Estate planning for digital assets has become a popular topic of late for the estate planning community. See, e.g., Beyer&Griffin, Estate Planning for Digital Assets at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1879950; Beyer and Cahn: When You Pass On, Don’t Leave the Passwords Behind: Planning for Digital Assets at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1980887 and Connor: Digital Life after Death: The Issue of Planning for a Person’s Digital Assets after Death at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1811044. The classic example of not planning for the disposition of a digital asset is explained in the article by Beyer and Griffin at pages 2-3: When I attended law school in the 1960′s, no one had even heard of the term “digital property.” When we studied property, we studied real property and personal property. In turn, personal property was further subdivided into tangible and intangible personal property. If digital property had been in existence in the 1960′s, no doubt it would have been classified as intangible personal property since such items appear to represent an asset you can not physically feel or touch. Beyer and Griffin, supra, defined digital assets to include: Thus, email accounts such as Hotmail and Gmail, videos on You Tube; blogs on WordPress; PayPal accounts, online banking; and social networking accounts such as Twitter and Facebook are just some of the examples of digital assets. You might ask yourself as I did about whether this is much ado about nothing. Afterall, I have a LinkedIn account, a Yahoo email (which I have not used in four years and I am on Facebook. I do not recall posting anything on Facebook and respond to the LinkedIn account only when someone wishes to be linked to me. Nevertheless, Beyer and Griffin list at least seven reasons why it is important to plan for digital assets. They are: 1. Making Things Easier on Executors and Family MembersAlthough in my case, I doubt whether any thing of value can be found in my digital inventory, many individuals may have stored an incredible amount of information (some of value) on-line ranging from Ebay accounts, multiple email accounts, social networking accounts, online bill-paying arrangements, etc. Going through a decedent’s on-line inventory may be as complicated as sorting through file cabinets of paper documents if access to the on-line material is problematic after the deceased death. Most on-line digital assets are mere licenses and many service agreements with respect to theses accounts expire upon the decedent’s death or are not user friendly to the decedent’s personal representative. Moreover, the personal representative’s authority over these digital assets is unclear in most states, although there is a trend emerging whereby state legislators are focusing on this problem. See Beyer and Griffin, Supra, citing recent legislation in Oklahoma and Idaho. At a very minimum, for lifetime access in the event an individual becomes incompetent, the individual’s power of attorney should allow access to the individual’s digital assets in order to pay the incompetent’s living expenses and his/her bills. Unfortunately, without passwords, the power of attorney may not be sufficient. 2. To Prevent Identity TheftObviously, we are all vulnerable to identity theft and the more information we store on-line the more risk we expose ourselves to such theft. Protecting against identity theft is possible but access to the decedent’s online accounts will be necessary. 3. To Prevent Content TheftFamily members and personal representatives will need access to an on-line account to protect a decedent’s copyrighted Blogs as other individual may copy the decedent’s work if not protected. 4. To Prevent Losses to the EstateHere the two authors cite the Leonard Bernstein example cited above. 5. To Avoid Losing the Deceased’s StoryHere Beyer and Griffin make reference to the increasing tendency of individuals to store family history (photographs, family journals, etc.) on-line. Access to these on-line family histories may be precluded absent a plan to allow access after a descendant’s death. The last two reasons cited by Beyer and Griffin for estate planning for digital assets are to (1) to prevent unwanted secrets from being discovered (e.g., hurtful emails) by making sure such material is deleted upon death or by a trusted individual, and (2) to prepare for an expanding use of the information age. Planning PossibilitiesThis is a difficult problem as very few people want to share their secret password(s) with other persons. Long term the solution is probably model legislation allowing people to place the secret information for accessing digital assets in a secret virtual vault in the probate court which could be accessed by the decedent’s authorized representative upon that person’s incapacity or death. The secret vault could in effect be web-based that would allow individuals to change passwords and to update the information contained in the virtual vault from time-to-time. In the meantime, what other solutions are possible and what should you avoid? Beyer and Griffin like the idea of drafting a separate document selling forth in detail on the individual’s on-line account passwords, security questions and answers. The document can give detail information-from deleting it to transferring it to family matters. If this route is chosen, care should be taken to ensure that it is kept in a secure place to avoid improper use, such as a home safe, or a bank safety deposit box with other valuables and important estate planning documents. I suggest you read the Beyer and Griffin article in its entirety as it contains other suggestions to solve this problem of passing on digital assets. Long-term, as I mentioned above there is a need for uniform legislation allowing individuals to store information electronically with the local probate court, allowing access to the decedent’s personal representative at death or an individual’s agent under a durable power of attorney during lifetime. ...read more

Most of the public is aware that Congress in last December, 2011 extended the payroll tax rate reduction for two more months until the end of February, 2012. Few Americans are aware, however, that Congress also enacted a 2% additional income tax on employees who earn over $18,350 for the two month period ending February 29, 2012. However, this tax will only apply to the income in excess of $18,350 and will be payable in 2013 when the employee files his 2012 income tax return A recent news release from the IRS (IR-2011-124), dated December 23, 2011 describes this new provision and is set out in full below: Payroll Tax Cut Temporarily Extended into 2012 IR-2011-124, Dec. 23, 2011WASHINGTON — Nearly 160 million workers will benefit from the extension of the reduced payroll tax rate that has been in effect for 2011. The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits. Employers should implement the new payroll tax rate as soon as possible in 2012 but not later than Jan. 31, 2012. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012. Employers and payroll companies will handle the withholding changes, so workers should not need to take any additional action. Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100). This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS will closely monitor the situation in case future legislation changes the recapture provision. The IRS will issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision. For most employers, the quarterly employment tax return for the quarter ending March 31, 2012, is due April 30, 2012. ...read more

One of the biggest developments in the estate and gift tax field to come out of the recent tax act (American Taxpayer Relief Tax Act Of 2012) is the permanence of the so-called “portability” provisions first established in 2010. Portability allows a second dying spouse to use the unused estate tax exemption amount (referred to under the law as the applicable exclusion amount) of the predeceased spouse, in many cases leading to substantial estate tax savings. Spouses have long been able to transfer unlimited assets between each other on death with the unlimited marital deduction, thereby incurring no estate tax. For example, if Joe and Jane have combined assets of $8.25 million (jointly titled as tenants by the entirety) and Joe dies, Jane will pay no estate tax because the marital assets transfer between the spouses automatically by operation of law and the unlimited marital estate tax marital deduction prevents any estate tax from being imposed. However, when Jane dies, in the absence of a portability election, her taxable estate would be approximately $3 million (assuming the combined assets do not appreciate in the surviving spouse’s estate), the amount over her individual estate tax applicable exclusion amount (currently $5.25 million). With the availability of portability, Joe and Jane’s situation would look different. Upon Joe’s death, the assets would still transfer to Jane without estate tax because of the unlimited marital deduction. However, when Jane dies (and assuming a portability election was made on her deceased spouse’s estate tax return) she can use her husband’s unused exclusion amount, resulting in no estate tax (her exclusion (now $5.25 million) plus her deceased husband’s unused exclusion at the time of his death (also $5.25 million on these facts) will exceed the value of Jane’s estate). In order to use the portability feature, an election must be made on the estate tax return of the first spouse to die, even if this return would not otherwise be required to be filed. Thus, estates not required to file the Form 706 because the decedent’s gross estate is below the minimum amount required for an estate tax return to be filed, nevertheless, must file a completely filled out a Form 706 and make the portability election on such return if the second spouse ever hopes to use the first spouse’s unused exclusion amount. This sets up a cost-benefit analysis: file a full Form 706 when it is not strictly required (possibly at significant time and expense) and preserve the unused exclusion amount, or skip the filing and hope the unused exclusion amount will not be needed. If it appears possible that the second spouse will use all of his or her own applicable exclusion amount and will need the portability feature to avoid estate tax, it may be best to file a Form 706 when the first spouse dies. This analysis can be complicated and should be undertaken only with the guidance of an experienced estate planning attorney. ...read more