Month: October 2022

  • 10 Digital Assets To Know and Plan

    Digital assets are part of the estate planning process.  As a result, knowing the different types of assets can help you plan accordingly.  Like any asset type, everybody has something different. Nonetheless, here are 10 key terms to help you get started: 

    1. Bitcoin

    Bitcoin is a digital asset that uses encryption and blockchain technology to record transactions on a global distributed ledger. Created in 2008 as a peer-to-peer payment system, today it is the largest digital asset by market share, but it is not backed by any government, central bank, or physical asset.

    2. Blockchain

    Blockchain is a method of structuring and securing data into unchangeable blocks of transactions. Any attempt to make changes to an earlier block in the chain would change all the subsequent blocks and alert the network to the attempted change. Once a transaction is entered on the blockchain, it cannot be undone.

    3. DeFi

    DeFi or decentralized finance “DeFi” broadly refers to a variety of financial products, services, activities, and arrangements supported by smart-contract technology and designed to exist without intermediaries or third parties such as banks, brokers, or clearinghouses. But the degree of decentralization across DeFi applications can differ widely. In some cases, despite claims of decentralization, operations and activities can be highly concentrated in a small group of developers or investors.

    4. Digital Wallet

    A Digital wallet stores a digital asset owner’s private key—needed to use or spend the digital asset—and public keys, which is how the owner is identified on the blockchain. The private key serves as a digital signature unique to you and must be carefully protected. If your private key is lost or stolen, you will not be able to access your digital assets. There are many kinds of digital wallets, which includes custodial wallets, noncustodial wallets, and hardware wallets.  

    5. Distributed Ledger

    A distributed ledger is a record used to track money coming in and money going out, like your monthly bank statement. A distributed ledger is a public database that runs on many computers around the world. Instead of being centralized—at your bank, for example—a distributed ledger is shared and synchronized among the network participants so there is no single point of failure.

    6. Mining

    Mining is a very strange type of digital asset.  Just like there are gold, silver, and copper mines, there are digital mines as well. Mining is the process of receiving a reward of newly minted digital assets and transaction fees for the work of validating transactions and adding blocks to the blockchain. Miners also maintain copies of the distributed ledger.

    7. Money Service Business or MSB

    A money service business or “MSB” is a nonbank company that transmits money, offers currency exchange, or that issues or redeems travelers checks or money orders. Currently, digital asset exchanges offering service to customers in the U.S. are required to register as MSBs with the Financial Crimes Enforcement Center (FinCEN) and many states. Registration as an MSB won’t protect us from fraud or other problems, but most fraud is committed by unregistered entities.

    8. Non-Fungible Token or NFT

    A non-fungible token or “NFT” is a one-of-a-kind digital asset. It is a proof of ownership of a unique asset that is recorded on a blockchain. No NFT is exactly like another, so they cannot be traded one-for-one like virtual currency or other types of tokens.

    9. Smart Contract

    Another type of digital asset is a smart contract.  A computer program that is stored and runs on a blockchain. They may incorporate the elements of a binding contract or run only under certain conditions.

    10. Stablecoins

    Stablecoins are digital assets that are designed to maintain a stable value relative to a national currency, a commodity, such as gold, or other reference assets.

    Therefore, if you need help addressing digital assets as part of your estate plan, consider working with an estate attorney.

  • Trust Mistake on the Back End

    A trust mistake often occurs with refunds. In the post-mortem administration of property, trustees sometimes work to fast at closing out a revocable trust.

    Refunds from prepaid insurance, taxes, rents, etc. are often unanticipated and slow. Prematurely distributing assets can be detrimental to the management of the trust.

    For example, consider the event when a trustee mistakenly closes out a checking account. In the following month, a refund check is delivered to the mailbox. If the bank account assigned to a trust had already been closed, it will be very difficult or almost impossible to deposit a refund check without some for of probate administration. Although inadvertent, a trust make has occurred.

    An additional trust mistake can occur when there are unpaid bills. Again, trustees who fall for the trap of a “just getting this over with” mentality, unpaid bills can create personal liability. In other words, when the trustee mistakenly pays out funds before all bills have been paid, specifically taxes or utility bills, the financial impact to the bigger picture can be detrimental.

    Therefore, trustees must be prudent and diligent versus fast.

  • Joint Tenancy After A Spouse Dies

    Joint tenancy questions and concerns are common during the estate planning process. For families who have not transferred their home into a trust or were unable to complete a transfer on death deed, options are still available upon the death of a spouse.

    Many married couples who purchase a home form a joint tenancy. This means if one of the spouses dies, the surviving owner will automatically be the sole owner of the property. For many, the surviving joint tenant can file an Affidavit of Identity and Survivorship with the County, along with a Certified Copy of the Death Certificate to transfer ownership to the surviving spouse.

    When the surviving spouse or joint tenant passes away, because the property title will be in his or her name alone, the property will not automatically pass to the rightful heirs. As a result, planning is needed to reduce the risk of probate.

  • Trust Backup Planning

    Backup planning for a trust or estate plan can sometimes cause a lot of stress. After all, the process means thinking through dooms day. Sometimes, addressing a contingency plan is confusing. Really though, there isn’t a one size fits all. A backup plan is going to be personal and specific to each individual or trust grantor. As a result, here are a few things people often mean when reviewing their trust backup plan.

    First, a backup plan is going to be different for each estate planning tool. In terms of a trust, a backup plan starts by determining what will happen when or if a trustee declines the opportunity to serve as a fiduciary. Other times, we are talking about the scenario when a trustee dies. Selecting an alternate trustee is the first issue to many unrelated matters that need addressing during the planning process.

    Unfortunately, a well drafted trust agreement also means selecting an alternate and secondary trustees in the event they can no longer serve. If the trust document fails to mention what will happen, a beneficiary might be forced to seek a trust modification under Minn. Stat. 501C.0410. In other words, getting help from a court.

    Seeking court approval to modify a trust due to a failed backup plan is hardly an ideal situation. This is true because for many families, the point of creating a trust in the first place was to put in place a probate avoidance plan.

    Another popular reason for forming a trust is privacy. In other words, we do not want our assets and distribution choices shared in an open forum, like probate court. Because public proceedings breach privacy, modifying a trust in a public forum due to poor planning can feel disastrous.

    Second, a trust agreement or declaration should always close the circle on backup trustees. In other words, identifying three or more people who can serve as a trustee isn’t good enough. Instead, offering a final strategy like a corporate trustee can really reduce the need for trust administration by way of the judicial process. For families who do not like like the idea of engaging a corporate trustee, sometimes selecting the eldest heir can also put the grantor of a trust at ease.

    Again though, backup planning for a trust is more than thinking through dooms day or the resignation of a trustee. Backup planning also means addressing changes to our tax code, accounting for inflation, disabilities encountered by beneficiaries, and marital conflicts just to name a few.

    Therefore, working through the backup planning process to a trust is very much as critical as the primary plan.