you consider the following:

  • How much cash, debt, and earn-out will be involved?
  • When will the transfer of control occur?
  • If management has little or no capital, where will they get the money for the buyout?

Employee Stock Ownership Plans (ESOPs)

An ESOP is a qualified plan under the Employee Retirement Income Security Act of 1974 (ERISA). Instead of selling directly to management, you are making the sale to the ESOP, which has been set up by the company. The ESOP can either attempt to get bank financing to purchase the stock from you, or you can take a note for the value of your shares and have the repayment taken care of internally. The employees become plan participants, similar to other employee incentive programs and are entitled to benefits at certain points as determined by the terms of the ESOP.

This option is similar to a management buyout, but with potentially valuable tax benefits. With an ESOP, you are selling stock in the company, not the assets, so the taxes are capital gains, not ordinary income taxes. Because of this distinction, there are planning techniques available that may help save on taxes with this transaction.

When reviewing this option, there are a few things to consider:

  • In order to repay the note, most (if not all) of the excess cash flow from the business may be needed, instead of using it to grow the company;
  • The company must set aside money to meet repurchase obligations on the ESOP when an employee retires, dies, becomes incapacitated or terminates his or her employment after vesting;
  • Stock in an ESOP is allocated based on payroll, so there are no extra management incentives.

Both management buyout and ESOPs are options that should be considered if you are looking to transfer your business to your employees.  I am a knowledgeable Estate Planning and Business Attorney and I am here to help you. Give my office a call at (858) 432-3923 and I would be happy to discuss these options more and find a solution that best protects you and your legacy.

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Cryptocurrency and Estate Planning: What You Need to Know

Cryptocurrency and Estate Planning: What You Need to Know

You may have heard of Cryptocurrencies, a digital currency.  Cryptocurrencies have been making headlines lately attracting people to invest in this type of currency.  Cryptocurrencies are attractive because they are unregulated, decentralized, and anonymous. There are no financial institutions controlling it, and unless you tell someone you own digital currency, it remains a secret.

When it comes to estate planning, however, that kind of secrecy can be disastrous. In fact, without the appropriate planning protections in place, all of your crypto wealth will disappear the moment you die or become incapacitated, leaving your family with absolutely no way to recover it.  Indeed, we’re facing a potential crisis whereby millions—perhaps billions—of dollars’ worth of family wealth could potentially vanish into thin air unless you take action to protect your digital assets with estate planning.

Cryptocurrencies Explained

Cryptocurrency is a form of internet currency. Instead of a central bank regulating the funds, encryption techniques are used to regulate the amount or units of currency. These techniques are also used to verify the transfer of funds. In this manner, cryptocurrency can be transferred online without a third party. Some cryptoassets have units that are all the same (called “fungible tokens”). Bitcoin is an example of a fungible token since all bitcoins are the same as one another. Other cryptoassets have unique attributes (called “non-fungible tokens”). Cryptokitties is an example of a nonfungible token since each digital “cat” is unique.

Notably, if you lose the key (i.e., the encryption) to your cryptocurrency, you will be unable to access your digital assets. Thus, making access to your key available to your loved ones upon your death or incapacity is vital to estate planning. This is because if there is no access to the key, there is no access to the assets. Unlike more “traditional” assets, there is no third party to control or compel assets nor reset the key for access to these digital funds. The software or hardware device that holds the keys to your cryptocurrency and manages your transaction is referred to as a “wallet.”

The first step in securing your crypto assets is to let your heirs know you own it. This can be done by including your digital currency in your net-worth statement listing all of your assets and liabilities. Along with the amount of cryptocurrency you own, you should also include detailed instructions about where it’s located and how to find the instructions to access it. But you want those instructions to be kept in an absolutely secure location because anyone who has them can take your cryptocurrency.

Even if your heirs know you own cryptocurrency, they won’t be able to access it unless they know the encrypted passcodes needed to unlock your account. Indeed, there are numerous stories of crypto owners losing their own passcodes and then being so desperate to recover or remember them that they dug through trash cans and even hired hypnotists.

The best way to secure your passcodes is by storing them in a digital wallet. The safest option is a “cold” wallet, or one that is not connected to the internet and thus cannot be hacked. Cold wallets include USB drives as well as “paper” wallets, which are simply the passcodes printed on paper—and ideally stored in a fireproof safe.

Digital Asset Estate Planning

It is important to understand that cryptocurrencies are typically a non-listed, non-vetted asset category. In other words – cryptocurrencies are not like publicly traded stocks, which have a vetting process, legal disclosures, and are subject to other requirements. In short, buyer beware when it comes to digital currencies. Therefore, if you own cryptocurrency — or are thinking about investing in digital currency — understand that you will need a technical access plan (a way to ensure your successors can access your digital wealth) in addition to a legal plan in order to effectively create an estate plan that incorporates these digital assets. And because what is going on with digital currency is evolving all the time, and quickly, it is important to touch base with a knowledgeable estate planning attorney at least once a year to make sure you and your family’s needs are being met.

With your crypto assets, the only way these wallets are of any use to your heirs is for them to know where they are and how to access them in the event of your incapacity or death. So make sure these instructions are included in your estate plan and your estate planning lawyer knows about the assets and where to locate the instructions on how to access them. Just as it would be foolish to store your money in a secret safe and not tell anybody where it is or give them the combination to open it, it’s just as foolhardy not to take the appropriate steps to protect your cryptocurrency through proper estate planning.

Since digital currency is such a recent phenomenon, not all estate planning attorneys are familiar with it, but I as an experienced estate planning attorney, you can rest assured I have the knowledge and experience to help you safeguard your digital wealth just as effectively as all of your other assets.

This article is a service of Tara Cheever,  Estate Planning and Business Planning Attorney. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

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Should your child’s guardian and trustee be the same person?

Should your child’s guardian and trustee be the same person?

If you have overheard any discussion about estate planning, you have likely heard the words “guardian” or “trustee” tossed around in the conversation. When it comes to estate planning, who will be ultimately in charge of your minor child is an important decision that requires consideration of many factors. Although there is no substitute for you as a parent, a guardian is essentially someone who steps in as a parent, assuming the parental role and raising the child through adulthood. A trustee, on the other hand, is in charge of managing the financial legacy that has been left behind for the minor. As a parent, you need to take into account the characteristics needed for each role.

Who Makes a Good Guardian?

When choosing a guardian, the top factor to consider is who is the best person that will love and raise your child in a manner that you would. This would include religious beliefs, parenting style, interest in extracurricular activities, energy level, and whether or not he or she has children already. Keep in mind that a guardian will provide day-to-day love, care, and support for your child. While the guardian you choose may be great with your children, he or she may not be great with money. For this reason, it may make sense to place the financial management of your minor child’s funds in the hands of someone else.

Who Makes a Good Trustee?

Not surprisingly, when choosing a trustee the most important characteristic is that he or she is great with finances. Specifically, the trustee must be able to manage the funds in accordance with your intent and instructions that are left in your trust. Consider whether he or she will honor your wishes. Likewise, should you choose to grant your successor trustee discretion in making financial decisions regarding the management of funds left behind you should ensure the individual’s decisions will be aligned with your intent. In short, you want to choose a successor trustee who will act in your minor child’s best interest within the limits you have set forth in your estate plan documents. If you choose two different people for the role of guardian and trustee, make sure to consider how the two get along as they will likely have to work together throughout your minor’s childhood and possibly into adulthood.

Seek Help to Make Your Decision

While estate planning can be daunting, it does not have to be. Contact me, a knowledgeable estate planning attorney, to help guide you through this process. I can explain your options and advise you on the best plan that will follow your wishes while at the same time meeting your family’s needs.

This article is a service of Tara Cheever,  Estate Planning and Business Planning Attorney. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

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The Ins and Outs of Collecting Life Insurance Policy Proceeds

The Ins and Outs of Collecting Life Insurance Policy Proceeds

Unlike many estate assets, if you’re looking to collect the proceeds of a life insurance policy, the process is fairly simple provided you’re named as the beneficiary. That said, following a loved one’s death, the whole world can feel like it’s falling apart, and it’s helpful to know exactly what steps need to be taken to access the insurance funds as quickly and easily as possible during this trying time.

Additionally, if you have been dependent on the person who died for regular financial support and/or are responsible for paying funeral expenses, the need to access insurance proceeds can sometimes be downright urgent.

Here, I’ve outlined the typical procedure for claiming and collecting life insurance proceeds, along with discussing how beneficiaries can deal with common hiccups in the process. However, because all life insurance policies are different and some involve more complexities than others, it’s always a good idea to consult with a qualified Estate Planning attorney, such as myself, if you need extra help or guidance.

Filing a Claim
To start the life insurance claims process, you first need to identify who the beneficiary of the life insurance policy is—are you the beneficiary, or is a trust set up to handle the claim for you?

I often recommend that life insurance proceeds be paid to a trust, not outright to a beneficiary. This way, the life insurance proceeds can be used by the beneficiary, but the funds are protected from lawsuits and/or creditors that the beneficiary may be involved with—even a future divorce.

In the event that a trust is the beneficiary, contact me so that I can create a certificate of trust that you (or the trustee, if the trustee is someone other than you) can send to the life insurance company, along with a death certificate when one is available.

In any case, you (or the trustee) will notify the insurance company of the policyholder’s death, either by contacting a local agent or by following the instructions on the company’s website. If the policy was provided through an employer, you may need to contact their workplace first, and someone there will put you in touch with the appropriate representative.

Many insurance companies allow you to report the death over the phone or by sending in a simple form and not require the actual death certificate at this stage. Depending on the cause of death, it can sometimes take weeks for the death certificate to be available, so this simplified reporting speeds up the process.

From there, the insurance company typically sends the beneficiary (or the trustee of the trust named as beneficiary) more in-depth forms to fill out, along with further instructions about how to proceed. Some of the information you’re likely to be asked to provide during the claims process include the deceased’s date of birth, date and place of death, their Social Security number, marital status, address, as well as other personal data.

Your state’s vital records office creates the death certificate, and it will either send the certificate directly to you or route it through your funeral/mortuary provider. Once you’ve received a certified copy of the death certificate, you’ll send it to the insurance company, along with the other completed forms requested.

Multiple beneficiaries
If more than one adult beneficiary was named, each person should provide his or her own signed and notarized claim form. If any of the primary beneficiaries died before the policyholder, an alternate/contingent beneficiary can claim the proceeds, but he or she will need to send in the death certificates of both the policyholder and the primary beneficiary.

Minors
While policyholders are free to name anyone as a beneficiary, when minor children are named, it creates serious complications, as most insurance companies will not allow a minor child to receive life insurance benefits directly until they reach the age of majority. And the age of majority varies between states—with some it’s 18, and others it’s 21.

If a child is named as a beneficiary and has yet to reach the age of majority, the claim proceeds will be paid to the child’s legal guardian, who will be responsible for managing those funds until the child comes of age. Given this, in the event a minor is named you’ll need to go to court to be appointed as legal guardian, even if you’re the child’s parent. This is why I recommend never naming a minor child as a life insurance beneficiary, even as a backup to the primary beneficiary.

Rather than naming a minor child as a life insurance beneficiary, it’s often better to set up a trust to receive the proceeds. By doing that, the proceeds would be paid into the trust, and whomever is named as trustee will follow the steps above to collect the insurance benefits, put them in the trust, and manage the funds for the child’s benefit.  Whatever you decide, you should consult with me, a qualified Estate Planning Attorney to determine the best options for passing along your life insurance benefits and other assets to minor children.

Insurance claim payment
Provided you fill out the forms properly and include a certified copy of the death certificate, insurance companies typically pay out life insurance claims quickly. In fact, some claims are paid within one-to-two weeks of the start of the process, and rarely do claims take more than 60 days to be paid. Most insurance companies will offer you the option to collect the proceeds via a mailed check or transfer the funds electronically directly to your account.

Sometimes an insurance company will request you to send in a completed W-9 form (Request for Taxpayer Identification Number and Certification) from the IRS in order to process a claim. Most of the time, a W-9 is requested only if there is some question or issue with the records, such as having an address provided in a claim form that doesn’t match the one on file.

A W-9 is simply a way for the insurance company to verify information to prevent fraudulent activity. To this end, don’t be alarmed if you’re asked for a W-9. It’s a common verification practice, and it doesn’t automatically mean the company suspects you of fraud or plans to deny your claim.

While collecting life insurance proceeds is a fairly simple process, it’s always a good idea to consult with me as a qualified Estate Planning Attorney if you have any questions or need help to ensure the process goes as smoothly as possible during the often-chaotic period following a loved one’s death.


This article is a service of Tara Cheever,  Estate Planning and Business Planning Attorney. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

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Passing Along a Benefit, Not a Burden

Passing Along a Benefit, Not a Burden

Why Incapacity Planning for Business Owners is an Indispensable Component of Your Plan

Most business owners have their estate planning prepared because they are worried about what will happen to their business after they are dead. However, proper estate planning has the added benefit of allowing you to make plans for what will happen if you are incapacitated or needing to be away from your business for an extended period of time.

As the owner, you are responsible for the day-to-day operations of your business. This is a full-time responsibility. But what will happen if you can’t be there all the time? You don’t necessarily have to be in a coma to be unable to participate in your business. You could be on an extended vacation or have a medical diagnosis that requires you to take several months away for treatment or recovery. During this time, your business needs to continue on so that you and your employees can continue to take home money.

It is important to think ahead about who will be in charge of the day-to-day operations because a ship without a captain can be dangerous. Not only does this individual need to understand the business, he or she needs to have the respect of your employees, and be confident in making tough decisions in your absence. Without this planning, everyone could jump to the conclusion that he or she is in charge, or alternatively, no one will step up, resulting in chaos either way.

If you have family members working in your business it is also important to explain to them what will happen in your absence and who will be in charge so that someone does not assume they are in charge just because they are family. Importantly, remember that just because your family is involved with your business does not mean that he or she is the best choice to succeed you.

I can help you develop a plan to keep your business running while you are away. From choosing the right individual to putting processes in place for your incapacity, I am here to help.  Feel free to contact me at (858) 432-3923 for any questions you may have.

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Before Agreeing to Serve as Trustee, Carefully Consider the Duties and Obligations Involved—Part 2

Before Agreeing to Serve as Trustee, Carefully Consider the Duties and Obligations Involved—Part 2

Last week, I shared the first part of this series explaining the powers and duties that come with serving as trustee. Here in part two, I discuss the rest of a trustee’s core responsibilities. 

Being asked to serve as trustee can be a huge honor—but it’s also a major responsibility. Indeed, the job entails a wide array of complex duties, and trustees are both ethically and legally required to effectively execute those functions or face significant liability.

To this end, you should thoroughly understand exactly what your role as trustee requires before agreeing to accept the position. Last week, I highlighted three of a trustee’s primary functions, and here I continue with that list, starting with one of the most labor-intensive of all duties—managing and accounting for a trust’s assets.

Manage and account for trust assets

Before a trustee can sell, invest, or make distributions to beneficiaries, he or she must take control of, inventory, and value all trust assets. Ideally, this happens as soon as possible after the death of the grantor in the privacy of a lawyer’s office. As long as assets are titled in the name of the trust, there’s no need for court involvement—unless a beneficiary or creditor forces it with a claim against the trust.

In the best case, the person who created the trust and was the original trustee—usually the grantor—will have maintained an up-to-date inventory of all trust assets. And if the estate is extensive, gathering those assets can be a major undertaking, so contact me as your Personal Family Lawyer® to help review the trust and determine the best course of action.

The value of some assets, like financial accounts, securities, and insurance, will be easy to determine. But with other property—real estate, vehicles, businesses, artwork, furniture, and jewelry—a trustee may need to hire a professional appraiser to determine those values. With the assets secured and valued, the trustee must then identify and pay the grantor’s creditors and other debts.

Be careful about ensuring regularly scheduled payments, such as mortgages, property taxes, and insurance, are promptly paid, or trustees risk personal liability for late payments and/or other penalties. Trustees are also required to prepare and file the grantor’s income and estate tax returns. This includes the final income tax return for the year of the decedent’s death and any prior years’ returns on extension, along with filing an annual return during each subsequent year the trust remains open.

For high-value estates, trustees may have to file a federal estate tax return or possibly a state estate tax return. However, Trump’s new tax law of 2017 (Tax Cuts and Jobs Act) doubled the estate tax exemption to $11.2 million, so very few estates will be impacted. But keep in mind, this new exemption is only valid through 2025, when it will return to $5.6 million.

During this entire process, it’s vital that trustees keep strict accounting of every transaction (bills paid and income received) made using the trust’s assets, no matter how small. In fact, if a trustee fails to fully pay the trust’s debts, taxes, and expenses before distributing assets to beneficiaries, he or she can be held personally liable if there are insufficient assets to pay for outstanding estate expenses.

Given this, it’s crucial to work with a Personal Family Lawyer® and a qualified accountant to properly account for and pay all trust-related expenses and debts as well as ensure all tax returns are filed on behalf of the trust.

Personally administer the trust

While trustees are nearly always permitted to hire outside advisers like lawyers, accountants, and even professional trust administration services, trustees must personally communicate with those advisors and be the one to make all final decisions on trust matters. After all, the grantor chose you as trustee because they value your judgment.

So even though trustees can delegate much of the underlying legwork, they’re still required to serve as the lead decision maker. What’s more, trustees are ultimately responsible if any mistakes are made. In the end, a trustee’s full range of powers, duties, and discretion will depend on the terms of the trust, so always refer to the trust for specific instructions when delegating tasks and/or making tough decisions. And if you need help understanding what the trust says, don’t hesitate to reach out to me for support.

Clear communication with beneficiaries

To keep them informed and updated as to the status of the trust, trustees are required to provide beneficiaries with regular information and reports related to trust matters. Typically, trustees provide such information on an annual basis, but again, the level of communication depends on the trust’s terms.

In general, trustees should provide annual status reports with complete and accurate accounting of the trust’s assets. Moreover, trustees must permit beneficiaries to personally inspect trust property, accounts, and any related documents if requested. Additionally, trustees must provide an annual tax return statement (Schedule K-1) to each beneficiary who’s taxed on income earned by the trust.

Entitled to reasonable fees for services rendered

Given such extensive duties and responsibilities, trustees are entitled to receive reasonable fees for their services. Oftentimes, family members and close friends named as trustee choose not to accept any payment beyond what’s required to cover trust expenses, but this all depends on the trustee’s particular situation and relationship with the grantor and/or beneficiaries.

What’s more, determining what’s “reasonable,” can itself be challenging. Entities like accounting firms, lawyers, banks, and trust administration companies typically charge a percentage of the funds under their management or a set fee for their time. In the end, what’s reasonable is based on the amount of work involved, the level of funds in the trust, the trust’s other expenses, and whether or not the trustee was chosen for their professional experience. Consult with me if you need guidance about what would be considered reasonable in your specific circumstance.

Since the trustee’s duties are comprehensive, complex, and foreign to most people, if you’ve been asked to serve as trustee, it’s critical you have a professional advisor who can give you a clear and accurate assessment of what’s required of you before you accept the position. And if you do choose to serve as trustee, it’s even more important that you have someone who can guide you step-by-step throughout the entire process.

In either case, you can rely on me as your Personal Family Lawyer® to offer the most accurate advice, guidance, and assistance with all trustee duties and functions. I can ensure that you’ll effectively fulfill all of the grantor’s final wishes—and do so in the most efficient and risk-free manner possible. Contact me today at (858) 432-3923 to learn more.

This article is a service of Tara Cheever, Personal Family Lawyer®. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

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Before Agreeing to Serve as Trustee, Carefully Consider the Duties and Obligations Involved—Part 1

Before Agreeing to Serve as Trustee, Carefully Consider the Duties and Obligations Involved—Part 1

If a friend or family member has asked you to serve as trustee for their trust upon their death, you should feel honored—this means they consider you among the most honest, reliable, and responsible people they know.

However, being a trustee is not only a great honor, it’s also a major responsibility. The job can entail a wide array of complex duties, and you’re both ethically and legally required to effectively execute those functions or face significant liability. Given this, agreeing to serve as trustee is a decision that shouldn’t be made lightly, and you should thoroughly understand exactly what the role requires before giving your answer.

Of course, a trustee’s responsibility can vary enormously depending on the size of the estate, the type of trust involved, and the trust’s specific terms and instructions. But every trust comes with a few core requirements, and here I’ll highlight some of the key responsibilities.

That said, one of the first things to note about serving as trustee is that the job does NOT require you to be an expert in law, finance, taxes, or any other field related to trust administration. In fact, trustees are not just allowed to seek outside assistance from professionals in these fields, they’re highly encouraged to, and funding to pay for such services will be set aside for this in the trust.

To this end, don’t let the complicated nature of a trustee’s role scare you off. Indeed, there are numerous professionals and entities that specialize in trust administration, and people with no experience with these tasks successfully handle the role all of the time. And besides, depending on who nominated you, declining to serve may not be a realistic or practical option.

Adhere to the trust’s terms
Every trust is unique, and a trustee’s obligations and powers depend largely on what the trust creator, or grantor, allows for, so you should first carefully review the trust’s terms. The trust document outlines all the specific duties you’ll be required to fulfill as well as the appropriate timelines and discretion you’ll have for fulfilling these tasks.

Depending on the size of the estate and the types of assets held by the trust, your responsibilities as trustee can vary greatly. Some trusts are relatively straightforward, with few assets and beneficiaries, so the entire job can be completed within a few weeks or months. Others, especially those containing numerous assets and minor-aged beneficiaries, can take decades to completely fulfill. To ensure you understand exactly what a particular trust’s terms require of you as trustee, consult with me as a qualified estate planning attorney.

Act in the best interests of the beneficiaries
Trustees have a fiduciary duty to act in the best interest of the named beneficiaries at all times, and they must not use the position for personal gain. Moreover, they cannot commingle their own funds and assets with those of the trust, nor may they profit from the position beyond the fees set aside to pay for the trusteeship.

If the trust involves multiple beneficiaries, the trustee must balance any competing interests between the various beneficiaries in an impartial and objective manner for the benefit of them all. In some cases, grantors try to prevent conflicts between beneficiaries by including very specific instructions about how and when assets should be distributed, and if so, you must follow these directions exactly as spelled out.

However, some trusts leave asset distribution decisions up to the trustee’s discretion. If so, when deciding how to make distributions, the trustee must carefully evaluate each beneficiary’s current needs, future needs, other sources of income, as well as the potential impact the distribution might have on the other beneficiaries. Such duties should be taken very seriously, as beneficiaries can take legal action against trustees if they can prove he or she violated their fiduciary duties and/or mismanaged the trust.

Invest trust assets prudently
Many trusts contain interest-bearing securities and other investment vehicles. If so, the trustee is responsible not only for protecting and managing these assets, they’re also obligated to make them productive—which typically means selling and/or investing assets to generate income.

In doing so, the trustee must exercise reasonable care, skill, and caution when investing trust assets, otherwise known as the “prudent investor” rule. The trustee should always consider the specific purposes, terms, distribution requirements, and other aspects of the trust when meeting this standard.

Trustees must invest prudently and diversify investments appropriately to ensure they’re in the best interests of all beneficiaries. Given this, trustees are forbidden from investing trust assets in overly speculative or high-risk stocks and/or other investment vehicles. Unless specifically spelled out in the trust terms, it will be up to the trustee’s discretion to determine the investment strategies that are best suited for the trust’s goals and beneficiaries. If so, you should hire a financial advisor familiar with trusts to help guide you.

Given the unpredictable nature of the economy, it’s important to point out that poor performance of trust investments alone isn’t enough to prove a trustee breached his or her duties to invest prudently. Provided the trustee can show the underlying investment strategies were sound and reasonable, the mere fact that the investments lost money doesn’t make them legally liable.

Next week, I’ll continue with part two in this series explaining the scope of powers and duties that come with serving as trustee. 

This article is a service of Tara Cheever, Estate Planning and Business Attorney. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

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Retirement Planning for Business Owners

Retirement Planning for Business Owners

For many employees, saving for retirement is usually a matter of simply participating in their employer’s 401(k) plan and perhaps opening an IRA for some extra savings.

But, when you’re the owner of a business, planning for retirement requires proactivity and strategy. It’s not just the dizzying array of choices for retirement accounts, there’s also planning for the business itself. Who will run the business after your retirement? Additionally, your estate plan must integrate into your retirement and business transition strategy.

Owners of businesses (like employees and everyone else) want to make sure they will have enough money in retirement. Business owners recognize the value of their businesses, so they are often tempted to reinvest everything into the enterprise, thinking that will be their “retirement plan.” However, this might be a mistake.

Retirement Accounts for Business Owners

Rather than placing all your eggs in one basket, it makes sense to have some “backup” strategies in place. There are many retirement account options open to business owners. Although the number of options can make things confusing, a tax and financial professional can often quickly make a recommendation for you.

For example, you may consider opening a 401(k), SEP-IRA, SIMPLE, or pension plan. This can reduce your income taxes now, while simultaneously placing some of your wealth outside your business. From a financial perspective, these account are tax-deferred, so the investment growth avoids taxation until you retire, which greatly boosts returns. The “best” plan really depends on how much income your business earns, how stable your earnings are, how many employees you have, and how generous you want to be with those employees. You must consider how generous you’ll be with employees because the law requires most tax-deferred plans to be “fair” to all employees. For example, you can’t open a pension or 401(k) for yourself only and exclude all of your full-time employees. When making this decision, consider that many employees value being able to save for their retirement and your generosity may be repaid with harder work and loyalty from the employees.

Depending on how many employees you have, you may even consider “self-directed” investment options, which can allow you to invest some or all of your retirement funds into “alternative” investments, such as precious metals, private lending arrangements, real estate, other closely held businesses, etc. These self-directed accounts are not for everyone, but for the right person, they open up a wide world of investment opportunities. The tax rules surrounding self-directed tax-deferred accounts are very complex and penalties can be incredibly high. So, if you choose to do self-directed investments, always work with a qualified tax advisor.

Outside of your business, you can likely contribute to an IRA or a Roth IRA. This can allow you to add more money to your retirement basket, especially if you’ve maximized your 401(k), SEP, or SIMPLE plan. Like the other tax-deferred accounts, self-directed IRAs are also an option, opening up a broad world of investment options.

As a business owner, you likely have a great deal of control over your health insurance decisions. If you’re relatively young and healthy or otherwise an infrequent user of health care services, consider using a high deductible health plan (HDHP) and a health savings account (HSA) to add additional money to your savings. These plans let you set aside money in the HSA which can be invested in a manner similar to IRAs. At any time after you setup the account, you can withdraw your contributions and earnings, tax-free, to pay for qualified medical expenses. And, after you turn 65, the money can be used for whatever purpose you want, although income tax will need to be paid on the distributions.

Selling or Transferring the Business

Many business owners dream of a financially lucrative “exit” when a business is sold, taken public, or otherwise transferred at a significant profit for the owner. This does not happen by accident – a business owner must first create and sustain a profitable enterprise that can be sold. Then, legal and tax strategies must be coordinated to minimize the burdensome hit of taxes and avoid the common legal risks that can happen when businesses are sold. When a business is sold, the net proceeds can form a significant component of the owner’s retirement. When supplemented by one or more of the retirement accounts discussed above, this can be a great outcome for a business owner.

On the other hand, other businesses are “family” businesses where children or grandchildren will one day become owners. Like their counterparts who will sell their businesses, these business owners must also focus on creating and sustaining a profitable enterprise, but the source of retirement money is a little less clear. In these cases, clearly thinking through the transition plan to the next generation is essential. Although the business can be given to the next generation through a trust or outright, there are also transition options to allow for children, grandchildren, or even employees to gradually buy-out the owner, if the owner needs or wants to obtain a portion of the retirement nest egg from the business.

The Importance of Estate Planning

Regardless of which retirement accounts (401(k), SEP, SIMPLE, IRAs, HSAs) you select, it is wise to integrate them into your estate planning. You’ve probably already considered who you want to take over your business after you retire (perhaps a son or daughter or a sale to a third party). For your retirement accounts, an IRA trust is a special trust designed to maximize the financial benefit, minimize the income tax burden, and provide robust asset protection for your family. These trusts integrate with the rest of your comprehensive estate plan to fully protect your family, provide privacy, all while minimizing taxes and costs.

Leverage the Team Approach

Let me work with you, your business advisors or consultants, your tax advisor, and your financial advisor to develop a comprehensive retirement, business transition, and estate planning strategy. When we work collaboratively, we can focus on setting aside assets for retirement, saving as much tax possible, while freeing you to do what you do best – build your business!

Give me a call today at (858) 432-3923 so I can help you craft a retirement, business transition, and estate planning strategy.

This article is a service of Tara Cheever, Personal Family Lawyer®. I don’t just draft documents; I ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why I offer a Family Wealth Planning Session,™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling my office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.

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