Welcome to CPA at Law, helping individuals and small businesses plan for the future and keep what they have.

This is the personal blog of Sterling Olander, a Certified Public Accountant and Utah-licensed attorney. For over nine years, I have assisted clients with estate planning and administration, tax mitigation, tax controversies, small business planning, asset protection, and nonprofit law.

I write about any legal, tax, or technological information that I find interesting or useful in serving my clients. All ideas expressed herein are my own and don't constitute legal or tax advice.

Higher FDIC Protection for Trust Accounts

As most people know, the Federal Deposit Insurance Corporation (FDIC) is a federal government agency that insures customers of insured banks so that even if the bank fails, the depositors do not lose their money. The basic FDIC insurance amount is $250,000 per depositor per insured bank per account category.

The account categories include single-owner accounts, joint accounts, revocable trust accounts, and entity accounts. In other words, a single depositor can multiply their FDIC coverage by spreading their deposits across a single-owner account, joint account, etc. Of course, coverage can be multiplied by spreading deposits across multiple banks as well.

One benefit of establishing a revocable trust and opening a bank account in the name of the trust is that the maximum FDIC coverage for a revocable trust account at a single bank is $250,000 multiplied by the number of unique beneficiaries of the trust. To qualify for this increased coverage, the account name must indicate trust ownership, the trust beneficiaries must be identified in the trust agreement, and the beneficiaries must be living persons or qualified charitable organizations.

Of course, such a trust account will also have the benefit of never needing probate to administer, and the successor trustee will easily be able to manage the account upon the death or incapacity of the grantor of the trust. Increased FDIC insurance coverage is one more benefit of establishing a revocable trust.

Real Property Transfer on Death

In a prior post, I referenced the trend in probate law of testamentary contractual arrangements becoming more common. One such arrangement that can be used to transfer real property is a transfer-on-death deed, which is available in any state that has adopted the Uniform Real Property Transfer on Death Act or a similar statute.

The URPTODA allows real property to be transferred almost like a brokerage account would be transferred pursuant to a beneficiary designation.  The law permits a property owner to execute a transfer-on-death deed naming another individual or entity that will take title to the property upon the owner's death. Such a deed is revocable during the owner's life, meaning that the designated beneficiary has no rights with respect to the property until the owner's death. To be enforceable at such time, the deed must otherwise qualify as a recordable, inter vivos deed, must state that the transfer occur upon death, and must in fact be recorded with the county recorder's office.

Under the URPTODA, a designated beneficiary may disclaim the real property that would otherwise pass to them under a transfer-on-death deed but need not take any affirmative action in order to succeed to ownership of the property. However, individual state laws vary on this point; in at least one state (Oklahoma), the designated beneficiary must affirmatively record an affidavit accepting such interest or the property will revert back to the decedent's estate.

The URPTODA offers a solution that is preferable to other informal mechanisms for avoiding probate, such as executing but not recording a deed (a "sleeping deed") or naming a non-spouse beneficiary as a joint owner of a real property. However, utilizing a transfer-on-death deed is inferior in almost every way to executing and recording a traditional deed to a revocable living trust. For a good summary of these relative drawbacks, see page 34 of a recent issue of the Utah Bar Journal, located here.  In short, the URPTODA provides a new alternative for transferring real property to an heir outside of probate, but it will rarely be the best alternative.

Introduction to Trust Administration

When the settlor or settlors of a revocable trust die, the trust becomes irrevocable and the successor trustee is tasked with carrying out the settlor's final wishes as expressed in the trust agreement. One of the first tasks required of the trustee of such a trust by the Utah Code is to notify the trust beneficiaries that the trust exists, of the identity of the settlor(s), and that the beneficiaries have the right to request a copy of the trust agreement and the right to a trustee's report. This notice can be in the form of a letter that includes a copy of the trust agreement, the trustee's name and address, and a further notice that the beneficiaries have 90 days to commence a judicial proceeding to contest the validity of the trust until losing that right.

The trustee will need to marshal all trust assets, which will often require filing an affidavit of trusteeship with the county in which any trust real property is located, obtaining an EIN for the trust, making a claim for life insurance owed to the trust, and opening or taking control of any trust bank accounts or brokerage accounts. The trustee should also prepare an inventory of trust assets and maintain an accounting of all trust transactions. There are a number of potentially critical tax-related matters that may need to be attended to, particularly for large trusts, which are beyond the scope of this post. Another consideration is publishing notice to creditors of the trust (which can also be valid notice as to creditors of the decedent).

After all trust assets have been marshaled and debts and expenses paid, the trustee should send a letter to the trust beneficiaries with a "proposal for distribution" of the majority of the trust assets. This proposal should notify the beneficiaries of their right to object to the proposed distribution within 30 days; after this period, the right to object would terminate. This letter or a subsequent letter should enclose a "receipt and release" for each beneficiary and should explain that the trustee must receive all of the beneficiaries' receipts and releases before any distributions can be made. The trustee should withhold a small portion of trust funds for final expenses, such as a final tax return. Once all of the beneficiaries have signed and returned their receipt and release, the trustee can make the proposed distributions. Except for paying final expenses, closing accounts, and distributing any remaining amounts, the trustee's job in most cases will then be complete.

Planning for the Transfer of Digital Assets on Death

The number, scope, and value of digital assets that individuals possess has increased dramatically in the past decade, raising the question of what happens to such assets when the owner dies or becomes incapacitated. Digital assets could theoretically have been dealt with under existing trust and estates law, but practically speaking, the privacy practices and terms of services agreements of digital asset "custodians" (Google, Facebook, etc.) made this impractical. For example, many such custodians' terms of services agreements have provided that a user's digital assets are non-transferable and that no successor had any rights of access upon death.

The Revised Uniform Fiduciary Access to Digital Assets Act attempts to address some of the unique attributes of digital assets while still adhering to the "traditional approach of trusts and estates law." The RUFADAA began to be enacted by states in 2016 and currently has been adopted by approximately 44 U.S. jurisdictions; in other words, it has been very well received since being proposed by the Uniform Law Commission. The RUFADAA establishes the rights of personal representatives, conservators, attorneys-in-fact, and trustees to access digital assets and communications of an individual.

Some digital asset custodians provide an online tool whereby a user can direct the custodian to disclose to a designated recipient the user's digital assets and/or communications; the RUFADAA confirms that such a designation by a user generally is enforceable and overrides contrary provisions found in the user's estate planning documents. However, not all custodians offer such a tool, and those that do may not offer complete access. For example, Facebook provides users the option to designate a "legacy contact" to look after their account on death, but such contact would have very limited access to the users account.

Fortunately, if a user has not utilized an online tool, they can allow fiduciary access to digital assets and/or communications in a will, trust, power of attorney, or "other record," including an electronic record. Such an instruction generally "overrides a contrary provision in a terms-of-service agreement," thus providing an alternative to a custodian's online tool that provides only limited access to a designated person. Anyone who is concerned about granting access to valuable or sentimental digital assets on death should consult with an estate planning attorney familiar with the RUFADAA.

Instruments Entitled to Probate

When an individual passes away, they may leave assets that cannot be sold or transferred to beneficiaries or heirs without probate. Probate is a judicial process and usually begins with a personal representative being appointed to administer the decedent's estate and the decedent's will being validated by the court.

The definition of "will" under the Uniform Probate Code is open-ended and includes "any testamentary instrument that merely appoints an executor, revokes or revises another will, nominates a guardian, or expressly excludes or limits the right of an individual or class to succeed to property of the decedent passing by intestate succession." This leaves open the possibility that an instrument not necessarily styled as a "will" could fall within the definition of a will. Of course, any such instrument would need to otherwise meet the requirements for a will, most typically, that its execution be witnessed by two people.

The Uniform Probate Code contemplates the possibility that an instrument not necessarily styled as a will could be entitled to probate. As mentioned, the definition of "will" is open-ended, but the Code also refers to "testamentary instruments" in the context of what is entitled to probate. A testamentary instrument not styled as a will would likely need to be the subject of formal probate proceedings, as opposed to informal proceedings (see, e.g., section 3-402, stating that the a petition for formal probate of a will "requests an order as to the testacy of the decedent in relation to a particular instrument which may or may not have been informally probated...") but is nevertheless entitled to probate.

Historically, testamentary contractual arrangements, such as a promissory note designating an alternate payee in the event the named payee died prior to the note being paid, were often held to be unenforceable for failure to be attested or otherwise executed in accordance with the requirements for wills. However, in states that have adopted section 6-101 of the Uniform Probate Code, such arrangements are declared to be nontestamentary, and therefore not unenforceable for failure to be executed in accordance with wills formalities. Accordingly, such documents need not be probated to be enforceable.

However, any instrument not styled as a will that happens to have been executed in accordance with the wills formalities can be probated and should be probated if doing so would better fulfill the decedent's will or wishes. These situations are rare and will likely only arise where a competent estate planning attorney was not used, but they do arise. I have successfully secured the probate of a document best described as a trust agreement, and other kinds of instruments may be entitled to probate as well.

Affidavit of Heirship and Identity

When someone dies, the heirs or devisees of the decedent generally wish for the decedent's assets, or the proceeds therefrom, to be transferred from the decedent's name to them. Depending on the asset, this process can be easy. For example, a brokerage account with a valid beneficiary designation can be re-titled in the name of the designated beneficiaries; the designated beneficiaries simply need to provide prove of their identity and the fact of the decedent's death to the financial institution.

The asset transfer process can also be difficult. If that same brokerage account is not associated with a valid beneficiary designation, the heirs may have to go through the probate process. Probate can be defined as the court-supervised process whereby a personal representative is appointed to administer an estate, the decedent's will (if any) is validated, assets are sold, creditors paid, and the remaining funds distributed to the heirs.

The Uniform Probate Code provides a number of alternatives to supervised probate administration. Unsupervised formal probate and unsupervised informal probate administration options are available and are common in Utah. A "small estate affidavit" is also a popular alternative and requires no court involvement at all. Any person claiming to be a successor can sign an affidavit saying they are entitled to property, and any person having custody of that property can transfer it without liability to the person presenting the affidavit if certain other statutory requirements are met.

A less-common alternative is an Affidavit of Heirship and Identity. The basis for such an affidavit is found in section 75-3-901 of the Utah Code, which makes it clear that, even without administration, heirs are entitled to receive estate assets: "Persons entitled to property by... intestacy may establish title thereto by proof of the decedent's ownership, his death, and their relationship to the decedent." Accordingly, only intestate heirs (not devisees under an unprobated will) can potentially use an Affidavit of Heirship.

Most third parties with custody of a decedent's property will prefer a small estate affidavit due to the protective provisions of section 75-3-1202 of the Utah Code. However, since a small estate affidavit cannot be used to change title to real estate, a transfer of an interest in real estate is the primary situation where I have seen a Affidavit of Heirship used. Unfortunately, title companies and title insurers do not usually permit Affidavits of Heirship when facilitating the transfer or insuring title of real property. Thus, while it is rare that an Affidavit of Heirship would be needed, it is another probate-avoidance tool that can be used in certain circumstances.

Fixing Problems with Online IRS EIN Applications, Third Edition

This post is my third installment about fixing rejected online EIN applications submitted on the IRS's website. Consider the following potential causes:

Every EIN application requires a responsible party name and matching tax ID number. "Unless the applicant is a government entity, the responsible party must be an individual (i.e., a natural person), not an entity." Previously, it was possible for an entity that had not obtained its EIN online to be the responsible party for a new entity's online EIN application. This is no longer the case, and any attempt to obtain a new EIN using a business as the responsible party will result in an error.

The IRS will only issue an EIN to one responsible party per day. This limitation applies to all requests for EINs, whether through the online EIN application or by fax or mail. If an EIN has been issued to any entity by any application method on a particular day, the responsible party on that EIN application must wait until the next day before being the responsible party on another EIN application.

A rejected EIN application indicating Reference Number 101 has a name conflict. The IRS requires a unique entity name before it will issue an EIN, similar to how the secretary of state requires a unique entity name within that state before Articles or Certificates of Organization may be successfully filed. However, because the IRS is a federal agency issuing EINs for entities in all 50 states, it potentially checks for duplicate entity names across multiple states. There are numerous references to a state on the online EIN application, such as the physical location state, mailing address state, and the state where the Articles are or will be filed.

If all of these state references are the same, the IRS will only check for previously-issued EINs with that entity name in that one state. If multiple states are reported, for example, if the Articles were filed in a different state than the business's physical address, the IRS will check both states for name availability before issuing an EIN, even though filing the Articles only requires a unique entity name in the one state where the Articles are being filed. In the past, it was possible to obtain an EIN over the phone in the case of a name conflict; however, the IRS no longer issues EINs over the phone.

Reference numbers 102, 103, 105, or 108 indicate that the name and tax ID number of the responsible party do not match IRS records. Reference number 104 means a third-party designee's contact information cannot be the same as the address or the phone number of the entity that is applying for an EIN. Reference numbers 109, 110, 112, or 113 mean that the online application is temporarily unable to assign EINs; try again later. Reference number 114 indicates that only one EIN will be assigned per day per responsible party. Reference number 115 indicates that the social security number listed for the responsible party is associated with someone who is deceased.

Reference Numbers 109 and 110 indicate technical problems and an EIN may still be obtainable using the exact same information that resulted in the error. The error might result from too many people trying to obtain an EIN at the same time. Try again later, or try closing and reopening the browser, using a different browser, using a different computer, clearing cookies, restarting the computer, or adjusting your security settings. Or, feel free to contact me; I would be happy to try and help.