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“Estate Planning, Where Paper Beats Technology,” by Brett Rice, KC Bar Association

By October 15, 2008 No Comments

By Brett Rice – King County Bar Association Bulletin – August 8, 2008

Technology has made it infinitely easier to manage both business and personal data. A $100 hard drive holds as much information as a room full of filing cabinets and makes decades of records searchable in a matter of seconds. Millions of people go online every day to check bank balances, move funds from one account to another or apply for a loan.

Everything is accessible from the desktop computer in the office or the laptop at home, or even from a public computer in an airport or library if need be. Except when it’s not.

Who hasn’t experienced the frustration of a server that is temporarily down, delaying the instant gratification of getting the information now? Perhaps to get around this, you dutifully downloaded all those bank statements and other critical records, only to find a few years down the road that you can no longer open a file in Quicken 2001 format. Or that you long ago scrapped the drive you need to read those old Zip disks. Generally, these sorts of things are merely inconveniences that can be resolved sooner or later by someone with a little technical expertise.

A much more serious set of problems arises when an individual’s death or incapacity erases all knowledge of where records are located, what the passwords are or even whether they exist at all. The resulting information vacuum can circumvent the most careful financial or estate planning, creating confusion out of what was intended to be an orderly and efficient process.

The act of submitting a change-of-address card during probate used to bring the personal representative a wealth of information about the decedent’s assets and obligations. Today, with so many business and personal transactions being conducted entirely online, that’s no longer the case: There’s no central authority in charge of forwarding email. Either the personal representative or another family member knows how to log on to the decedent’s email or not. A court order will open a safe-deposit box, but it’s entirely ineffective against strong passwords or other encryption.

At the same time, however, don’t stop using strong electronic security if you’re already using it; start using it if you’re not. The daily risks of identity theft are simply too high. The work-arounds are described below.

When one of the shareholders of our accounting firm died suddenly a few years ago, our IT department was able to give the surviving partners access to his files. For a small business that doesn’t have its own network with in-house technical support — or even for an individual — that’s generally not an option.

So how can individuals and small business owners adjust their contingency or business succession planning to avoid these problems? Ideally, those who will be responsible for keeping the business running, filling out tax returns or administering probate should have a current list of all online accounts, complete with user names and passwords. This could be kept in a safe- deposit box. (Just make sure someone else will be able to access the box if you can’t.)

As a practical matter, however, this information can change so frequently that keeping the list updated would be difficult. One alternative is to use a piece of software known as a password wallet, which stores all that information securely on the user’s computer. Key individuals need only know the separate password for the electronic wallet (as well as any password required to log onto the computer), and should then be able to access all the decedent’s accounts from that computer. (Note, however, that while a personal representative has the right to examine a decedent’s own computer, gaining access to personal records stored on an employer’s computer can be much more complicated.)

Sometimes, family members aren’t entirely sure of the full extent of the decedent’s assets, which can result in a lot of resources (both time and money) spent chasing after something that may or may not even exist. One simple way to forestall this problem is to create a basic personal balance sheet, listing your assets and liabilities, and update it annually.

To be most useful, Seattle estate planning and probate attorney Stacey Romberg recommends that the balance sheet include detailed information, such as account numbers, branch locations, maturation dates of CDs and other investments, and beneficiary designations. And don’t forget to record detailed information on personal obligations, such as loans to children, which are often memorialized with a casually drawn promissory note, if at all, she adds. The document can be created in Excel and could be kept on a computer, printed out and placed in a safe-deposit box, or both (just be sure, if there are different versions, that it’s clear which is the most current).

In addition, business owners and high-net-worth individuals already should have assembled a team of trusted advisors, including an attorney, a CPA, a financial advisor and an insurance broker. This team not only provides invaluable guidance during an individual’s lifetime, but after death the team should be able to help assemble fairly comprehensive information about the extent of the decedent’s assets. The insurance broker will know about existing policies on tangible assets; the financial advisor or CPA will have cost-basis information for securities.

Of course, now that PDAs and Outlook have replaced the hard-copy address book, it’s also important to provide key people with a detailed list of who comprises the advisory team, along with their contact information.

Finally, in today’s mobile society, there are many single people living far away from their nearest relative. Many have created networks of trusted friends who will act in lieu of family members in case of emergency. Because these are not legal next of kin, it is critical that they have paper copies of documents, such as durable powers of attorney, so that they will be allowed to fulfill their roles, especially if family members swoop in to take over.

So much of our interactions with other people takes place online these days that it can be easy to forget the need for tangible records. To a generation growing up on Facebook and Second Life, it may seem positively quaint. But there are times when plain old paper — which needs neither power supply nor password — is actually the better solution.

Brett Rice, CPA, is a shareholder and senior account manager with Anderson ZurMuehlen & Co. in Seattle. His practice includes addressing the financial and reporting requirements of small businesses and developing structured solutions that meet their needs. Rice can be reached at brice@azworld.com.

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This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.

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