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Your Data Can Now Have a Beneficiary - Digital Assets

The internet has brought many advances to our lives. The world wide web, emails, blogs, cloud computing, social media and other online accounts are a common way to communicate with family and friends, manage finances or operate a business. Until recently, California law was silent on the right to access those accounts after the account holder’s death, leaving loved ones and personal representatives unable to obtain information, preserve photographs or other materials, or close on-line accounts.

Effective January 1, 2017, a new California statute allows the holder of a digital account to authorize a beneficiary, spouse, or other trusted person the right of access to his or her digital assets after death. The authorization must be in writing, and may be included in a separate consent, a durable power of attorney or a trust instrument. This authorization overrides any terms-of-service contract that the account custodian may require or that the account holder may have agreed to by a click on a computer. The account holder may grant rights to view, delete, copy, or close accounts.

The account holder may also consent to such access through an online tool offered by the custodian. Such online consent supersedes any written direction, provided that the holder may modify or delete the online consent at any time. An online tool for this purpose is an agreement with the custodian of the digital asset separate from the general terms-of-service contract the holder has with that custodian.

The new law applies only if an individual affirmatively opts for its application. The individual may select what access to grant, and may vary access by account or asset. The spouse, children, or other beneficiaries of an individual who does not prepare such a written consent have limited rights under the new law.

The new law allows a fiduciary limited access to digital information stored on an individual’s electronic devices. The trustee must comply with any terms-of-service contract that applies to a digital account, and the fiduciary may not impersonate the account holder. The new statute also does not require the account custodian to disclose passwords or decrypt protected devices. Therefore, it is important to prepare an inventory of digital passwords outside of any device and to provide that inventory, or access to that inventory, to a trusted person for use in the event of incapacity or death. An option is to create an online account with passwords and give a trusted person access to that account. Without proper planning, the account custodian may treat an account that is unused for a period of time as abandoned, and digital information stored on the account holder’s devices may be lost.

In the absence of the written consent of the account holder, a fiduciary may obtain by court order a catalogue of electronic communications sent or received by the account holder.  This catalogue would not include the content of any communications, but it may lead to relevant information regarding the estate administration. This access is only permitted if disclosure is reasonably necessary to the estate administration.

The authorization under this new law can be incorporated into existing estate planning documents. Those documents can serve two purposes: they constitute an account holder’s written consent to disclosure of digital assets and frame the terms of that disclosure, and they can give a fiduciary specific powers to retrieve and manage digital assets.

We would be pleased to discuss this new law and related planning with you in greater detail.

Estate Tax Repeal on the Horizon?

The recent national election results have created uncertainty, some may say new hope, regarding the repeal of the federal estate tax. Repeal has had political resonance for many years, even though very few taxpayers are affected. According to published government statistics, 11,917 estate tax returns were filed in year 2015 with only 4,918 of those showing a tax due.

Tax Savings Alert – Direct Charitable Gifts from IRAs

Owners of traditional Individual Retirement Accounts (IRAs) may use a special rule to achieve substantial income tax savings while benefitting charities of their choice. They may transfer up to $100,000 from their IRAs to charitable organizations without incurring income tax on the IRA withdrawal.

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Hartog, Baer & Hand Trust and Estate Law Profile

Hartog, Baer & Hand Trust and Estate Law Profile “As Seen In…” Bloomberg Businessweek, Fortune, and Money

David W. Baer interview on Financial Elder Abuse

KPIX 5 (CBS San Francisco), October 26, 2015

The New Duty of Consistency and Reporting for Estate Tax Purposes

Investment assets acquired from a decedent receive a new income tax basis equal to their fair market value as of the decedent’s death. Until now, a decedent’s beneficiary could claim a basis greater than that reported on the estate tax return, avoiding a capital gain or related income tax on the difference.

A New Era in Real Property Exchanges in California

Tax-deferred exchanges of commercial or investment real property are a common strategy for real estate owners. Federal courts have taken a pro-taxpayer approach in allowing taxpayers to structure these exchanges. California has not until recently.

Foreign Accounts Reporting

Individual taxpayers may be aware that they must report foreign financial accounts on their income tax returns if they have a financial interest in those accounts and their reported interest and dividend income exceeds $1,500.

A Word of Caution on Short Term IRA Withdrawals

Many IRA owners withdraw funds from their IRA accounts for short-term purposes. The owner then uses subsequent income to restore funds to the IRA. If the restored contribution is made within sixty days of the withdrawal, the withdrawal may be tax-free.

The Expanding Scope of Elder Abuse

The Elder Abuse and Dependent Adult Civil Protection Act (EADACPA) provides civil penalties when an individual age 65 or older, or a dependent adult, “is deprived of any property right, including by a means of an agreement, by a donative transfer, or testamentary bequest.” Wel. & Inst. Code section 15610.30(c).

Inherited IRAS Are Not Excluded From Bankruptcy

Beneficiaries of retirement plans commonly believe that their IRA accounts will be protected from their creditors. The United States Supreme Court has ruled otherwise: an “inherited IRA” will be subject to the claims of creditors in bankruptcy proceedings.

December 2011 Petter Letter

Recent Ninth Circuit case provides new planning opportunities for persons who wish to combine family entity planning with charitable giving. Such planning can be advantageous for taxpayers who contemplate making significant gifts to charities and to their children, but who also want to avoid uncertain gift tax consequences.

August 2011 Newsletter

Executors and trustees representing estates of decedents who died in 2010 have an important election to make within the next month. Legislation enacted in December 2010 reinstated the default estate tax regime with a $5.0 million exemption and a 35% estate tax rate on assets above that exemption.

John A. Hartog on Opposing Trustee's Payment of Attorney's Fees

Hot Topics in Trust Litigation
presented on June 2, 2011 by the Orange County Bar Association and LexisNexis®
featuring the authors of the
LexisNexis® Matthew Bender® Practice Guide: California Trust Litigation

John A. Hartog on Justifying Fees to a Judge

Hot Topics in Trust Litigation
presented on June 2, 2011 by the Orange County Bar Association and LexisNexis®
featuring the authors of the
LexisNexis® Matthew Bender® Practice Guide: California Trust Litigation

John A. Hartog on Determining Liquidity & Attorney Fees

Hot Topics in Trust Litigation
presented on June 2, 2011 by the Orange County Bar Association and LexisNexis®
featuring the authors of the
LexisNexis® Matthew Bender® Practice Guide: California Trust Litigation

John A. Hartog on Attorney Fee Challenges & Quantum Meruit

Hot Topics in Trust Litigation
presented on June 2, 2011 by the Orange County Bar Association and LexisNexis®
featuring the authors of the
LexisNexis® Matthew Bender® Practice Guide: California Trust Litigation

John A. Hartog on Trustee's Authority & Ability to Hire Attorneys

Hot Topics in Trust Litigation
presented on June 2, 2011 by the Orange County Bar Association and LexisNexis®
featuring the authors of the
LexisNexis® Matthew Bender® Practice Guide: California Trust Litigation

John A. Hartog on Attorney's Fees

Hot Topics in Trust Litigation
presented on June 2, 2011 by the Orange County Bar Association and LexisNexis®
featuring the authors of the
LexisNexis® Matthew Bender® Practice Guide: California Trust Litigation

Tax Planning with Investment Companies

Recent changes to the wealth transfer tax laws have enhanced the appeal of lifetime transfers to grandchildren. This newsletter discusses these new laws and the use of a family investment company as a vehicle for those transfers.

Wealth Transfer Provisions of the 2010 Legislation

On December 16, 2010, the House passed and sent to the President for signature the “The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” (“The 2010 Act”). The 2010 Act affects both federal income and estate tax provisions.

Considerations When Drafting Buy-Sell Agreements

A “buy-sell agreement” is an arrangement among the owners of a business entity for controlling the ownership and transfer of equity interests. A buy-sell agreement often serves as the linchpin between a business succession plan and the estate plans of the owners in transferring ownership and control.

2010 Small Business Jobs Act

The recently enacted 2010 Small Business Jobs Act (Act) includes several tax benefits and incentives. For tax years beginning in 2010 and 2011, a taxpayer may expense up to $500,000 for qualifying property (e.g. machinery, equipment and software) placed in service during the tax year.

Title Insurance Coverage

A recent California case may significantly affect title insurance coverage when real property is transferred between different forms of title even when the beneficial owners remain unchanged.

Administration Budget Proposal

The budget proposal that President Obama and his Administration introduced this week has received wide media attention. That budget proposal is based on assumptions that include changes in federal taxes. This letter summarizes the federal tax changes embedded in the proposal that would affect wealth transfer tax planning.

Roth IRA Conversions

Changes in federal law effective January 1, 2010 will give many taxpayers the first opportunity to convert an existing IRA or qualified retirement plan account into a tax-free Roth IRA account.

2010 Estate Tax Repeal

Federal legislation enacted in 2001 enacted many changes to the transfer tax system. That legislation gave us the current estate and generation-skipping transfer (GST) exemptions of $3.5 million, and a marginal tax rate of 45%.