Death and our Digital World

My head spins when I consider all of the profiles and accounts I have online.  Chances are you are like me and have accounts with many of the following social networks or online services:  Facebook, Linkedin, Twitter, Snapfish, Amazon, iTunes, iCloud, Gmail.  In addition, an increasing number of people manage important accounts and services online.  Consider how many different user names and passwords you have in order to access online bank accounts, retirement and investment accounts, mortgage loans and credit cards.  Would your family have adequate information about your online accounts and profiles if you suddenly died?

When I ask myself this question, the first thing that comes to mind is that I no longer have paper account statements.  I typically view statements online.  If something happened to my wife and me, how would our families even know that we have such accounts?  Family members might have to resort to searching hard drives and web browser histories (that could be embarrassing!) for clues about our financial assets.  As you might imagine, such a process would great exacerbate an already overwhelming situation for our loved ones.

Do your family a favor.  Take some time to gather your important financial information, including online usernames and passwords.  Consolidate this information into one document and update it periodically.  Keep the document somewhere secure and let your family know where they may find it in the event of your death.  Be sure to include in the document essential information about life insurance, retirement accounts, bank and investment accounts, safety deposit boxes, mortgage(s) and credit cards.  Provide contact information for your attorney, accountant, insurance agent and financial advisor. Finally, provide the location of your estate planning documents and burial instructions.

The ability of your family to manage or terminate your social network profiles at death depends upon each network’s terms of service.  This is a relatively new challenge for fiduciaries of a deceased person’s estate, and a bill was recently introduced in the New Hampshire legislature (HB 116) to give fiduciaries the statutory authority to control, continue or terminate a deceased person’s account with a social networking site or email service.  The bill was subsequently tabled, but legislators and courts will continue to grapple with this topic which raises important issues of access and privacy. 

By:  Brian C. Kelly


Estate Planning Post Fiscal Cliff

As part of the “fiscal cliff” legislation passed earlier this month, Congress fixed the federal estate tax credit at $5.12 million.  This generally means that estates of individuals having less than $5.12 million at death will not be liable for any federal tax.

Congress also extended the so-called “portability” of the credit that allows surviving spouses to use the portion of the credit not used by a deceased spouse.  Such portability allows a married couple to pass $10.24 million to their children or other beneficiaries free of federal estate tax.

The new legislation also fixes the federal gift tax at $5.12 million.   Individuals may generally make lifetime gifts totaling $5.12 million without incurring any federal gift tax.  The gift tax credit remains unified with the estate tax credit.  In other words, an individual has a $5.12 million credit to be used during lifetime or at death.  If an individual makes a $500,000 lifetime gift, then the individual’s estate tax credit to be used at death will be reduced accordingly.

Finally, the federal gift tax annual exclusion is $14,000 for 2013.  Individuals may gift up to $14,000 to each of as many people as the individual chooses during the calendar year.

Clearly we are not in Kansas anymore.  Gone are the days when many middle class individuals and married couples required credit shelter or bypass trusts to reduce or eliminate federal estate tax exposure.  The new law, including the flexibility afforded by the portability provisions, renders estate tax planning a non-issue for all but the very wealthy in New Hampshire.

That said, a comprehensive estate plan remains as important as ever.  Most individuals and families will continue to face estate planning issues unrelated to taxes:  management of assets for minor children, proper beneficiary designations for 401(k)s and IRAs, health care directives, and planning in second marriage situations.  Tax planning was always just a portion of the estate planning process.

In my practice, I have always found that the majority of adverse consequences stemming from a failure to properly plan have absolutely nothing to do with the federal estate tax.  More often than not, I find that a lack of planning results in losses or depletions in estates due to outdated or incorrect beneficiary designations on life insurance or retirement plans, plans that pass wealth onto children in an inefficient manner, and dissention among beneficiaries.  These dangers will always be present regardless of changes in the federal estate tax system.

By:  Brian C. Kelly