Generally, when planning one’s estate and organizing personal affairs, two things come to mind — death and taxes. Organizing one’s affairs for prior generations was simpler, as assets were generally easier to discern, locate, value and distribute. Today’s estate planning is not just about death and taxes, but includes protection of one’s assets from the potential claims of creditors as well as personal income tax planning. Financial advisers and estate-planning professionals say many of their clients feel uncertain about the kind of world their heirs will inhabit, what with advances in technology, political and economic upheaval and even fast-evolving views of what constitutes a family. Discussed in this article are a few crucial issues to take note of.
Social Media: Social media has significantly changed the way we live and communicate with others. Many people take great care to control their image on social media sites such as Facebook, Twitter, Instagram and LinkedIn. However, deciding who should have access to your social media accounts after death is an increasingly sensitive and significant issue. Social media accounts often contain personal messages, photos and videos and other information of an extremely private nature. Social media websites generally have strict privacy policies and often do not allow access to the accounts of users who have passed away. As more information is stored on the Internet, there must be a plan detailing who should have access to what information.
Digital assets: In addition to information stored on a personal computer or “in the cloud,” such as pictures, videos or music, “digital assets” include e-mail accounts, domain names, account registrations and bitcoins, to name a few items. In the past, a person had only to check the mail to find the assets in a deceased relative’s estate. But as banking and bill payments have moved online, it has become increasingly difficult for executors to determine the extent of a person’s assets after he or she dies. Like social media websites, many e-mail services such as Gmail and Yahoo have strict user agreements to protect the privacy of their customers. Gmail, for example, recently created a feature that allows users to designate someone akin to naming a bank account beneficiary to have access to their e-mail accounts when they die.
Self-settled trusts: A self-settled trust is one that allows the creator of the trust to also be a beneficiary, while also providing some level of protection of the assets from the claims of any future creditors. Such a trust can also be designed to provide estate and gift tax savings. These trusts have been around since the early 1990s, and a number of states have self-settled trust statutes, each with varying levels of protection. Nevada, South Dakota and Delaware tend to be the most popular.
Super-charged income tax charitable trusts: Those with high earnings may have a greater sensitivity to income taxes. One way to reduce one’s income tax liability is to increase income tax deductions. One way to do that is through charitable lead annuity trusts (CLATs) which allow individuals to take deductions and give proceeds to charity. CLATs can allow a person to take a significant income tax deduction in the year they are created, even though the payments to charity will be spread out over a number of years.
Life insurance as an asset class: Earlier generations had two choices when it came to life insurance — term or whole life — and life insurance was only considered for the risk of an untimely death or to finance estate taxes. Today, there are multiple variations of term and permanent policies, including variable universal life insurance and indexed universal life insurance. With the risks in the stock market and real estate bubbles, life insurance has become viewed as a relatively safe asset class, and one that generally carries a significant level of creditor protection.
While traditional estate planning documents such as wills, powers of attorney, health-care surrogate designations and living wills are still a vital part of any estate plan, technology and the markets have given the current generation more to consider than their parents or grandparents did not too long ago. As Ferris Bueller said, “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it”, the same goes with organizing one’s affairs and protecting one’s family and wealth.
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- Estate Planning