An individual retirement account (IRA) is typically established in one of two ways. As a custodial account, where the bank or financial institution is simply acting as a fiduciary and must follow the directions of the account owner (including the instruction to cash out the entire balance). An IRA can also be held in trust (the Trusteed IRA), in which case the trustee will follow an established set of rules regarding the distribution of the trust’s assets. It is important to note that nearly all IRAs are initially established as custodial accounts. A Trusteed IRA offered by a financial institution is a “pre-packaged” trust with one or two, sometimes three, distribution options for beneficiaries. The trust has all of the required IRS terms that address administration of retirement accounts.
In my experience, clients ask me about the Trusteed IRA after a meeting with their financial advisor. The Trusteed IRA often ensures that, once the individual owner dies, the financial advisor maintains the Trusteed IRA account and manages investments in it for the benefit of the beneficiary. Although there is an obvious benefit for the advisor, there are situations where this option is extremely beneficial, particularly when the individual account holder has a strong relationship with his or her advisor and the individual wishes to ensure that a beneficiary does not cash out his or her inherited IRA. Although not nearly as flexible as a custom, attorney-drafted document, the Trusteed IRA can be a good alternative for some clients.
If you are considering a Trusteed IRA, be sure to ask about the fees associated with administering the trust during your lifetime and after your death. In my experience, the fees for post-death administration have been quite high. Also, be sure to carefully review the distribution provisions for primary and contingent beneficiaries. Keep in mind that Trusteed IRA is a complex trust document. It may be just one part of your estate plan and so be sure to review the trust with your estate-planning attorney to make sure it doesn’t negatively impact your other estate planning documents.
The Uniform Law Commission drafted an act to provide fiduciaries with the same access to digital assets as they have had to tangible assets. The Uniform Fiduciary Access to Digital Assets Act (the “Act”) has been introduced in over twenty states, including Minnesota. The Act was introduced and enacted in the Minnesota House of Representatives. It was introduced in the Minnesota Senate but has not currently been enacted. The text of the Act as introduced in the House can be found here.
Until Minnesota, passes a bill that specifically address digital assets, it is that much more important to continue to address your digital assets within your estate plan. Access to most social media accounts (such as Facebook, LinkedIn, email accounts, Twitter, etc.) of a decedent or protected person (incapacitated or incompetent) is governed by the terms of service of that particular service provider. Service providers are starting to address the issue of access by allowing individuals to designate access to another individual in the event of death. See my previous article on planning for digital assets here.
However, a recent, Wall Street Journal article, discussed that clients are even going a step further by creating amendments or an addendum to their estate plan documents to specifically address their digital assets. When we discuss planning for digital assets or accounts, the focus is often on our social media accounts, but the article raised the issue about eBay, PayPal, and iTunes accounts, which can hold considerable financial assets. As the article mentions, “…leaving [such] accounts open after [a client’s] death could leave his heirs vulnerable to having those accounts hacked, a logistical nightmare if [a fiduciary] doesn’t have access to them.”1
Those types of accounts are often forgotten and that could mean heirs loose out on some additional financial assets. It is important to address those types of accounts within your estate plan to ensure they are secured and transferred properly. If your estate planner does not raise the issue of digital assets, be sure to inquire about including provisions within your plan to address them.
1Estate Planning for Digital Assets, The Wall Street Journal, May 11, 2015.
This is the third post in a series discussing different aspects on Minnesota’s new statute, the Uniform Trust Code (UTC), which becomes effective January 1, 2016. While this series will be useful information for all Epilawg readers, it is geared towards those readers that are attorneys, fiduciaries and their clients. See Part I here and Part II here.
The newly adopted UTC introduces the concept of the silent trust to Minnesota law. Under Section 501C.0813, settlors and their estate-planning attorneys will now be able to limit the trustee’s common law duty to keep beneficiaries reasonably informed by expressly including a provision in the trust instrument that such duty does not apply to the trust’s administration. (Even so, the inclusion of such a provision will not preclude the trustee from seeking judicial approval of its administration of the trust and, in doing so, providing the statutorily required notice to the beneficiaries.) Nonetheless, this provision constitutes a dramatic change from existing law, which recognizes a broad common law duty to keep beneficiaries informed that cannot be drafted around.
Trust Appointment of a Representative for Beneficiaries
Furthermore, for settlors who would prefer to withhold information regarding the trust or its assets from the beneficiaries, the new statute will also allow for the appointment of a representative who can receive information in lieu of the beneficiaries. This representative, who can be the settlor, the attorney, or other trusted third party, can request and must be given the information necessary to protect the beneficiaries’ interests, and if necessary, enforce those interests. The representative does not, however, have a fiduciary duty to enforce the trust or take other action on behalf of the beneficiaries.
Why should a “notice to representative” provision be considered by drafting attorneys and their clients? Most significantly, allowing disclosure of information to a beneficiary’s representative permits the trustee to gain the benefit of the shortened statute of limitation under Section 501C.1005 (which will be the subject of its own future article in this series) and may thereby discourage future trust litigation.
Even though silent trusts will now be permitted under Minnesota law, fiduciaries should remain wary of any trust that expressly prohibits the trustee from sharing information with the beneficiaries. At a minimum, prospective trustees should carefully examine such provisions during the on-boarding process to make sure that they comply with Section 501C.0813’s requirements. They should also carefully consider whether, given existing family dynamics, compliance with this type of provision might make them, as the fiduciary responsible for the trust’s administration, a target for future litigation brought by the beneficiaries. In short, just because silent trusts will now be enforced under Minnesota’s UTC does not mean that the principle of “caveat emptor” no longer applies to trustees in deciding whether or not to accept such fiduciary appointments.