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Estate Planning and Digital Assets

April 17, 2015 By Cardinal Point Wealth

digitalcloud Imagine if you were to die tomorrow what your email account would provide for your loved ones: access to your contacts, personal and business communications, photos, and memories. While an email account may not be worth anything in terms of an estate, it could have a high emotional value for those closest to you.

Now imagine that your family legally cannot access that account even if you had provided them with the logon credentials with which to gain access. Many companies do not allow the transfer of ownership or rights over the account to anyone but the originator. And if anyone illegally accesses your email, the individual could face fines or even jail time for violating current on-the-books electronic privacy and anti-hacking laws.

Only when the estate produces a death certificate will the account be terminated and permanently deleted. While the information within an email account may not be significant, it is important to understand that strict privacy policies and service contracts have been put in place by companies to protect the account holder at all times. Short of a court order, there is presently little valid legal basis for an executor to assume ownership or even access the majority of digital assets.

This means, if a digital account was the only means of communicating with and/or accessing a particular investment (whether it be actual or digital, such as Bitcoins or photos, music and manuscripts stored in the cloud), it may prove extremely expensive to the estate in terms of legal fees, time and frustration to gain access.

Even if one’s parent had expressly written down accounts, user names and passwords as part of his or her estate paperwork, their own child, if appointed fiduciary of the estate, could face legal repercussions.

In Canada, these laws include the Privacy Act, the Personal Information Protection and Electronic Documents Act, and various other regulations in the Criminal Code tied to the Convention of Cybercrime. In the United States, there are the Electronic Communications Privacy Act and the Computer Fraud Abuse Act.

Laws, Regulations Neither Universal Nor Tested
In 2014, U.S. financial planners moved to bridge the gap between regulations and realities with the Uniform Fiduciary Access to Digital Assets Act (UFADAA), which was passed by the state of Delaware. The UFADAA allows access to parties acting in a fiduciary capacity such as an attorney, trustee or executor.

Even though this step allows legal access be granted to the interface, say the email account, the UFADAA automatically assumes the asset is an electronic record (think documents stored in a Dropbox account). Unfortunately, that’s not always the case. While there may indeed be electronic records of an online brokerage account, the underlying asset may not be electronic if it is ownership interest in a corporation as represented by equity holdings, for example. In such an instance, even where the UFADAA can be cited and used, it has limitations if the asset is governed by another service provider’s agreement with the original account holder.

Other states are lined up to pass legislation similar to Delaware’s UFADAA while Connecticut, Indiana, Rhode Island, Oklahoma Idaho, Virginia and Nevada have their own digital asset laws in place.

The same body behind the U.S. acts, the Uniform Law Conference (ULC), has a Canadian counterpart, the ULC of Canada. While the ULC of Canada is said to be keeping an eye on the topic, it has not driven any legislation or established case law.

The bottom line is there is no universal regulation in either the Canada or the United States for estate trustees and beneficiaries to gain access to all digital assets on behalf of the deceased. Canada lacks both legislation and case law. The U.S. has various state laws that not only remain largely untested in court, but are already out-of-date (the earliest date to 2005). This leaves the estate at the mercy of the service providers whose policies in most instances benefit them more than the deceased account holders’ beneficiaries.

Yahoo made news when it refused the parents of a Marine killed in battle access to their son’s emails to and from Iraq (it was later settled in probate court). Facebook made news when it successfully prevented the estate of a model who committed suicide access to any evidence of her state of mind as expressed through Facebook posts and messages.

Estate Planning Needs To Include Digital Assets
Clearly estate planning needs to include digital assets. One study1 found that 86% of Canadian Baby Boomers used at least one financial online tool.

Another survey conducted by Internet security firm McAfee showed that in the United States, citizens surveyed said they had up to $55,000 in unprotected digital assets; globally, this figure was $37,438. However, the study was done in 2011 and the exponential proliferation and adoption rate of digital assets has undoubtedly grown since then (think: tweets, e-books, MP3 files, Facebook, LinkedIn, PayPal, just for starters).

Digital assets can have significant monetary value in and of themselves, let alone as a gateway to further assets. These could include an iTunes account, a massive amount of e-books, online blogs which make money through advertisements, clicks and/or password-protected electronic orders and invoices. Executives may keep business plans on Google Drive, e-book authors may have agreements with Amazon and other outlets and, on the sentimental side, many families have digitized film, photos and videos and stored them electronically.

You may — or may not — want beneficiaries reading your email and going through your photos. The only way to address your preference is by drafting specific clauses in your will which first establish exactly what you mean by “digital asset,” details accounts and passwords, and provides the estate trustee explicit instructions on how you want these assets to be handled.

On a case-by-case basis, you will need to spell out to whom you give the power to access, handle, distribute and dispose of your digital assets, as well as who has the power to obtain, modify, delete or control any passwords or other “electronic credentials” associated with both digital devices and digital assets.

One tool in a US estate planner’s arsenal to circumvent all the national and state laws and to represent you is the establishment of a “digital asset trust.” This tool provides the argument that user accounts and logins for digital assets are licenses that expire on death but that through the use of trust law, they can be rendered no longer dependent on whether or not an individual is living or incapacitated.

Even if you want privacy and assume that companies will continue to protect it after you pass, you need to spell that out as undoubtedly laws and regulations will evolve. In the future, companies may be forced to give families access to a deceased person’s data or accounts.

While technology has developed much faster than the law and is likely to continue to do so, you need to be proactive by taking steps to articulate your wishes and ensure, as far as legally possible, that they are followed. Otherwise, your email and other digital accounts — whether you want them accessed or not — could be locked forever.

1Source: BMO Financial Group (April 2012). Estate planning in the 21st century: New considerations in a changing society. Web site: bmo.com

Advisory services are only offered to clients or prospective clients where the independent Cardinal Point firms and its representatives are properly licensed or exempt from licensure. Each firm enters into client engagements independently. Past performance is no guarantee of future results. This information is provided for educational purposes only and should not be considered investment advice or a solicitation to buy or sell securities. Investing involves risk and possible loss of principal capital. Copyright © 2015 Cardinal Point. All rights reserved.

Filed Under: Articles Tagged With: Digital Assets, Estate planning, Financial Planning

Get Your Financial House in Order

May 10, 2014 By Cardinal Point Wealth

financial-organizing Spring is in full swing. For many of us, greener surroundings and rising temperatures have already led us to get rid of the dirt and clutter that has collected over the past year. As we scrub and reorganize, it’s easy to overlook another area that could use a good dusting: our financial lives.

Like spring cleaning, financial planning is an opportunity to commit to a more organized approach. Now that spring is halfway over and tax returns are filed, it’s the perfect time to take a look at your financial situation and make sure you have the right planning partner. Here are five tips to get you started:

1. Ask an Expert – Another similarity between spring cleaning and financial planning: it can be hard to know where to begin. Comprehensive financial planning involves a review of investment, taxation, insurance, retirement and estate needs. It is essential to properly coordinate these disciplines with one another. A recommended starting point for this process is to craft a financial plan with a qualified advisor. An advisor should belong to an organization that has sufficient financial planning experience and credentials. The Certified Financial Planner™ or CFP® from the Certified Financial Planner Board of Standards is one such credible designation.

2. Follow the Cash Flow – An important topic for any planning analysis is your after-tax cash flows for the preceding year. When properly reviewed, income and spending patterns can emerge and be assessed by family members and the financial advisor. Pay stubs and health care expenses are examples of data points that should be discussed. A well-informed financial advisor can position your portfolio to supplement your cash flow requirements.

3. Get Up to Speed – Just as spring brings change and the opportunity for reassessment, financial plans should be updated as significant events occur. Examples are the birth of a child, the sale of a business and modification to the tax code. A few key topics to be revisited in your financial plan include liability analysis, risk management, education funding, generational transfer as well as charitable planning.

4. Get Future Focused – An advisor should review your specific goals, values and time frames prior to offering any advice. Importantly, a financial plan can help quantify and qualify your financial position and offer projections well into the future. Of course, predictions regarding the future are not definitive and cannot be relied upon. However, future projections can be effective in creating a dialogue about “what if” scenarios. For example, return assumptions that illustrate a 2% portfolio return verses a 10% return could meaningfully impact one’s retirement lifestyle.

5. Clear the Clutter – An important aspect of spring cleaning is getting rid of the clutter. The financial planning equivalent is account consolidation. It is not uncommon for individuals to have duplication within their retirement accounts. For example, one might have three 401(k) accounts with three separate financial institutions. In many cases, it is prudent to “rollover” these three accounts into a single IRA account at a preferred financial institution. One of the advantages of utilizing this strategy is that assets can be managed as one unit. This setup offers additional efficiency and transparency when structured properly.

The best part about spring cleaning your financial life is that there are no dust bunnies or heavy lifting involved. All that is required are time and resolve. And if financial planning is anything like cleaning out the garage, the more time you put in now, the less time you’ll spend sorting through clutter in the future.

Terry Ritchie is the Director of Cross-Border Wealth Services at the Cardinal Point, a cross-border wealth management organization with offices in the United States and Canada.  Terry has been providing Canada-U.S. cross-border financial, investment, tax, transition, and estate planning services to affluent families for over 25 years.  He is active as an author, speaker and educator on international tax and financial planning matters. www.cardinalpointwealth.com

Filed Under: Articles Tagged With: Financial Planning

Why Should Every Investor Request an Investment Policy Statement?

April 18, 2012 By Cardinal Point Wealth

John McCord discusses the importance of defining financial goals and responsibilities in his piece discussing Investment Policy Statements (IPS). While not a financial plan, an IPS is a critical component of a holistic financial plan that takes into consideration insurance, estate, and retirement planning. Critical in any client-financial advisor relationship is a mutual understanding that reflects the client’s financial planning situation. An IPS assists in this mission and details and defines a client’s needs, goals, investment knowledge, net worth, time horizon, and risk tolerance. With an IPS document, clients have a more clear understanding of a financial advisor’s investment philosophy and reference point to adjust when a change in personal financial situation occurs. Cardinal Point wealth Management works with clients to ensure a customized cross-border financial planning strategy and to develop Investment Policy Statements that reflect the unique situation of each client.

Filed Under: Articles, Investment Management Articles Tagged With: Financial Planning, Investment Management, Investment Policy Statement

Why Is It Important To Create A Cash Flow and Net Worth Statement?

January 27, 2012 By Cardinal Point Wealth

This article focuses on the cash flow and net worth statement as essential to the financial planning process, serving to both quantify and qualify one’s financial affairs. When updated annually, these documents can help set goals and be useful in tax planning and risk management. The cash flow statement shows inflows and outflows of cash receipts and disbursements over a time period. Subtracting total cash outflows from total cash receipts produces a number that shows the individual or household’s spending patterns. Cash flow statements also help project future income and spending patterns. The net worth statement is comprised of three components: assets, liabilities, and net worth. Net worth is determined by subtracting total liabilities from total assets; it helps indicate one’s level of financial freedom and flexibility.

Filed Under: Articles, news Tagged With: Financial Planning

Is Your Financial Life In Order?

January 10, 2012 By Cardinal Point Wealth

John McCord’s article highlights the start of 2012 as the perfect time to reassess the state of your financial plan, including your investment, taxation, insurance, retirement and estate needs. When cross-border complexities are present, the need for a coordinated review is even more pronounced. The process starts with a qualified advisor and a planning analysis of the preceding year’s after-tax cash flows. An advisor should also review goals, values and time frames, and financial plans should be updated to reflect significant events. In addition, account consolidation should be considered in areas such as retirement accounts.

Filed Under: Articles, news Tagged With: Financial Planning

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“Cardinal Point” is the brand under which dedicated professionals within Cardinal Point Capital Management, ULC provide financial, tax and investment advisory, risk management, financial planning and tax services to selected clients. Cardinal Point Capital Management, ULC is a US registered investment advisor and a registered portfolio manager in Canada (ON, QC, MB, SK, NS, NB, AB, BC). Advisory services are only offered to clients or prospective clients where Cardinal Point and its representatives are properly registered or exempt from registration. This website is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital.