Mary Vandenack on New York State Bar Association Committee on Professional Ethics Opinion 1182: How Long Do You Have to Keep Old Wills

Steve Leimberg’s Estate Planning Email Newsletter – Archive Message #2778
Date: 19-Feb-20
From: Steve Leimberg’s Estate Planning Newsletter
Subject: Mary Vandenack on New York State Bar Association Committee on Professional Ethics Opinion 1182: How Long Do You Have to Keep Old Wills

“The New York State Bar Committee on Professional Ethics recently issued an opinion that a lawyer has an obligation to indefinitely safeguard wills in the lawyer’s possession. The rule relied on by the New York State Bar is modelled after the ABA Model Rules of Professional Conduct.”

Mary E. Vandenack provides members with commentary on a recent New York Ethics opinion dealing with a lawyer’s duty to safeguard wills.

Mary E. Vandenack is founding and managing member of Vandenack Weaver LLC in Omaha, Nebraska. Mary is a highly regarded practitioner in the areas of tax, benefits, private wealth planning, asset protection planning, executive compensation, equity fund development, business and business succession planning, tax dispute resolution, and tax-exempt entities. Mary’s practice serves businesses and business owners, executives, real estate developers and investors, health care providers, companies in the financial industry, and tax exempt organizations. Mary is a member of the American Bar Association Real Property Trust and Estate Section where she serves as Co-Chair of the Futures Task Force, Co-Chair of the Law Practice Group and on the Planning Committee. Mary is a member of the American Bar Association Law Practice Division where she currently serves as Editor-in-Chief of Law Practice Magazine. Mary was named to ABA LTRC 2018 Distinguished Women of Legal Tech, received the James Keane Award for e-lawyering in 2015, and serves on ABA Standing Committee on Information and Technology Systems. Mary is a frequent writer and speaker on tax, benefits, asset protection planning, and estate planning topics as well as on practice management topics including improving the delivery of legal services, technology in the practice of law and process automation.

Here is her commentary:

EXECUTIVE SUMMARY:

The New York State Bar Committee on Professional Ethics recently issued an opinion that a lawyer has an obligation to indefinitely safeguard wills in the lawyer’s possession.[i] The rule relied on by the New York State Bar is modelled after the ABA Model Rules of Professional Conduct.

FACTS:

It is a common practice for lawyers to safeguard wills for clients. In the instance which promulgated a New York ethics opinion on the subject, a lawyer was in possession of over 500 wills with respect to which the status of the testator was unknown. Some of the wills had been prepared by the lawyer. Others were being safeguarded as a result of having come into the possession of the lawyer via other lawyers by succession to their practices. The lawyer had exercised due diligence in seeking to locate the testators by searching office records, court records and attempting to find information regarding testators, executors and beneficiaries.
The question brought to the New York State Bar Committee on Professional Ethics was whether the lawyer safeguarding the wills could dispose of the wills. The opinion provided that a lawyer is obligated to “safeguard the wills indefinitely unless the law provides another alternative.”[ii]
COMMENT:

The New York State Bar Committee on Professional Ethics opinion pointed out that the Rule 1.15(c)(1) of the New York Rules on Professional Conduct provides that a lawyer “shall promptly notify a client or third person of the receipt of funds, securities, or other properties in which the client or third person has an interest.” Pursuant to such rule, a lawyer is required to preserve the property, keep records with respect to the property and to deliver the property when a request is made for the same. The opinion states that a will is a piece of property. New York’s Rule 1.15 is modelled on Rule 1.15 of the ABA Model Rules of Professional Conduct.[iii]

It was noted in the opinion that there existed previous authority requiring a lawyer who inherits wills from another attorney who retires to make reasonable efforts to notify testators that such lawyer holds the wills.[iv] The opinion also noted that the issue had been addressed by the New York City Bar Association, which had concluded that a lawyer in possession of wills has an indefinite obligation to continue to safeguard such wills. The longstanding practice of maintaining client wills in attorney safekeeping invokes various ethical duties. Lawyers doing so should maintain detailed logs of wills that are in their custody and notify testators when they inherit wills from a retiring lawyer.

HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE!

Mary Vandenack

CITE AS:
LISI Estate Planning Newsletter #2778 (February 19, 2020) at http://www.leimbergservices.com Copyright 2020 Leimberg Information Services, Inc. (LISI). Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission. This newsletter is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that LISI is not engaged in rendering legal, accounting, or other professional advice or services. If such advice is required, the services of a competent professional should be sought. Statements of fact or opinion are the responsibility of the authors and do not represent an opinion on the part of the officers or staff of LISI.
CITATIONS:
________________________________________
[i] N.Y.S. Bar Ass’n Comm. on Prof’l Ethics, Op. 1182, 1/23/20.

[ii] Id.

[iii] American Bar Association, Center for Professional Responsibility. Model rules of professional conduct. Retrieved from https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_1_15_safekeeping_property/

[iv] N.Y.S. Bar Ass’n Comm. on Prof’l Ethics, Op. 341, 1974.

Don’t Have Your Head in the Cloud When It Comes to Digital Estate Planning

Most peoples’ lives are connected to a computer, or cell phone, or another electronic device. Today, a large percentage of the population has a social media account. Many individuals have downloaded apps for various purposes such as purchasing music or movies or doing online banking. Cloud based storage systems, cryptocurrency, virtual property, intellectual property rights to blogs and websites, ecommerce accounts like PayPal and Venmo and the abundance of social media apps have exponentially increased the types of digital assets that need to be considered when creating or updating an estate plan.

Federal privacy laws prohibit close friends and relatives from accessing one’s digital assets without proper written authorization.  It is essential for individuals to update their estate planning documents to include their digital assets. Facebook, for example, allows you to name a “legacy contact” who can change your profile and make decisions about your account; however, most digital assets lack this feature. Your digital personal representative does not have to be the personal representative of your estate. In addition to designating your digital personal representative, you should also inform the digital personal representative of your digital asset inventory location.

In 2017, Nebraska enacted a version of the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA). The burden is placed on the decedent to provide directions for disclosure to digital assets and to designate a person to access all digital assets. The Nebraska statute identifies a hierarchy of instructions for treatment of digital assets.

Online service providers can create an “online tool” that acts as a digital power of attorney to specify who has access to the decedent’s site (e.g. Facebook’s legacy contact). If the digital asset does not have an “online tool” then the person can use a will, trust, or another writing to determine what should happen to the digital assets. Because Wills become public documents, the Act allows for individuals to make an ancillary document to the Will that lists passwords and other sensitive information that will not become part of the public record. If none of these steps have been taken with a decedent’s digital assets, then the service provider’s Terms of Service Agreement (TOSA) will govern fiduciary’s access to information.

Inserting a digital asset clause in estate planning documents is necessary; however, it is insufficient to ensure an individual’s digital assets will be protected and passed to their intended beneficiaries. Further complexity in digital asset planning is created because of the myriad of digital assets that don’t fit into a single asset category like “personal property.” An example of an asset that is more difficult to define as an asset class is cryptocurrency.   Digital currency functions as a quasi-digital and financial asset.  For example, due to Bitcoin’s anonymity, there are no beneficiary designations on Bitcoin accounts. Special attention must be given in testamentary documents to specifically address access of these accounts and how they will be distributed through those documents.

Once a person who holds digital assets has designated and given access to the personal representative or trustee, they must also contemplate the tax consequences of those asset.  For example, consideration must be given to the potential capital gains tax on the asset as well as determining the fair market value of the asset to determine if there is an adjusted date of death cost basis.

Due to the variety of digital assets an individual possesses, the owner of digital assets should leave specific instructions on how to delete, memorialize, or designate heirs or legatees of their digital assets. Nebraska law provides the authority to designate a fiduciary to have control over a decedent’s digital assets. Careful planning will ensure the fiduciary is aware of all necessary digital assets and will further ensure proper distribution of those assets consistent with the digital owner’s intentions.

© 2019 Vandenack Weaver LLC

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SSA Updates Social Security Taxable Wage Base for 2018

By Joshua A. Diveley

In October, the Social Security Administration (SSA) announced an adjustment to the Social Security taxable wage base to take effect in January based on an increase in average wages. Based on the wage data Social Security had as of October 13, 2017, the Social Security taxable wage base was set to increase to $128,700 in 2018, from $127,200 in 2017. Based on newly released data obtained by SSA, the new Social Security taxable wage base for 2018 is $128,400.

This lower taxable amount is due to corrected W2s provided to Social Security in late October 2017 by a national payroll service provider. Approximately 500,000 corrections for W2s from 2016 were received by SSA and resulted in the downward adjustment for 2018.

For more information about the updated 2018 taxable maximum amount, please visit www.socialsecurity.gov/oact/COLA/cbb.html

 

© 2017 Vandenack Weaver LLC
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Court Ruling Sheds Light on Estate’s Ability to Access Digital Information

By Monte L. Schatz

The Supreme Judicial Court of Massachusetts issued a ruling on October 16, 2017 that empowers administrators of estates to access digital content of deceased persons.

Federal statutes 18 U.S.C. §§ 2701 through 2712 titled The Stored Communications Act created privacy rights to protect the contents of certain electronic communications and files from disclosure by certain online service providers. If the Act applies, the online user account service provider is prohibited from disclosing the contents/files to the estate or trust representatives and family members unless there is an exception under the Act. The result of this legislation was that many digital communications and accounts of a deceased person were inaccessible

The Stored Communications Act provides for certain exceptions in § 2703 (b). One of the exception states that, “[A] provider may divulge the contents of a communication… with the lawful consent of the originator or an addressee or intended recipient of such communication.” The language of this exception did not clarify if the recipient could include a fiduciary of a trust or estate.

In Ajemian v. Yahoo, 478 Mass. 169 (2017) the administrator and siblings of a deceased brother’s estate sought to gain access to information from the son’s Yahoo email account. In that capacity, they sought access to the contents of the e-mail account. While providing certain descriptive information, Yahoo declined to provide access to the account, claiming that it was prohibited from doing so by certain requirements of the Stored Communications Act (SCA), 18 U.S.C. §§ 2701 et seq. The Supreme Judicial Court of Massachusetts stated in its decision that, “Nothing in this definition would suggest that lawful consent precludes consent by a personal representative on a decedent’s behalf. Indeed, personal representatives provide consent lawfully on a decedent’s behalf in a variety of circumstances under both Federal and common law.” The court relied on Massachusetts’ provisions in the Revised Uniform Fiduciary Access to Digital Act that has been adopted in 36 states including Nebraska and Iowa. This legislation provides a clear state law procedure for fiduciaries to follow to request access to or disclosure of online account contents and other digital assets.

Though the Massachusetts state court ruling isn’t binding on other states, this case will provide valuable precedent and guidance in interpreting and applying a standard that allows estate administrators to gain access to digital information of a deceased that previously was prohibited under strict interpretation of federal law by certain digital service providers.

© 2017 Vandenack Weaver LLC
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Internal Revenue Service and the Department of Treasury Withdraw Estate Valuation Regulations

by Monte L. Schatz

Historically, valuation discounts have been used as an estate planning tool to minimize estate, gift and generation-skipping taxation.  The ability to minimize taxation of ownership interests in closely held corporations, limited liability companies and partnerships has been critical in helping to assure the preservation and continuity of those businesses by legally avoiding tax obligations that would adversely affect the liquidity and cash flow of operating businesses.  The use of valuation discounts has been in a state of uncertainty for the past several months. Proposed regulations published by the Internal Revenue Service would have restricted valuation of discounts previously recognized under Internal Revenue Code § 2704.

The 2704 valuation discount provisions allow for statutorily recognized reductions in value resulting from the restrictions, illiquidity and reduced marketability of closely held business interests.  The 2704 discounts were particularly helpful for entities that were family owned businesses.  The proposed regulations published on August 4, 2016 would have provided for disregarding restrictions placed upon shareholders, partners or members for sale of their interest.  The practical result of disregarding those business entity restrictions would be elimination of any discount from the fair market value for those interests.  The entity would be taxed at fair market value thereby potentially increasing estate, gift or generation-skipping taxes for holders of those interests.

On April 21st, 2017 the President issued Executive Order 13789 instructing the Secretary of Treasury to review all significant tax regulations that:

i. impose an undue financial burden on U.S. taxpayers;

ii. add undue complexity to the Federal tax laws; or

iii. exceed the statutory authority of the IRS.

The Secretary of Treasury submitted a final report to the President on September 18, 2017 recommending a complete withdrawal of the proposed regulations that would have eliminated certain valuation discounts for closely held businesses.  The report has been filed as of October 17th and is set for Publication on October 20, 2017.

§ 2704 Valuation discounts have been preserved for taxpayers who own closely held businesses.   The continued recognition and reaffirmation by the Treasury Department and Internal Revenue Service of valuation discounts preserves a critical estate planning tool for legal professionals to assist minimizing taxation of their client’s estates and helping to preserve the continuity and preservation of taxpayer’s ownership interests.

SOURCES:  https://www.gpo.gov/fdsys/pkg/FR-2016-08-04/pdf/2016-18370.pdf
https://s3.amazonaws.com/public-inspection.federalregister.gov/2017-22776.pdf

© 2017 Vandenack Weaver LLC
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PLANNING FOR MENTAL DECLINE

by Monte L. Schatz

When the topic of estate planning comes to mind, most individuals think about the distribution of their assets at death.   The increased longevity of our population requires equal attention to diminished cognitive skills caused by dementia or other diseases that affect normal cognitive functioning.

Dementia is a syndrome in which there is deterioration in memory, thinking, behavior and the ability to perform everyday activities.  An estimated 5.5 million Americans of all ages have Alzheimer’s disease.  One in 10 people age 65 and older has Alzheimer’s dementia.  The average survival time for people diagnosed with dementia is about four and a half years, new research shows. Those diagnosed before age 70 typically live for a decade or longer.  The time frame from mild cognitive decline to the onset of dementia averages seven years.   Typically, when an individual is in the moderately severe cognitive decline, assistance may be required for daily activities and management of the person’s financial affairs.

The difficulties that families encounter is determining when the person no longer can manage their own affairs or maintain his or her own physical well-being.  The ultimate question of capacity is a legal determination and in some cases a judicial determination, not a clinical finding. A clinical assessment stands as strong evidence to which the lawyer must apply judgment considering all the factors in the case at hand.  While psychologists and other health professionals may use different terms than lawyers, conceptually the clinical model of capacity has striking similarities to the legal model.

The best estate planning approach is to take proactive legal steps ahead of mental decline to assure adequate personal and financial care and to minimize unnecessary legal costs or litigation expenses.  The legal tools available to circumvent legal capacity issues include:

• A will drafted in advance of cognitive decline to minimize heirs contesting an estate.
• A living trust should be considered to assure proper management of assets and continuity of financial management by a trustee for the incapacitated person’s benefit.
• A durable power of attorney for financial matters designating a trusted and financially responsible individual to manage assets upon the onset of mental incapacity.
• A health care power of attorney or directive that provides for a designated person to make health decisions in the event of incapacity.
• A living will that outlines, in advance, the wishes of a person who receives artificial life sustaining treatment.

Thoughtful estate planning in advance of mental decline can help avoid expensive court alternatives that can include court conservatorships or guardianships during life and/or estate litigation after the person’s death.  More importantly, well designed advanced planning minimizes the possibility of disputes among heirs that may disrupt family relationships.

© 2017 Vandenack Weaver LLC
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Maximizing Social Security Benefits

By Monte Schatz

Changes in legislation always require an adjustment period and time for understanding.  The Social Security Administration approved legislation in October 2016, effective January 2, 2017.  Their changes affected six major areas: payments, tax cap, earnings limit, maximum benefit, double claims, and suspended payments.

1. Payments. The payments change is a 0.3% increase which although modest amounts to an average of $5 per retired claimant per month. This change also affects the maximum possible benefit for retirees, increasing by $48 per month.
2. Tax Cap. The tax cap increase changes the amount of income, upon which the 6.2% earnings tax applies, from $118,500 to $127,200. This increase results in an average additional $45 of tax withholding monthly if you earn more than $127,200 annually. There are no changes to the withholding amounts if you make less than the previous limit.
3. Earnings Limit. The earnings limit is affected by two major changes.
   • The first is an increase in the allowed amount for those receiving benefits but not yet at full retirement age (65 and younger) from $15,720 to $16,920. The $1200 annual increase allows a worker to earn this additional amount annually, before being subject to decreased monthly social payments.
   • The second earnings limit change reduces the payment withholding to $1 for every $3 earned in excess of $16,920.  Previously, payment withholding was assessed on $1 for every $2 limit of earnings in excess of the full retirement age limit
4. Maximum Earnings. The earnings the reduction of payment withholding will be  particularly beneficial for those who elect to defer receiving benefits at full retirement age (66 years of age and older). Benefits for those who elect to wait until full retirement age increases by $3000 annually to a limit of $44,880.
5. Double Claim. The double claim adjustment seeks to close a previous loophole which allowed individuals to claim spousal payments at an early age and then claim individual payments after reaching full eligibility age. This change removes the ability to elect a different payment option for married retirees and automatically entitles the recipient to the higher of the two at the time they elect to receive.
6. Suspension Procedure. Finally, the changes to the suspension procedure prevents an individual from filing for retirement and then suspending receipt of benefits. This previously allowed a recipient to suspend their benefits until they reached the full benefit age while still collecting allowing their spouse or dependent to benefit at the reduced level. Other than an exception for divorced spouses, if the entitled recipient elects to suspend benefits, all related family entitlement will be suspended for the same period.

With these changes, it is important to understand the impact on individual retirement planning. The most significant long term change is the increase in earnings limit, expected to impact twelve million wage earners.  If your income exceeds the previous limit you are now subject to a tax on more of your earnings, although this tax is nominal it does affect retirement planning.  With a decrease in available net earnings, if earning more than $118,500 a careful review of planned retirement investment amounts is necessary for your own personal portfolio.

The other significant change is the combination of suspension payments and double claim rules.  A best practice to maximize social security benefits for retirement is to wait to claim until full benefit age is reached and not just retirement age.  This practice continues to be the more prudent decision if health and ability restrictions do not limit your capacity for earning.  The new wait and suspend changes, your monthly total benefits will be higher but you will not be able to double dip meaning you cannot have one wage earner and one benefit recipient in the same household.  A careful review of financial status and evaluation of ability to wait and receive both payments at the higher amount instead of both at a reduced amount is a beneficial practice for retirement future.

© 2017 Vandenack Weaver LLC
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Selection of Asset Protection Trust Jurisdiction

By Monte L. Schatz

A lawsuit for wrongful death and negligence was filed February of 2017 in the Los Angeles Superior Court by parents of their 21 year old son who drowned July of 2015 in the pool of celebrity Demi Moore’s Beverly Hills residence. The suit is being filed against two individuals (Demi Moore’s employees who managed the house) as well as the Tree House Trust. Moore’s property was strategically titled in this trust for asset protection purposes. Moore is not likely to be named individually in the lawsuit because of her residence being held in an asset protection trust.

Most clients should consider effective asset protection strategies. Asset protection requires many legal and tax considerations unique for each client’s situation.

Historically, many trusts placed heavy reliance upon trust spendthrift clauses. These clauses often protected the trust from creditors from satisfying judgments against property held within the trust. However, once a distribution is made from the trust to a beneficiary, the creditor can attach those distributed trust assets to satisfy their judgments. Also, many states exempt certain classes of creditors as a matter of public policy from spendthrift provision. Examples include creditors who have provided essential services, or individuals who have judgments for unpaid alimony or child support liens.

Irrevocable asset protection trusts can provide additional protection from creditor claims. Asset protection trusts can be “domestic” or “offshore”. Before 1997, most asset protection trusts were set up in “offshore jurisdictions” outside the United States and generally were used by only the extremely wealthy. In 1997, Alaska adopted the first state laws for “domestic asset protection” statutes. Many states have since adopted similar laws and other states are considering adopting asset protection laws. The primary differences between the two types of asset protection trusts is that domestic asset protection trusts are not as likely to raise concerns with the IRS as offshore asset protection funds. Creditors may have a more ability to attack a domestic asset protection trust as they are within United States jurisdiction, the fact remains assets are kept offshore in a secure account is something that will raise IRS scrutiny due to prior historical IRS tax evasion scams utilizing offshore trusts.

© 2017 Vandenack Weaver LLC
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Proposed Basis Consistency Regulations

The Internal Revenue Service released proposed and temporary regulations to further consistency in the reporting of the tax basis of certain property received by a beneficiary of an estate or trust. These regulations provide guidance regarding the basis consistency requirements under IRC 1014(f) and reporting requirements under IRC 6035.

For estates with tax due after July 31, 2015, the executor or trustee is required to file Form 8971 indicating information about the beneficiaries, the property to be acquired by the beneficiaries, and the estate tax value of the property. The initial basis of the beneficiary may not exceed the basis reported to the IRS on such form. The executor is also required to furnish a statement (Schedule A of Form 8971) to each beneficiary who will acquire property from the estate including the value of the property. Estates filing tax returns to elect portability for a surviving spouse are not required to file the basis consistency reports. The regulations also establish penalties for inaccurate basis reporting and failures to furnish correct statements.

 Generally, Form 8971 must be filed with the IRS no later than 30 days after the estate tax return is due or filed and is required to be filed separately from the estate tax return. Effective March 23, 2016, the IRS announced that additional time will be granted to estates currently required to file Form 8971 and delayed the time to file and furnish the statement to beneficiaries until June 30, 2016.

© 2016 Vandenack Williams LLC
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New Nebraska Law for Accessing Digital Assets of Deceased

On April 13, Nebraska passed legislation for handling digital assets for those that die or become unable to manage their own assets. LB 829 authorizes four types of individuals to manage the digital assets, similar to how they would manage tangible property, for the deceased or incapacitated. This law follows the Revised Uniform Fiduciary Access to Digital Assets Act, as finalized by the Uniform Law Commission in 2015.

Prior to this law, managing the digital accounts of the deceased was difficult and time consuming, especially in situations where the fiduciary does not have the passwords for the deceased. This new law works in conjunction with Nebraska probate, guardianship, trust, and powers of attorney laws. For executors or administrators of deceased individual estates, court-appointed guardians or conservators, agents appointed by a power of attorney, or a trustee, they will now have a legal basis for accessing digital assets.

When a fiduciary is in a situation needing to access the deceased digital assets, the law creates a tiered system for access. Generally, if the digital asset has an online portal maintained by a third party that allows the user to grant access to another, those rules take priority. However, failure to use such an option or if no tool exists, the new statutory power granted to the fiduciary will apply.

© 2016 Vandenack Williams LLC
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