Increasingly, individuals are leaving behind troves of digital assets — social media accounts, emails, photos stored online, cryptocurrency, website domains, and more. As part of your estate plan, it is important to consider these assets and plan for them accordingly.
Step One: Make a list
The first step is to make a list of all of your digital assets so that your loved ones will know what you have
Thirty years ago, the common practice was for attorneys to keep their clients’ original signed wills in their firm’s vault. While this seems like a good idea on the surface (attorneys can keep it safe from prying family members, it won’t get lost in the household paperwork, etc), there were many drawbacks. The space required to maintain a fire-proof vault proved increasingly expensive for law firms, and wills remained lost when the family didn’t know the attorney used for drafting the will (not to mention the questionably ethical behavior of some attorneys in “persuading” families to hire them to represent the estate in probate before turning over the will).
While this trend allows for more transparency in representation, and makes estate planning more cost effective, the onus is now on the client to find a safe storage space. Let’s talk about a few of your options.
Safe-deposit box? No.
Do not put your important documents in a safe-deposit box. While it’s true that they will be safe, they will also be inaccessible. The papers giving authority to someone to open the box are already in the box. Additionally, if you keep powers of attorney in your safe-deposit box, you are limited to accessing those papers during bank hours — and too often, the time you need your documents is not during business hours.
Fire-proof safe or envelope? Yes.
These are now readily available at most office stores or online, reasonably priced, and can be stored in the back of a closet or under a bed. While you could use a locking file cabinet, the protection you get from a fire-proof container is valuable. You can also keep other important papers in it, including passports, social security cards, etc. But wherever you keep it and whatever you decide to keep in it, make sure that your personal representative knows where to find your documents.
Make additional hard copies? Yes.
Your originals are the only ones admissible in court. Unless they can’t be found. So it’s a good idea to keep hard copies of your documents in other places - like your safe-deposit box. Most attorneys will keep a copy of your documents for 3-7 years, even if they don’t keep your original documents. This can be helpful in the event that your originals cannot be found.
Let’s say that you and your spouse have a joint checking account and you both work. You earn $70,000 and your spouse earns $50,000. It all goes into the same pot, so you might logically say something like, “yeah, we both own it, but I contribute more to it.”
But in Washington State, you’d be a little bit wrong. The checking account is owned by both, BUT both of you contribute equally to it.
How?
In Washington, all assets that are acquired during the marriage are owned 50% by one spouse and 50% by the other spouse. Your paycheck for $70,000? Only $35,000 of that is yours. And you own $25,000 of your spouse’s salary. So you are both contributing $60,000 each to your joint account. That’s community property in Washington State, but not all states have community property and not all states define in as a strict 50/50 split either.
Sidebar: Community property states include Washington, Idaho, California, Arizona, New Mexico, Nevada, Texas, Wisconsin, and Louisiana. In Washington and California, community property means a 50/50 split of all assets and debts acquired during the marriage. The other community property states take a softer view and call for “equitable division” of the community property upon divorce. Many of the states without community property, like Florida, New York, and Oregon, divorce laws follow the rules of “equitable distribution.” The main difference here is that equitable doesn’t always mean equal in a divorce; the court aims for what is “fair” over a stricter numerical matching. In Washington, judges pay a lot more attention to whether the grand total at the end is as close to equal as is reasonable (though as any Washington State divorcee will tell you, it is rarely exactly the same value). But this blog isn’t about family law, so…
Why does community property matter for estate planning?
Let’s say you’re married and you die tomorrow intestate (that’s fancy for without a will). All of your community property goes to your spouse automatically. This is great because a) it’s super easy, b) your spouse has an unlimited exemption for state estate taxes on their inheritance from you, and c) your spouse also gets a “step up in basis” for any assets that have appreciated (think real estate, investments, etc — things that are worth more today than when you first bought them) which means your spouse will pay less capital gains tax if/when those assets are sold. It’s a pretty awesome benefit for your spouse, who now has to figure out how to live with out you.
Sidebar: Community Property Agreements are effective because of these spousal benefits. Basically, in a Community Property Agreement, you and your spouse agree that all of your current and future assets will be community property upon the death of the first spouse, and that all community property will pass to the surviving spouse. It’s one way to avoid probate for the spouse who dies first, BUT they are currently overpowered in my opinion, and infrequently used today. First, even during marriage, you can acquire separate property (WHAT?!? I know, keep reading) and you may not want it to become community property for a variety of reasons. Second, a community property agreement will override contrary designations in wills, joint tenancy designations and so forth. And third, probate is generally not a big deal for 99% of people — it’s not expensive in Washington, we have nonintervention powers so the courts basically keep out of it, and while it is a public record, most people would rather watch Game of Thrones than the wills of the recently deceased. /End rant
What is separate property and how is it different?
Separate property is any assets or debt that you owned before you got married, or that you received as a gift or an inheritance. In divorce, generally separate property stays separate, but it’s totally different in estate planning. Let’s take the same circumstances as above, but this time, you bought a house before you got married (or inherited a house from your Great Aunt Agnes while you were married). That house is separate property, so it does NOT automatically go to your spouse. The good news is that your spouse still has the unlimited exemption for state estate taxes and the step up in basis. But it gets complicated in terms of what exactly passes to your spouse (just look at RCW 11.04.015). If you have two kids, then the house goes 50% to your spouse and 25% to each kid. If you don’t have kids, then the house goes 75% to your spouse and 25% to your surviving parents (to split between them equally). Doesn’t that sound like fun?
Wait. It gets more complicated.
Separate property can become community property (even without signing a community property agreement). If separate property becomes “co-mingled” with community property, it will become community property. And unfortunately, whether property is “co-mingled” depends heavily on the specific facts of the situation. For example, you buy a house and then get married. The house is separate property. Then you use your paycheck (community property) to pay the mortgage (separate property). Then your spouse uses some of his inheritance from his mother’s death (his separate property) to renovate the kitchen on your (separate property) house. On the weekends, you both fix up the house — painting, minor repairs, general maintenance. At some point, this house will become community property. But at which point? Oy. It gets complicated — and this is where a clear estate plan can really help.
Sidebar: I wasn’t done ranting about community property agreements. Here’s one place where they can have unintended consequences. Let’s say that your parents leave their house to you and your brother jointly. You are now joint tenants in common with a right of survivorship, which means that when one of your dies, your half passes to the surviving sibling — and all this is set up in your parents’ wills. Except your brother executed a community property agreement with his wife. Now when he dies, all his property — including his joint tenancy with your house — become her property, and now you are joint tenants in common with his wife until one of you dies. Which means a house that would’ve been yours to pass to your kids could now become hers and pass to her kids. And maybe you are okay with that, and maybe you aren’t — but what very likely is that it is not what your parents’ intended. And this is basically what happened in Lyon v. Lyon, 100 Wn.2d 409, 670 P.2d 272 (1983), so you can read it for yourself. /End rant. Again.
Recap:
Community property is all of the assets and liabilities acquired during a marriage.
Separate property is all of the assets and liabilities acquired before a marriage, or received as a gift or inheritance during a marriage.
It matters for estate planning because community property passes to the surviving spouse automatically, even without a will, whereas separate property does not (which is why a will is so useful).
And Anna generally doesn’t like community property agreements. They are overpowered, can have unintended consequences if the people executing them don’t fully understand how they work, and are generally unnecessary since we already have nonintervention powers for probate, probates are usually inexpensive in Washington State, and privacy can be maintained through other devices when someone really wants to keep their affairs private. I’m not saying never use them — just be very sure that you know what you are doing and why you are doing it before signing one.
I am often asked if I can help with a will, and I always respond that I can assist with your estate plan. Why do I do that?
A will is a document that details what your assets are and who should inherit them, and who should be in charge of settling your debts and distributing any remaining assets. It is part of an estate plan.
An estate plan, by contrast, also includes Durable Powers of Attorney for health care and finances, and, if you are a parents, the appointment of a guardian for your minor child(ren), and possibly a trust to manage any assets they would inherit from you. Sometimes it also includes Advance Directives (also called a "Living Will") which addresses end-of-life decisions. The exact documents that you need will depend on your life situation -- your age, marital status, assets and liabilities, children (and their ages), and what you want to accomplish with your plan.
As such, when we meet to talk about your estate plan, we will talk about more than just who will inherit your assets. We will also talk about who you want to make end-of-life decisions for you if you incapacitated, and what your family will need to move forward after you pass.
Also, your estate plan should need to be updated every few years, depending on your life circumstances. The plan we create while your kids are in grade school should be very different from the one we create when you have grandchildren. I follow-up with past clients every three years to review their plans. Sometimes they are still accurate; often, there are small changes that we need to make -- for example, if you buy a new home, get divorced or married, have another child, or any myriad of other circumstances. It is not unusual to rewrite your whole plan every decade, which will give you the peace of mind that the plan you have will work for you should the unthinkable happen tomorrow.
