Illinois Bar Journal

March 2015Volume 103Number 3Page 48

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Best of Discussions

Lawyers as POA Agents, Estate Planning for Digital Assets

Can you serve as the agent of your client's POA for property? And how should you deal with digital artwork in an estate plan? Members of the ISBA's Trusts and Estates Section offer answers.

The questions and answers below are from the ISBA Trusts and Estates Section discussion group, which is open to section members only. Join the section at http://www.isba.org/sections/trustsestates.

Q. Can you serve as the agent of your client's POA for property?

John Ahern, Chicago. Client has no family and few friends. Client asks her attorney to be the agent on her powers of attorney and trustee on her trust and he agrees. Attorney creates the documents and discloses that he prepared them. He is not a beneficiary. Is there any specific prohibition that anyone is aware of for the attorney?

An ISBA lawyer responds

Timothy S. Midura, Wheaton. [There's no] "prohibition." Have your "eyes wide open" for

• Any estate/beneficiary disputes that [the lawyer] might become a lightning rod for.

• Even higher (or highest) standards of fiduciary conduct/capability due to [being a member of the] legal profession.

Bottom line: Be ready and able to do a superb job.

This is somewhat of a smell test. There are so many variations and circumstances that might smell "good to go" or "maybe shouldn't."

There are attorneys out there who will argue that attorneys should never act as a fiduciary because of inherent conflicts of interest (I will not discuss the inherency or obviousness). There just cannot be enough disclosure and waiver/consent to overcome all the ethical/conflicts issues, they say.

There are others who will say, "Why not? Who is better positioned to carry out the grantor's intentions? It's also just good business to have another line of business. It's a win-win."

Do make sure there is an appropriate line of succession or appointment should the first named fiduciary choose to decline or resign. Also, any exculpatory provisions that the attorney drafts for the fiduciary (himself) will probably be void as to that attorney-fiduciary.

Personally, I do not volunteer or solicit the fiduciary work and often fully explore with the client all other options. But in (perhaps similar) circumstances might accept such an appointment.

Bottom-bottom line: There's no prohibition. But there's a huge dose of common sense to accepting such a role and inherent issues of ethical conflicts and true capabilities of meeting the responsibilities and standards of conduct.

Q. How should you deal with digital artwork/assets in an estate plan?

Zisl Taub Edelson, Chicago. I have a client who is an artist and has many digital artworks (photographs, Photoshop drawings/paintings), saved either online or in her computer. Can anyone please point me to any reading materials or provide pointers on how to deal with such assets in an estate plan? She will probably end up leaving her artworks to either a fellow artist or to a charitable organization, who may make copies and sell them or use as fundraisers. There should be no estate tax issues.

An ISBA lawyer responds

Ian Holzhauer, Naperville. As far as making sure the executor/trustee has the power to access any digital accounts (and deal with companies that might lock out the account), consider a will/trust provision like this:

The executor/trustee is hereby granted the power to access, manage, and control my digital assets and rights in which I have an interest after my death. This includes the power to access or update passwords, and modify or close digital accounts. It also includes the power to sell or distribute rights to my digital assets and other intellectual property.

As far as the actual disposition instructions, I would treat the digital assets as though they were physical assets:

I hereby give the photos in the folder titled "2008 art pictures" in the Toshiba 500GB portable hard drive stored in my safe deposit box at X bank, and all accompanying intellectual property rights, to Y Charity.

While not directly related to your client's issue, I wrote a blog article about some basic digital estate planning tips: http://www.tailoredestateplanning.com/2014/12/estate-planning-re-online-accounts.html.

[Editor's Note: Facebook has recently added a feature to name a "Legacy Contact" who can access a profile owner's page after the owner is deceased. Timothy S. Midura suggests adding the issue to your estate planning questionnaire and estate administration checklist.]

Member Comments (1)

There are Estate Tax issues to consider.

1. Unless the Will or Trust specifically provides that an item is to be gifted to a "Qualified Charitable Organization" (as determined by the IRS) then the items are subject to Federal and Illinois Estate Tax based upon the Fair Market Value (FMV) of the items on the date of death of the decedent artist.

- This is true even if the beneficiary happens to subsequently donate the items to a Qualified Charitable Organization. The beneficiary might be able to claim a charitable contribution deduction (for Income Tax purposes) equal to the FMV of the items on the date of death of the artist but that does not change the result to the decedent's Estate.

- Neither the costs incurred by the artist in creating the item, nor the Basis for Federal Income Tax purposes in the hands of the artist, are relevant in determining whether the items are subject to Federal or Illinois Estate Tax.

- Neither the costs incurred by the artist in creating the item nor the Basis for Federal Income Tax purposes in the hands of the artist, are relevant in determining the amount included on an Estate Tax Return. It is the FMV on the date of death of the decedent artist that determines this.

- Leaving something to a fellow artist would not provide a basis for excluding an item from an Estate Tax Return. Further, it would be subject to Estate Tax unless the fellow artist was also their surviving spouse.

2. The Gross Estate of a decedent includes all property in which the decedent had an interest (plus other items). Items are required to be included in an Estate for Estate Tax purposes even if it they are not ultimately subject to Estate Tax. If, based upon the cumulative FMV of the Estate, an Estate Tax Return is required, then an Estate Tax Return must be prepared and filed.

Assets that are specifically designated in a Will or Trust as going to a Qualified Charitable Organization are still reflected on an Estate Tax Return. Assets going to a surviving spouse are still reflected on an Estate Tax Return. If assets are not ultimately subject to Estate Tax (e.g. they go to a surviving spouse who is a U.S. citizen) then the assets excluded from Estate Tax would be reflected on the Estate Tax Return showing the basis for excluding them from Estate Tax. You cannot simply ignore them.

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