Your Estate Plan and your Digital Assets
by Terri McDermott
Many of us have elected to receive to receive electronic statements, set up auto payments or online bill payment. What happens with these accounts when you die or become incapacitated? Without physical evidence of your bills or statements for your accounts, how will your executor, trustee or family members be able to manage your bills or finances when the time comes? How will they know about bills due or money owed if they are unable to access your email or online accounts?
Facebook, LinkedIn, Twitter and Instagram and other social media sites are increasingly used by all of us. These providers have our online profiles with personal information, pictures and contacts. How are these accounts or digital assets handled upon your death or incapacity?
Cryptocurrency ownership adds another layer of complication and is not addressed in this article.
Your estate plan should be designed to make the administration process as easy as possible for your loved ones. This includes making it convenient to manage your assets upon your incapacity or death and avoiding the need to sort through your paperwork to collect assets and pay your bills. Without specific provisions in your estate plan and careful planning, access to this critical information can become difficult for your family or loved ones.
Why not keep a list account credentials, “just in case”? Even if your fiduciary or designated person(s) has the information to access to the accounts doesn’t necessarily mean that they have the legal authority to do so, especially when a website’s Terms of Service do not permit a transfer of ownership. In fact, heirs could potentially be found guilty of “hacking” by trying to access a loved one’s online accounts after he/she is gone.
Federal law regulating access to digital property does not yet exist. To address the situation, the Uniform Law Commission created the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) in 2015, which received widespread support and in just a few years has been adopted by more than 40 states.
RUFADAA provides instructions for how a person’s digital assets are to be treated should a designated representative seek access. This may include not only executors after death, but trustees, court-appointed guardians, and attorneys-in-fact. The starting point is that online service providers can create an “online tool” that functions as a form of “digital power of attorney” to specify who has control and access for that specific site. RUFADAA helps to provide a clear legal framework for digital asset rights to be specified in traditional legal documents (e.g., Wills and powers of attorney). It clarifies that it’s only in the absence of an online tool, or any legal documents, that finally the service provider’s own Terms of Service will control.
In today’s digital world, most of our financial transactions and communications occur online. Digital photographs, websites and Internet profiles are now the norm for many of us. You can do almost anything online, and many people choose to do so. These accounts have limited access with protected passwords, which can create problems when the account holder dies because no one has access to their passwords. Planning now can save a lot of heartache later.
If you live in a state that is not covered by any protective laws, those accounts or assets are governed by the terms of the service agreement when the account was opened. Under these agreements, family members would need confidential identification information and passwords. Consider the following steps:
1. Inventory Your Accounts
Document an inventory of the accounts including login IDs and passwords. That information should be maintained in a secure location.
2. Create an Online Vault
This would be a place to keep passwords, identification or logins and other sensitive information. Available options include Keeper, Last Pass, and others. Your representative should have access to the vault password.
3. Establish a Detailed Digital Asset Plan
This plan would have a clear, specific statement of intent about who would gain access to what information. This statement of intent should address all accounts, past, present and future.
4. Carefully Select Your Trustee, Executor or Representative
When making your decision, consider the private and confidential information that will be accessible. Oftentimes, the information embedded in the digital assets is highly personal and confidential.
The popularity of digital assets is a part of our lives and they probably won’t go away. For your family, heirs, and designated representatives, please take the proper estate planning precautions.
Best Practices for Device Applications
by Dan Donnelly
Recently, there was a new, at least for me, phishing attempt through my cell phone. It started like it has hundreds of times before for most of us with someone from an unidentified number trying to call me. However, this “person” didn’t leave a voice mail or hang up, but instead proceeded to leave a text. The text said something about selling your property and cited a specific address, but the person being addressed in the text wasn’t me. My cybersecurity instincts kicked in and I deleted the text and blocked the caller. Even if the caller’s intent wasn’t malicious, it’s better to be vigilant than to have a security breach that could be difficult to fix.
According to Statista, mobile phone users have surpassed the 5 billion mark. Cybercriminals are constantly on the lookout for mobile users who are vulnerable to hacking attacks. There is a certain dichotomy in our mobile devices in that they make our lives easier and can make us more productive while there is always a looming threat of a crippling cyberattack that can alter our lives. Fortunately, there are steps that can be taken to help mitigate the threat.
Here are 10 best practices for mobile security.
1. User Authentication
Restricting access to the device by requiring user authentication. Most mobile devices can be locked with a screen lock, password or personal identification number (PIN), but these measures are typically turned off by default.(more…)
We came across this great article from Wired, which always has some really good information on Cyber-security and staying safe on the internet. Public Wifi is something we get a lot of questions about – how do we make sure our Personally Identifiable Information (PII) is secure on public wifi? Read below to make sure you’re protected…
Simple Steps to Protect Yourself on Public Wi-Fi(more…)
Is your Small Business Safe from Cybercrime?
by Terri McDermott
The Internet allows businesses of all sizes and from any location to reach new and larger markets and provides opportunities to work more efficiently by using computer-based tools. Whether you are thinking of adopting cloud computing or just using email and maintaining a website for your business, cybersecurity should be a part of the plan. Theft of digital information has become the most commonly reported fraud, surpassing physical theft. Every business that uses the Internet is responsible for creating a culture of security that will enhance business and consumer confidence.
The Federal Communications Commission (FCC) has released an updated Cybersecurity Tip Sheet. Here are some of those tips:
1. Train employees in security principles
Establish basic security practices and policies for employees, such as requiring strong passwords, and establish appropriate Internet use guidelines that detail penalties for violating company cybersecurity policies. Establish rules of behavior describing how to handle and protect customer information and other vital data.(more…)
Staying Safe on Social Media
2019 – Week 1
Maintaining anonymity in an information society
By Christina Belfiglio
Have you ever wondered how one might “steal” someone’s identity or hack into their accounts? There are many ways cyber criminals can do this – purchase data on the dark web, scams that get you to share data, pulling information from old devices (computers, phones, USB drives), and sometimes, you just willingly hand out the information. Sound crazy? Have you ever filled out a survey on your social media account?(more…)
May 31, 2019 / by Fortis Family Office Tax Team
Establishing State of Domicile for Tax Purposes
Wealthy taxpayers have long assumed that spending a minimum of 183 days, or six months plus one day, in a residence outside a high-tax state would be sufficient to avoid taxes in that state. But advisers note that this long-held belief is not a sophisticated approach. ¹
Keeping track of where you were, will not be enough for most taxpayers.
When scrutinized by state authorities, courts look at the totality of circumstance and not just technical check the box type requirements for establishing residency for tax purposes. ²
State authorities will most likely investigate the following circumstances:
- Where you maintain a driver’s license and vehicle registration.
- Where you are registered to vote.
- Where you conduct business.
- Where your employer resides.
- The state where you maintain professional licenses.
- The state where you keep your “near and dear” items (Teddy Bear Test; where you leave your teddy bear, is home). ³
- The address for insurance, deeds, mortgages, leases, passport, banking statements, utility bills, federal and local tax returns.
- Receipts for everyday expenses.
- Active bank accounts/banking relationships.
- Where your children are enrolled in school.
- Where you house your pets.
- Your doctors and lawyers.
- The state of where you spend the greatest amount of time.
- The property you own (second homes/vacation homes).
- Where you declare residency for hunting or fishing licenses.
- Your memberships to organizations.
- Where you have social gatherings.
Keep records of your move and consider the factors state authorities look for to challenge state of domicile. You should consult with a tax professional or adviser for help on how to obtain proof of residency.
May 8, 2019 / by Fortis Family Office Tax Team
Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The person performing the services may be ¹
- an independent contractor
- an employee (common-law employee)
- a statutory employee
- a statutory nonemployee
How You Pay a Worker Determines How a Worker Pays Taxes
An employee can be paid hourly or salary with bonuses/paid commission. Employees are taxed on their income and you are required to withhold federal and state income taxes (depending on their state income tax laws) and FICA taxes.
If you are paying an independent contractor, you are not required to withhold federal or state income taxes or FICA taxes. The independent contractor must pay his or her own income taxes (called self-employment taxes), along with income tax on earnings. ³
Also, most employees receive an annual Form W-2 and an independent contractor Form 1099-MISC, which are important when filing income taxes.
How the IRS Determines a Workers Status
If you are unsure how to determine a workers status, consider the three categories the IRS set up as a guideline for employers. The three categories are –
Behavioral Control – a worker is an employee when the business has the right to direct and control the work performed by the worker. The behavioral control factors fall into the categories of ²
- type of instructions given
- degree of instruction
- evaluation systems
Financial Control – refers to facts that show whether or not the business has the right to control the economic aspects of the worker’s job. The financial control factors fall into the categories of ²
- significant investment
- unreimbursed expenses
- opportunity for profit or loss
- services available to the market
- method of payment
Relationship – the type of relationship depends upon how the worker and business perceive their interaction with one another, such as, written contracts, benefits, services provided and the permanency of the relationship. ²
To avoid misclassifying a worker you can exercise due diligence. It is important to know the difference of each workers status and to know how to properly withhold taxes.
May 6, 2019 / by Fortis Family Office Tax Team
As you might expect, the IRS distinguishes between legitimate businesses and hobby activities, for the purpose of taxes. If you are legitimately in business, you can deduct the expenses of that business and possibly take a loss if your business isn’t profitable. If you are engaging in a hobby, you cannot deduct expenses to get a loss to offset other income. The IRS calls this the “hobby loss” rule. ¹
Per the IRS, you should consider these factors ²
- Whether you carry on the activity in a businesslike manner and maintain complete and accurate books and records.
- Whether the time and effort you put into the activity indicate you intend to make it profitable.
- Whether you depend on income from the activity for your livelihood.
- Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).
- Whether you change your methods of operation in an attempt to improve profitability.
- Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.
- Whether you were successful in making a profit in similar activities in the past.
- Whether the activity makes a profit in some years and how much profit it makes.
- Whether you can expect to make a future profit from the appreciation of the assets used in the activity.
It is best practice to follow the IRS guidelines so you can better understand what is considered to be a legitimate business vs a hobby. Keeping track of your business income and expenses throughout the year will help you determine the factors listed above.
April 16, 2019 / by Fortis Family Office Tax Team
Communication is key to a successful relationship between you and your tax preparer. The tax preparer may ask certain questions and request information he or she believes is necessary to prepare a complete and accurate tax return. However, you must understand that the responsibility to provide all necessary information lies with you.¹
Information you should be sharing with your tax preparer:
• New job
• Change in number of dependents
• Change in residency
• Large purchases, such as motor vehicle, boat, aircraft
• Change in marital status
• Salary increase or decrease
• Buy/sell a home
• Contribute to an IRA
• Establish a new trust
• Start a business
In conclusion, it is best to communicate with your tax preparer any life changing events as it can affect your taxes.
April 4, 2019 / by Fortis Family Office Tax Team
Elderly fraud is becoming a major problem. Ever have a grandparent or parent ask how to access, fix, use, or view something on their iPhone or computer? They could be asking due to their lack of understanding of advancing technology, which can make them an easy target of financial scams.
The National Council on Aging has identified the top 10 financial scams targeting elders:¹
- Medicare/health insurance scams
- Counterfeit prescription drugs
- Funeral and cemetery scams
- Fraudulent anti-aging products
- Telemarketing scams
- Internet fraud
- Investment schemes
- Homeowner/reverse mortgage scams
- Sweepstakes and lottery scams
- Grandparent scams
Those with financial and accounting backgrounds, such as CPA’s, can educate clients and family members to avoid financial frauds and scams. The elderly fraud article the PICPA published by Howard M Silverstone and Irina Balashova, is one of the many resources that provide useful information. ²
Pennsylvania Institute of Certified Public Accountants (www.picpa.org/consumers/money-life-tips/fraud)
¹ The National Council on Aging (www.ncoa.org/economic-security/money-management/scams-security/top-10-scams-targeting-seniors)