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and Trust Section Newsletter Published by the Section on Probate and Trust Law of the Philadelphia Association

JUNE 2019 | NO. 150 IN THIS ISSUE

REPORT OF THE CHAIR

BY JUSTIN BROWN, ESQUIRE | PEPPER HAMILTON LLP 03 Impact Investing: Considerations for My high school yearbook quote practice area and our Section will of Pennsylvania Trusts was from Venus Williams…“If you undergo monumental changes as 08 Case Summary from the fail to prepare, you prepare to technology and artificial intelligence Orphans’ Litigation fail.” It was so inspiring to me that transform what we do and how we Committee not surprisingly, I practice in an do it, as baby boomers retire and area of the law focused entirely on plan for the transfer of their wealth, 10 Update preparation. and as tax exemptions 12 Practice Point: Petition v. continue to increase. Preparation is the of an Complaint estates practice. Every day, we Our Section is beginning to focus 13 Potential Enhancements our clients so that they may on the needs of the different to Pennsylvania Law prepare for their ’s cash needs, generations of estate and trust their incapacities, their potential practitioners. Our October quarterly 15 Technology Update creditors, their tax consequences meeting will be a reprisal of our both during their lives and at their Section’s successful /Bar 18 Diversity: More than Just a , their businesses, their deaths, program last year. The October Numbers Game and for the contingencies for which quarterly meeting is designed to 19 Ethics Column they are not yet aware. But do answer one simple question – if we, we heed our own advice? Are as estate planners, were advising we prepared for our future? Have ourselves to prepare for our own NEWSLETTER we implemented our own estate futures, what would we advise plans and business succession plans ourselves to do? Whether it be ARTICLES in order to enable the efficient planning for retirement, Social Would you like to see something management of our finances, Security, Medicare, long-term care, in future issues of the Probate clients, and estates when we retire, or wrapping up our practices, and Trust Law Section become incapacitated, or die? many of us have a tendency to Newsletter? Then, why don’t you take care of our clients before we This year, our Section has placed write it? If you are interested, take care of ourselves. We often significant emphasis on preparing please contact the Editor: neglect our own planning and our members and our Section for are therefore unprepared for our the future. In the next few years, our Michael Breslow own incapacities or deaths. Our email: [email protected] continued on page 3

1 Probate and Trust Law Section Newsletter | NO. 150 Probate and Trust Law Section Newsletter | NO. 150 2 IMPACT INVESTING: CONSIDERATIONS FOR TRUSTEES OF PENNSYLVANIA TRUSTS

BY JOHN F. MCCABE, ESQUIRE | GLENMEDE

Impact investing seeks to integrate a variety of different investment investing (PRI). (Though there are values and investment decisions1 strategies, some of which are a broad variety of approaches Such values might include referred to as socially responsible to this type of investing, and the environmental, social, governance, investing (SRI), environmental, legal implications of different and/or faith-based themes. This social, and governance investing strategies are beyond the scope type of investing encompasses (ESG), and program related of this article, the phrase “impact

continued on page 4

1 John F. McCabe and Nina A. Farran, “Impact Investing for Trustees,” Trusts & Estates, June 2015. .

REPORT OF THE CHAIR, CONTINUED planning procrastination could for all of our Section members. Our relationship, regardless of our age have detrimental consequences new mentoring program will fuse or legal expertise. to ourselves, our , our multiple generations of estate and I am eager to kick off our practices, our clients, and our trust practitioners so that we learn mentoring program and to Section. It is vital that our Section from each other, collaborate, and develop a framework for members have the tools necessary build mutually beneficial lasting sustainable, multi-generational to sufficiently prepare for the relationships. training. Please be on the lookout eventualities in their lives. The mentoring program will for the formal roll out of our Our Section’s future is also directly formally roll out in the summer/ Section’s mentoring program. If tied to the success of the next fall. Our mentoring program will you are interested in participating generation of estate and trust use mentoring groups designed or if you have suggestions as to practitioners who must be well to foster multi-generational how our mentoring groups can be equipped and well prepared to fill participation. Each group will successful, please do not hesitate the shoes of our more seasoned be comprised of approximately to contact Erica ([email protected]), practitioners. To groom our next eight attorneys of varying ages, Alicia (berensona@ballardspahr. generation, our Young abilities, and expertise. From com), or me (brownjh@pepperlaw. Division Liaisons, Erica Russo and “senior” lawyers to junior partners com). Alicia Berenson, are in the process to young associates, there is a As I have said many times before, of carefully and thoughtfully place for everyone in a mentoring it is such an exciting time for our creating a new mentoring program group because all of us, to Section and our practice area. We for the Section – a mentoring varying degrees, can serve as may not know what ahead program that is not designed to both mentors and mentees. We of us, but we are taking our own disappear in the next six months, all bring our unique experiences advice and preparing for the but one that is crafted to have and perspectives to a mentoring futures of ourselves, our practice lasting impact and lasting benefit area, and our Section.

Probate and Trust Law Section Newsletter | NO. 150 3 IMPACT INVESTING, CONTINUED

investing” will be used here as an called for avoidance of products respective ESG disciplines. Scores umbrella term for purposes of this or services deemed unethical or are aggregated into a single overall legal discussion.) immoral. value, and capital is allocated to the that perform As more and more look Over time, restricting certain types the highest within their relative to implement impact investment of investments became known as industries. Two common techniques strategies, interesting questions “negative screening.” One of the for integrating ESG factors include are raised in the area of impact most powerful tools of negative “ESG Tilt,” which overweights stocks investing by . Consider screening is divestment — the with high ESG scores, and “ESG the following request that a intentional withdrawal of capital to Momentum,” which overweights may submit to a effect social change. As impact companies with improving ESG of a multi-generational, non- investing has evolved, focus scores and underweights companies charitable, Pennsylvania trust. The has shifted to emphasize companies with deteriorating ratings. current beneficiary is interested with positive or improving ESG in integrating her values with the initiatives. The advent of positive The Prudent Investor Rule types of investments held in her own screening marks an important portfolio and asks the trustee to do shift in the impact investing story The general rule under the same in a trust established for and provides investors with the Pennsylvania’s prudent investor her benefit. How should a trustee opportunity to obtain competitive provides that “[a] presented with such a request returns while aligning their values shall invest and manage go about determining whether with their investment portfolios. held in a trust as a prudent investor such investment actions would be would, by considering the purposes, consistent with the trustee’s duties As a result of these progressions, terms and other circumstances of under the Prudent Investor Rule? the impact investing landscape the trust and by pursuing an overall has transformed from a single lens investment strategy reasonably Impact Investing2 — divestment — to a broad range suited to the trust.3 This general rule of impact investing options. With is supplemented by more specific First, let’s take a closer look at what the proliferation of data providers factors4 that a trustee must consider constitutes impact investing. The available, impact investing strategies in making investment decisions, as desire to integrate values and are increasingly expanding their well as more specific duties that investment decisions is not a new approaches to include both the trustee must carry out, such phenomenon. It is, in fact, a type negative and positive screening as the duty to diversify.5 These of investing that has existed for techniques. In this realm, companies rules, modeled on the Uniform centuries, originating with religious are assigned a score or rating based Prudent Investor Act, provide organizations, whose values on criteria particular to each of the trustees with the rules of the road,

2 See id. This section of this article has been adapted from Impact Investing for Trustees, as published in the June 2015 issue of Trusts & Estates.

3 20 Pa. C. S. §7203.

4 20 Pa. C. S. §7203(c).

5 20 Pa. C. S. §7204.

continued on page 5

Probate and Trust Law Section Newsletter | NO. 150 4 IMPACT INVESTING, CONTINUED

so to speak, in carrying out their beyond the scope of this article to read too much into the absence fiduciary investment responsibilities. but, with respect to non-charitable of the provision from (For simplicity, Pennsylvania’s trusts, the requirement that a trustee the in Pennsylvania’s Prudent Investor Rule will be consider “an asset’s … special prudent investor statute. The PEF referred to throughout this article value … to one or more of the Code Official Comments to the as the “Prudent Investor Rule” and beneficiaries…” may be relevant Prudent Investor Rule note that references to the Uniform Act will be in the context of considering a “Section 5 of the uniform act so noted.) beneficiary’s request that the trustee requires a trustee to invest solely in engage in impact investing. This the interest of the beneficiaries. This At the outset, it is worth highlighting provision does not seem, however, simply codifies the general duty of that the text of the Prudent Investor in and of itself, to be determinative loyalty which pervades trust law. It Rule does not directly address the of whether a trustee may implement seems inappropriate to single out by permissibility of impact investing an impact investment program. statute the investment duty as being by a trustee of a non-charitable subject to the duty of loyalty.”8 trust, though there is a reference to The Duty of Loyalty “social investing” in a comment to The duty of loyalty, of course, pre- the Uniform Act, as will be noted Discussions by commentators on dates the Uniform Prudent Investor below. Section 7203(c)(6) of the impact investing by trustees focus Act (1994) and, in a 1980 article Prudent Investor Rule does require heavily on the duty of loyalty. The addressing “social investing” by the trustee to consider “an asset’s duty of loyalty provision of the trustees, John Langbein and Richard special relationship or special value, Uniform Prudent Investor Act states Posner concluded that “a trustee if any, to the purposes of the trust or that “[a] trustee shall invest and who sacrifices the beneficiary’s to one or more of the beneficiaries, manage the trust assets solely in financial well-being for any other 6 including, in the case of a charitable the interest of the beneficiaries.” object breaches both his duty of trust, the special relationship of the Pennsylvania’s prudent investor loyalty to the beneficiary and his asset and its economic impact as a statute does not contain this duty of prudence in investment.”9 principal business enterprise on the provision but the duty of loyalty They further stated that “[t]he duty community in which the beneficiary is included in the Pennsylvania of prudent investing … reinforces of the trust is located and the Probate, Estates and Fiduciaries the duty of loyalty in forbidding the special value of the integration Code (the “PEF Code”) under trustee to invest for any object other of the beneficiary’s activities with Section 7772(a) which provides than the highest return consistent the community where that asset is that “[a] trustee shall administer with the preferred level of portfolio located.” The effect of this statutory the trust solely in the interests of the risk.”10 The focus of Langbein and 7 provision on charitable trusts is beneficiaries.” It is reasonable not Posner’s analysis was on social

6 UPIA (1994).

7 0 Pa. C. S. §7772(a).

8 PEF Code Comment to 1999 Act No. 28, Pennsylvania Probate, Estates and Fiduciaries Code Annotated, 2013.

9 John H. Langbein and Richard A. Posner, “Social Investing and the Law of Trusts,” 79 Mich. L. Rev. 72, 96 (1980).

10 See id. at p. 98.

continued on page 6

Probate and Trust Law Section Newsletter | NO. 150 5 IMPACT INVESTING, CONTINUED

investing by trustees, but wrote in the opinion pages of The The determination of what is in they reached their conclusions Wall Street Journal that “a trustee the “interests” of the beneficiaries under the law applicable to must abide by fiduciary duties of is a significant question. In 1980, trustees of private trusts. Notably, loyalty and prudence, and therefore Langbein and Posner commented, Langbein and Posner defined act for the ‘exclusive’ benefit as noted above, that the duty “social investing” to mean excluding of the beneficiaries, considering of loyalty required the trustee securities that are otherwise ‘solely’ their interests, without regard to seek the highest financial attractive investments and including for collateral benefits, such as returns, without the ability to securities that are otherwise advancing social or environmental incorporate the beneficiaries’ unattractive if those companies are causes.”13 In a separate article, non-financial values. A more socially irresponsible or laudable, Professors Schanzenbach and recent commentator has noted respectively.11 Sitkoff draw a distinction between that “nothing in the duty of loyalty what they refer to as “risk-return” requires the trustee to exclude A comment to the Uniform Prudent investing and “collateral benefits” of a beneficiary’s non- Investor Act notes that “[n]o form of investing.14 They argue that ESG financial interests.”17 Additionally, ‘social investing’ is consistent with investing is permissible if 1) the the author of the present article the duty of loyalty if the investment fiduciary believes in that has commented that “interesting activity entails sacrificing the the ESG investment program will questions would be raised by a interests of trust beneficiaries-for benefit the beneficiary directly by legal standard that requires the example, by accepting below- improving risk-adjusted returns, and trustee to make investments that are market returns-in favor of the 2) the fiduciary’s exclusive motive inconsistent with the values of one or interests of the persons supposedly for adopting the ESG investment more of the beneficiaries.”18 benefitted by pursuing the particular program is to obtain this direct 12 social cause.” benefit.15 Collateral benefits ESG At least one other state has investing “entails consideration of modified its law to address this More recently, Professors Max interests other than the sole interest issue. Delaware has incorporated Schanzenbach (Northwestern Law) of the beneficiary” and is “generally the concept of impact investing and Robert Sitkoff (Harvard Law) not consistent with fiduciary duty.”16 into its statute governing trusts.

11 See id. at p. 73.

12 See UPIA, comment to section 5.

13 Wall Street Journal, December 10, 2018, p. A15.

14 Max M. Schanzenbach & Robert H. Sitkoff, “The Law and of Environmental, Social, and Governance Investing By a Fiduciary,” Discussion Paper No. 971, Harvard Law School (2018).

15 See id.

16 See id.

17 Susan N. Gary, “Is it Prudent To Be Responsible? The Legal Rules For Charities That Engage In Socially Responsible Investing and Mission Investing,” 6 NW. J. L. & Soc. Pol’y, 106, 114.

18 See McCabe & Farran, supra note 1.

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Probate and Trust Law Section Newsletter | NO. 150 6 IMPACT INVESTING, CONTINUED

Specifically, under 12 Del. C. §3302, Practical Applications obtaining beneficiary under when considering the needs of the Section 7789 (though consideration beneficiaries in making investment Returning to our initial question, would need to be given to the decisions, “the fiduciary may take how might a trustee of a multi- virtual representative rules), and/ into account the financial needs generational non-charitable or proceeding under a nonjudicial of the beneficiaries as well as the Pennsylvania trust proceed with a agreement under Section beneficiaries’ personal values, request by a current beneficiary to 7710.1 of the PEF Code. As interest including the beneficiaries’ desire implement an impact investment in impact investing by grantors and to engage in sustainable investing program? The first place to look beneficiaries of non-charitable strategies that align with the is the governing instrument for the trusts grows, practitioners should beneficiaries’ social, environmental, trust. Under Section 7202 of the anticipate that the law in this area governance or other values PEF Code, the general rule under will continue to develop. or beliefs of the beneficiaries.” the prudent investor statute applies Additionally, under 12 Del. C. §3303, “[e]xcept as otherwise provided in This article is not intended as “the terms of a governing instrument the governing instrument…” which personalized advice. The author may expand, restrict, eliminate, or suggests that a may include takes sole responsibility for the views otherwise vary any of general language in a expressed herein and these view do application to fiduciaries, trusts explicitly permitting or directing the not necessarily reflect the views of and trust administration, including, trustee to pursue such investment the author’s employer or any other but not limited to, any such laws strategies. organization, group or individual. pertaining to … the manner in which This material has been prepared Where the governing instrument a fiduciary should invest assets, for general informational purposes is silent, there is support for the including whether to engage in only, and is not intended to provide, position that “risk-return” investing, 1 or more sustainable or socially and should not be relied on for, tax, as defined by Professors Sitkoff and responsible investment strategies….” legal or advice. Readers Schanzenbach, is permissible under should consult their own tax, legal trust law. Other alternatives that and accounting advisors to seek a trustee might consider include advice on individual circumstances.

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Probate and Trust Law Section Newsletter | NO. 150 7 CASE SUMMARY FROM THE ORPHANS’ COURT LITIGATION COMMITTEE1 Griggs Revocable Trust, 9 Fid. Rep. 3d 85 (O.C. Chester 2019)

BY BRADLEY D. TEREBELO, ESQUIRE | HECKSCHER, TEILLON, TERRILL & SAGER, P.C.2

Griggs Revocable Trust examined Jason was to receive the net Settlor’s son, Jason D. Griggs, the rights and responsibilities a income from the Family Trusts, and provided Wilmington Trust with a removed trustee has with respect principal may be distributed to document removing it signed by to the trust’s assets, including the Jason Griggs “as determined in the the sui juris members of the Griggs trustee’s rights to be released and sole discretion of the Trustees other family. Although Wilmington Trust discharged for its services as trustee than Settlor’s son, JASON D. GRIGGS, questioned whether the document and the trustee’s right to receive as shall be necessary or advisable was sufficient to remove it, it stated compensation until the trustee is from time to time for the medical that it was willing to resign upon released and discharged.3 care, maintenance, and support, of the appointment of a successor Settlor’s son, JASON D. GRIGGS, and trustee. Thereafter, the Griggs family Paul D. Griggs (“Settlor”) created a his issue[.]” presented Wilmington Trust with Revocable Trust dated November a document appointing Jason as 12, 2008, which he amended on Following certain unrelated litigation successor trustee pursuant to 20 Pa. February 4, 2010 (collectively, the concerning the Revocable Trust, C.S. §7764 (which provides that if “Revocable Trust”). Following Wilmington Trust was appointed the governing instrument is silent, the Settlor’s , a portion of the as sole trustee of the Trusts by “qualified beneficiaries” of the trust Revocable Trust was held in a Charlotte and her descendants, may appoint a successor trustee). continuing trust for the benefit of with such appointment to be “at Settlor’s spouse, Charlotte N. Griggs, will,” pursuant to a 2013 agreement Wilmington Trust advised that it which was subsequently divided into appointing Wilmington Trust as would file Accounts and Petitions for two trusts (the “Trusts”), one trust that the trustee. The Revocable Trust for the Trusts wherein was exempt from GST tax and one was silent with respect to the it would pose as a question for trust that was not exempt from GST appointment of successor trustees if adjudication the issue of whether tax. the corporate trustee was unwilling Jason Griggs could serve as sole or unable to serve, although trustee. During Charlotte’s lifetime, the net it provided that Charlotte was income of the Trust was distributable prohibited from serving as a trustee. In June 2018, shortly after Wilmington to her; following Charlotte’s death, Trust was presented with the removal the remaining assets were to be In May 2018, following certain and appointment documents, held in continuing trusts (the “Family differences between Wilmington Charlotte Griggs died, and the Trusts Trusts”) for the benefit of Settlor’s son, Trust on the one hand, and were to terminate, with the assets Jason Griggs, and his descendants. the Griggs family on the other, to be distributed to the trustee of

1 The Orphans’ Court Litigation and Committee will provide summaries of recent litigation cases in each quarterly newsletter.

2 © 2019 Heckscher, Teillon, Terrill & Sager, P.C. All Rights Reserved.

3 The author represented Wilmington Trust in this matter.

continued on page 9

Probate and Trust Law Section Newsletter | NO. 150 8 CASE SUMMARY, CONTINUED

the resultant Family Trusts for the lest the restrictions be rendered is the use of the words ‘within benefit of Jason Griggs and his meaningless.” a reasonable time’ rather than descendants. ‘expeditiously.’ The court discerns The Court then held that it “was no difference whatsoever. What is Wilmington Trust filed accounts of entirely proper” for Wilmington reasonable is certainly expeditious, its administration of the Trusts in Trust to raise as a question for and what is expeditious cannot be September 2018 and raised as a adjudication whether Jason unreasonable” (emphasis in original). question for adjudication whether Griggs could serve as sole trustee The Court then concluded that Jason Griggs could serve as sole of the Trust because, without an Wilmington Trust acted expeditiously trustee of the resultant Family adjudication form the court, it would by filing the accounts 3.5 months Trusts. The Griggs family filed be making distributions at “its own after its removal and 2.5 months multiple objections to the accounts, peril.” after Charlotte Griggs’s death. alleging, inter alia, that: (i) it was improper for Wilmington Trust to The Court also concluded that it was Finally, the Court examined whether raise as a question for adjudication not necessary for Wilmington Trust Wilmington Trust was entitled to whether Jason Griggs could serve to make an immediate distribution receive compensation following its as sole trustee of the Family Trusts; of the assets of the Trusts following removal. The Court concluded that (ii) Wilmington Trust should have its removal, for it “is through the a “trustee who has resigned or has distributed the assets of the Trusts to process of audit and adjudication of been removed still has the duties of Jason Griggs as purported successor an account that a trustee is released a trustee and the powers necessary trustee prior to the filing and and discharged for its services as to protect the trust property until adjudication of its accounts; and (iii) trustee, with the court directing the trust property is delivered to a Wilmington Trust was not entitled to the distribution of the assets to the successor trustee or other person its fees following its removal. proper recipients.” entitled to it” pursuant to 20 Pa. C.S. §7767(a). Thus, the Court held that In examining whether Wilmington With respect to the first issue, the “until the accounts are adjudicated Trust filed the accounts within Court held that Jason Griggs may and distribution is directed by the a reasonable time, the Court not serve as sole trustee of the court, Wilmington Trust continues examined both 20 Pa. C.S. §7767(b), Family Trusts due to the provision to bear the duties of trustee and is which provides that a trustee who in the Family Trusts that principal entitled to receive compensation for ceases to serve “shall proceed distributions may be made only “as its services[.]” determined in the sole discretion of expeditiously to deliver the trust the Trustee other than Settlor’s son, property within the trustee’s Jason D. Griggs” (emphasis added). to the . . . person entitled The Court concluded that while the to it” and 20 Pa. C.S. §7780.7, which Settlor anticipated that Jason Griggs requires that upon the “occurrence may at some point serve as trustee of an event terminating or partially of the Family Trusts, the “only way terminating a trust, the trustee to give full effect to the Settlor’s shall proceed to distribute the trust is to realize that in such a property within a reasonable time circumstance there must be another to the persons entitled to it[.]” The trustee serving with Jason D. Griggs Court read both provisions “in pari materia. The only distinction

Probate and Trust Law Section Newsletter | NO. 150 9 TAX UPDATE

BY GEORGE C. DEENEY, ESQUIRE | GILBOY & GILBOY LLP

PROPOSED TREASURY/IRS LEGISLATIVE HAPPENINGS qualifying expenses on behalf of designated beneficiaries The “Setting Every Community Up for attending elementary or Proposed relating to ESBT Retirement Enhancement (Secure) secondary school. Taxation Act of 2019” The “American Housing and In REG-117062-18, Treasury and the Rep. Richard Neal recently Economic Mobility Act of 2019” IRS proposed regulations to modify introduced the “Setting Every address the division of income Community Up for Retirement Senator Elizabeth Warren recently between the S portion and the Enhancement (Secure) Act of 2019,” introduced the “American Housing non-S portion of an electing small which seeks to expand certain rules and Economic Mobility Act of 2019,” business trust (ESBT). The proposed on retirement plan benefits. Among the tax provisions of which would: regulation would require that a the provisions of the bill are: trust’s S- income that 1) reduce the estate, , would otherwise be allocated to a 1) repealing the current and GST exemptions to $3.5 nonresident alien deemed owner 70-½ years maximum age for million and eliminate the GST under the grantor trust rules must be contributions to regular IRAs and exemption for transfers to a trust included in the S portion of the trust increase the RMD beginning with a termination date 50 years income. The regulation is drafted date from 70 ½ years of age to or greater from its creation; to ensure that such income remains 72 years of age; 2) require GRATs have terms taxable to a U.S. person. It would 2) changing the 5-year rule that are 10-years or greater; apply to all ESBTs after December to a 10-year rule for distribution; 31, 2017. 3) require grantor trust assets 3) permit penalty-free be included in the deemed Proposed Regulation Relating to withdrawals of up to $5,000 free owner’s estate for estate tax Reporting Obligations for Sale of Life of the early withdrawal penalty purposes, and that distributions Policy for “qualified birth or adoption” from the trust be treated as In REG-103083-18, Treasury and the distributions; gifts by the grantor for IRS proposed regulations addressing purposes; 4) expanding allowable reporting obligations under Code withdrawals from 529 plans 4) raise to 55% estate, gift, Section 6050Y. The proposed to include expenses for fees, and GST tax rate on transfers of regulations address payments of life books, supplies, and equipment $3.5 million to $13 million, 60% insurance death benefits, including required for the participation on estates, gifts, and transfers what can be excluded from gross of a designated beneficiary in of over $13 million and not over income after a reportable sale, and, an apprenticeship program, $93 million, 65% on estates, gifts, more generally, what sales must be up to $10,000 a year of certain and transfers of over $93 million reported. expenses in connection with and not over $1 billion, and 75% a home school, up to $10,000 the rate on estates, gifts, and for principal or interest of a transfers of more than $1 billion; qualified education loan; and and

continued on page 11

Probate and Trust Law Section Newsletter | NO. 150 10 TAX UPDATE, CONTINUED

5) limit the total gift tax to permit a reduction in value annual exclusion for all transfers of $2,000,000 and permit a made in trust or through a reduction of up to 60% of the passthrough entity or subject gross estate; to a prohibition on sale or , made in a calendar 5) require that a donee’s JOIN A COMMITTEE year to twice the annual basis in contributed property not exclusion. exceed the value on which a gift tax has been imposed; The Section’s Sanders Estate Tax Reform Bill Would Liberalize Some Estate Tax Benefits 6) eliminate valuation committees depend and Restrict or Eliminate Many discounts for nonbusiness assets on the steady flow of held by an entity and eliminate Popular Techniques people, energy and control discounts where the Senator Bernie Sanders recently transferor, the transferee, and ideas. Join one! introduced the “For the 99.8 Percent members of the family of the Act,” which would: transferor and transferee control the business; Contact the Section 1) reduce the estate, gift, Chair: and GST exemptions to $3.5 7) require GRATs have terms million; that are 10-years or greater; Justin Brown, Esquire 2) raise to 45% estate, gift, 8) require that assets of a and GST tax rate on transfers of grantor trust be included in the $3.5 million to $10 million, 50% deemed owner’s estate for 3000 Two Logan Square the rate on estates, gifts, and estate tax purposes; 18th and Arch Streets transfers of over $10 million and not over $50 million, 55% the rate 9) eliminate the GST Philadelphia, PA on estates, gifts, and transfers exemption for transfers to a trust 19103-2799 of over $50 million and not over with a termination date 50 years or greater from its creation; $1 billion, and 77% the rate on 215.981.4022 estates, gifts, and transfers of 10) limit the total gift tax more than $1 billion; annual exclusion for all transfers brownjh 3) increase (from $750,000 to made in trust or through a pass @pepperlaw.com $3,000,000) Code Sec. 2032A’s through entity or subject to a ability to reduce the value of prohibition on sale or liquidation, farm and closely-held business made in a calendar year to ; twice the annual exclusion.

4) increase the Code Section 2031(c) estate tax deduction for land subject to certain conservation

Probate and Trust Law Section Newsletter | NO. 150 11 PRACTICE POINT PETITION v. COMPLAINT

BY NEAL G. WILEY, ESQUIRE | ALEXANDER & PELLI, LLC

“There are no complaints in the (or other punishment) Orphans’ Court!” is the catechism as the court sees fit, and not Philadelphia Estate of those coming to our court from any particular thing. Pollock and Practitioner Handbook division for the first time, and Maitland describe the difference woe betide the attorney who tries as: “The querela, as distinct from the (PEPH) is still available to file one. But why is that so? It petitio, often comes from one who is online! is proscribed by 20 Pa.C.S. § 761 with difficulty persuaded to accept and Pa. O.C. Rule 3.1, but that has instead of vengeance, while Don’t forget that this been the case at least as far back the petens [petitioner] may have no as 18321 so that only sidesteps the worse to say of his opponent than valuable resource is still question. that he has unfortunately purchased freely available online in from one who could not give a The answer may be found in the good .”2 PDF format, to be found historical language of the procedure under the resource listing of in rem (“real”) actions (which Of course, even historically, this is a determine title to property) versus major oversimplification of actual for the Probate and Trust in personam (“personal”) actions practice, and many actions that Section. This is its temporary (which determine the parties’ rights were in spirit real actions began as to each other). The difference lies with a complaint, and vice versa. home and format while in the nature of the relief requested. But while the bright line between it undergoes substantial A petition (in Latin, petitio) initiates in rem and in personam actions revision. an action in rem because the has faded, and while the Orphans’ moving party seeks (in Latin, petere; Court certainly has over French, demander) title to the the persons within its sphere, most Link: https://www. subject property. A complaint (in of the business of the court is still philadelphiabar.org/page/ Latin, querela) initiates an action conceptually in rem, and so it seems in personam because the moving likely that this ancient distinction ProbateAndTrustLawSectio party complains (in Latin, queri; is the source of our modern nResources?appNum=4 French, se plaindre) of something catechism. adverse to him, and requests money

1 See Act of March 29, 1832, Article 57, § 1 (P.L. 190) (“Relating to Orphans’ , their Organization, Powers, and Scope of Jurisdiction”).

2 2 POLLOCK & MAITLAND, THE HISTORY OF BEFORE THE TIME OF EDWARD I. 571 (1899). See generally id. for a discussion of the procedure and terminology of these actions.

Probate and Trust Law Section Newsletter | NO. 150 12 POTENTIAL ENHANCEMENTS TO PENNSYLVANIA LAW1

BY KAREN A. FAHRNER, ESQUIRE | HECKSCHER, TEILLON, TERRILL & SAGER, P.C.

Pennsylvania’s trust and estate Digital Assets. The digital age maintain, process, receive or store practice remains fluid as we has been here a while now, electronic records may legally advance toward the end of the changing the way we conduct divulge the electronic records to the second decade in the 21st century. our daily lives both professionally fiduciary on behalf of the user. SB We see increasing demands for and personally. Thanks to Senator 320 reflects a slight change to the innovative solutions in the planning Killian, its inevitable impact on uniform act, stemming from multiple and administration world – requiring the trust and estates field may be meetings with representatives us to be nimble in responding to acknowledged during the current from the Uniform Law Commission, the latest call for relief – whether legislative session in Harrisburg. the PA Bar Association’s Real it is the unpredictability of our Senate Bill 320 (Printer’s Number 324) Property Probate Trust Section, the tax environment, the certainty of or “SB 320” would amend Title 20 to PA Bankers Association, the Joint galloping advances in technology, Pennsylvania Consolidated State Government Commission or the disappointing obsolescence (also known as “Pennsylvania’s Decedent’s Estates Advisory of irrevocable documents that Probate Estates and Fiduciaries Committee, and the Administrative were, once-upon-a-time, modern. Code” or “PEF Code”) by adding Office of Courts, as well as Apple, What we seem to be facing is the a new Chapter 39 called the Google, NetChoice and Amazon. development of new traditions in “Revised Uniform Fiduciary Access There were concerns that third party trust management, the creation of to Digital Assets Act” (“RUFADAA”), providers would require a court new routines and customs to govern which pertains to executors and order before providing an executor trust activities. administrators, trustees, agents with a catalogue of the emails of a under powers of attorney, and deceased user (a catalogue being It is good to know that various guardians (“Fiduciaries”).2 Based information which identifies the solutions are now being considered on the uniform law promulgated person who has had an electronic by professionals in both the banking by the National Conference of communication with the user, the and legal communities, with the Commissioners on Uniform State person’s email address, and the hope of having new laws adopted Laws in 2015,3 RUFADAA seeks to date and time of the electronic in Pennsylvania. This article focuses give fiduciaries the legal authority communication). Under proposed on three areas of interest, although under certain circumstances to Section 3908, if the executor or none has yet led to enactment: manage and access a user’s administrator provides certain Digital Assets, Directed Trusts, and electronic records, including emails, information about the deceased Decanting. and provide a structure whereby user’s email when applying for third party providers who carry, Letters of Administration or Letters

1 © Karen A. Fahrner 2019. All Rights Reserved.

2 https://legiscan.com/PA/text/SB320/2019

3 Uniform Law Commission, Fiduciary Access to Digital assets Act, Revised.. https://www.uniformlaws.org/committees/community- home?CommunityKey=f7237fc4-74c2-4728-81c6-b39a91ecdf22

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Probate and Trust Law Section Newsletter | NO. 150 13 POTENTIAL ENHANCEMENTS, CONTINUED

Testamentary, the issuance of responsibility to someone other than states have adopted it while three Letters by the Register of Wills will the trustee crept into the employee more states have introduced it to have the same force and effect as benefits world, which permitted a their respective .7 It a finding of the court for purposes “trust adviser” to handle investments may help to inspire the practical of authorizing access, so that the of a pension fund otherwise held guidance that is much needed in submission of Letters to the third by a corporate trustee.4 This Pennsylvania. The good news is that party provider should be sufficient innovation has now migrated to efforts are underway to propose to obtain a catalogue. SB 320 is personal trusts. Over recent years, in this area so that we currently in the Pennsylvania Senate even without the support of detailed may soon see the path ahead more Committee. One hopes legislation addressing important clearly and confidently. Pennsylvania will soon join the issues related to the concept, some other 41 states that have adopted practitioners have begun drafting Decanting: The ability to modify the uniform act on this important “directed trusts” whereby certain irrevocable trust documents subject. trust activities, like investments currently finds structure to a limited or distributions, would be the extent in the PEF Code (20 Pa. C.S.A. Directed Trusts: For those with long responsibility of a “trust director” §§ 7740 – 7740.6 and 7710.1). In memories, naming one or more rather than the trustee.5 The addition, some practitioners draft trustees to be in charge of the Pennsylvania recognized trust documents to include the entire trust was so common as to be directed trusts when it passed the authority to modify the trust terms, unquestioned. No one conceived Uniform Trust Act in 2006, which exercisable by certain persons of anything different. At most, the included provisions regarding the under certain circumstances. designation of three trustees was power to direct under PEF Code However, there is a growing interest likely seen as an to provide § 7778. See also PEF Code § 7763 in having even greater flexibility for balance in decision-making rather (regarding co-trustees) and § 7777 modification in Pennsylvania, such as than allocate duties over discrete (regarding ). However, that afforded by decanting. There components of the trust to a more is needed, particularly in the are now 28 states authorizing some 8 particular trustee. Each co-trustee area of scope of liability, standard form of decanting. The Uniform remained responsible for the proper of care, and fiduciary duty. The Law Commissioners promulgated administration of the whole trust. Uniform Directed Trust Act6 was the Uniform Trust Decanting Act In the 1960s, the concept of giving promulgated in 2017, and seven (“UTDA”) in 2015, which has been

4 “Trust Advisers”, 78 Harv. L. Rev. 1230 (1965); “A Parsing of the Newly-Minted Uniform Directed Trust Act”, Charles E. Rounds, Jr., Professor of Law, Suffolk University Law School, Feb. 1, 2018, https://www.jdsupra.com/legalnews/a-parsing-of-the-newly-minted-uniform-di-83888/

5 Wills, Trusts & Estates Prof Blog, ed. Gerry W. Beyer, Texas Tech Univ. School of Law. https://lawprofessors.typepad.com/trusts_estates_prof/2018/10/ article-on-making-directed-trusts-work-the-uniform-directed-trust-act.html

6 Uniform Law Commission, Uniform Directed Trust Act. https://www.uniformlaws.org/viewdocument/final-act-with-comments- 24?CommunityKey=ca4d8a5a-55d7-4c43-b494-5f8858885dd8&tab=librarydocuments

7 Uniform Law Commission, Uniform Directed Trust Act. https://www.uniformlaws.org/committees/community-home?CommunityKey=ca4d8a5a-55d7- 4c43-b494-5f8858885dd8

8 Summaries of State Decanting Statutes, compiled by Susan T. Bart, Schiff Hardin LLP, Chicago, Illinois. https://www.schiffhardin.com/Templates/media/ files/publications/PDF/Summaries%20of%20State%20Decanting%20Statutes.pdf

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Probate and Trust Law Section Newsletter | NO. 150 14 TECHNOLOGY UPDATE

BY ROSS BRUCH, ESQUIRE | BROWN BROTHERS HARRIMAN & CO.

On May 2, 2019, the Florida A text of the bill is available at: Two years ago, former Governor Legislature approved the use of https://www.flsenate.gov/Session/ Rick Scott vetoed “The Electronic video technology and remote Bill/2019/409/BillText/er/PDF Wills Act,” saying it failed to strike notarization for the online execution the proper balance between of wills and other legal documents. The bill allows notaries to affix convenience and safety. The latest The proposal will now head to their seal and signature to legal bill modifies the Governor Ron DeSantis’s desk for his documents (including wills, trusts, requirements and provides the signature. At the time of this writing, health care directives, and powers following limitations (among others) the bill has not yet been signed, of attorney) that are not signed in to remote notarizations: but it is expected (though not their physical presence, provided guaranteed) that Governor DeSantis they the signature via live, will approve the bill. two-way video links. Third-party may also appear remotely. continued on page 16

POTENTIAL ENHANCEMENTS, CONTINUED adopted by seven states to date a newly created trust for the assets. The second trust is simply and has been introduced by two beneficiary. The assets from the the first trust, as amended or other states. While decanting has first trust would be distributed to a modified. Among other things, the not been introduced as a bill in the second trust (hence, the elegant UTDA provides limitations on the Pennsylvania legislature currently, term “decanting”). However, scope of the fiduciary’s power to it is clear that permitting some as stated in the Prefatory Notes decant, depending on the scope form of decanting would bring to the UTDA, the Act views the of the fiduciary’s discretion over Pennsylvania in line with more than decanting power “as a power distributions in the first trust, and half of the country. Decanting may to modify the first trust, either by requires the exercise of the power be perceived as an extension of a changing the terms of the first trust in good faith. The tool of decanting trustee’s discretionary authority over or by distributing property from the has been available to citizens of 28 the trust’s principal. For example, first trust to the second trust.” This states so far. Perhaps Pennsylvania if the trustee has the power to means that decanting does not will be the 29th. invade principal for a beneficiary necessarily require a transfer of by making a distribution to or for assets to a second trust.9 It means the beneficiary, the trustee may be that decanting can be a way regarded as having the attending to modify or amend the first trust power to make distribution to without any need for transfer of

9 Uniform Law Commission. Uniform Trust Decanting Act, Prefatory Note, page 3. https://www.uniformlaws.org/viewdocument/final-act-with-comments- 92?CommunityKey=5b248bac-9251-47fb-bad8-57a23f3df540&tab=librarydocuments.

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• “Vulnerable Adults”– defined in part by Florida law as a person impaired by “a mental emotional, sensory, long-term physical, or developmental disability or dysfunction, or brain damage, or the infirmities of aging” – are prohibited from remotely executing documents.

• At the request of the Florida , Probate & Trust Law Section, the bill’s sponsors agreed to prohibit the use of video technology to execute “super powers- of-attorney” – documents that give the holder the ability to amend wills, trusts, estates and other documents.

While Florida legislation is not a typical focus of this newsletter, this bill is noteworthy even for local attorneys due to the prevalence of “snowbird” clients – Florida residents that spend summers in the Philadelphia region – who may inquire about the use of remote notarization if it is signed into law. Additionally, and perhaps more importantly, this is the latest development in a state trend towards permitting remote notarization that began with Virginia’s Electronic Notaries Act of 2011. Since that original enactment, states passing some form of online notarization legislation now include: Montana (2015), Nevada (2017), Texas (2017), Indiana (2018), Tennessee (2018), Minnesota (2018), Michigan (2018), Vermont (2018), Ohio (2018), North Dakota (2019), South Dakota (2019), Idaho (2019), Kentucky (2019), Utah (2019), Washington (2019), Maryland (2019), Arizona (2019), Iowa (2019), and Oklahoma (2019). However, even among this increasingly crowded field, the Florida bill stands out. If it is enacted, it will become only the second state (after Nevada) to specifically permit the online notarization for ’ and their witnesses’ signatures.

The rapidly evolving field of remote notarization and e-wills has the potential to significantly disrupt the way clients create and execute their planning documents. In addition to being potential tools for practitioners to use to make their practice more efficient, they also both come with the potential for and abuse and pave the way for third-party online providers to insert themselves between clients and attorneys, for better or worse. The Technology Committee will continue to monitor notable developments around the country to keep Section members informed.

This article is provided solely for informational purposes. This does not constitute legal, tax or investment advice. Any opinions expressed are subject to change without notice.

Probate and Trust Law Section Newsletter | NO. 150 16 Probate and Trust Law Section Newsletter | NO. 150 17 DIVERSITY: MORE THAN JUST A NUMBERS GAME

BY SHABREI M. PARKER, ESQUIRE | PARTNER | MINCEY FITZPATRICK ROSS, LLC

To truly connect with someone To actually integrate new people, snacks are located or where the different, we should try to identify to be inclusive, we need to receive restrooms might be? shared interests, be empathetic, and one another with open arms. Arms find ways to relate to one another. that embrace ways that we are the Don’t lead with what makes a But what does that really mean? same, rather than the ways we are person different. If racial, gender, different. age, etc. diversity distinguishes you, We’ve all been there. You’re invited use the mosaic of your personality to a ‘thing’ (wedding, shower, We have to find ways to be to find a common denominator that birthday party) and the only person relatable. doesn’t include that factor. you really know is the guest of honor. As you encounter other guests at Remember being the young Learn something new. If the person the event, you’re met with looks intimidated by stature and seniority? you’re speaking to speaks another from people who recognize that Remember being the new person at language, have them teach you they don’t recognize you, ignored work trying to figure out the office a word or phrase. If they love to altogether and/or approached with anything, or even the tag-along cook, have them share their favorite small talk that somehow centers on friend of a friend? Because we recipe. If you have a love of travel, how new, unfamiliar, or different need to be the people we need in share tips and tricks for picking great you are from the other people in those moments, I’ve created a list destinations or deals. attendance. Similarly, we’ve all of conversation tricks to help bridge Connecting with people is only been that well-to-do attendee, the gaps. difficult when you look at it as a trying our best to make a new Small Talk Tips for Inclusion chore that’s being forced upon you, person feel welcome, but finding rather than an opportunity to stretch ourselves doing so by asking them— Start with a joke. Even the corniest you. Making genuine connections pleasantly, of course—who they are of jokes make great icebreakers. A is human nature, but sometimes we and what brought them there. shared laugh is often the beginning need help realigning our system for of a friendship. We mean well. We don’t mean to optimal performance. Using these tips, you’ll be better equipped to be awkward or uncomfortable, and Talk about things that come make real connections, send better we surely don’t want others to feel naturally. What are the non-work follow up notes, and expand your that way. We want to meet new things you like--- travel, sports, pets, personal and professional networks. people, make connections and cars, etc.? develop relationships across the lines You’ll feel less anxiety when you that seemingly divide us. However, Stay away from taboo topics. go somewhere new, and you’ll be while we are constantly reminded Politics, family, religion—all are a more comforting and engaging of the need to be more diverse always off the table. Even when conversationalist while you’re there. and more inclusive, we aren’t often they are, they aren’t. I’m confident that you’ll leave the taught the best ways to actually next encounter feeling more fulfilled do it. The ways to actually get to Put yourself in their shoes. If you and more connected to a new know people we don’t know, or were the new person in the room, person than ever before. people who may feel like our polar what would you want? A smile, Here’s to more intentional inclusion! opposites. a cheat code to where the good

Probate and Trust Law Section Newsletter | NO. 150 18 ETHICS COLUMN

BY SCOTT S. SMALL, ESQUIRE | SENIOR VICE PRESIDENT, SENIOR REGIONAL FIDUCIARY MANAGER | WELLS FARGO PRIVATE BANK1

INTRODUCTION weeks later, H call Attorney to increasing number of clients are tell her that he does not want involved in online banking, investing, Every estate and trust practitioner W to have access to his digital bill paying and tax filing, as well is familiar with both the efficiencies assets. H tells Attorney that as engaging in gaming and social and the landmines of jointly he has fathered at least one business networking sites. representing two spouses. With our child out of wedlock and that culture’s increasing reliance on the among his digital assets are the As of August, 2017, Go-Globe Internet to conduct business and passwords to a bank account reported that the following provide entertainment, I suspect and a brokerage account that transactions occur on the Internet that many clients have digital assets he has set up for that child. every 60 seconds: 80 new domain which they do not want a spouse to names are registered, 24,000 discover. Consider this case study: We will come back to this case transactions occur on Amazon. study later in this article after some com, 25,000 posts occur on Tumblr, Husband and Wife engage an background on digital assets 210,000 photos are shared on estate planning attorney to and the current state of the law SnapChat, 350,000 tweets are sent prepare their Wills and Trusts. applicable to access to this growing on Twitter, 1 million swipes are made H and W have been married form of property interest. on Tinder, 3.8 million searches occur for over 30 years. During a on Google, and 156 million e-mails meeting to assist H and W BACKGROUND are sent.4 Every sixty seconds! And with their decisions on several this data is almost 2 years old! matters, Attorney explains to Did you ever hear about the person H and W the law related to who sold virtual real estate in a Overlooking a client’s digital access to digital assets. Both multiplayer universe online game for assets5 can lead to financial loss 2 spouses decide to give access over $600,000 of very real dollars? for beneficiaries and fiduciary risk to the other’s digital assets, and Or the decedent who owned a for executors and trustees, but documents are prepared and domain name that was sold for gaining information and access to 3 signed to reflect such. Several over $13 million dollars? A steadily those assets is a challenge. Some

1 The opinions and views expressed in this material are those of Mr. Small and do not constitute any representation of the opinions or views of his employer, Wells Fargo Bank.

2 Planet Calypso Player Sells Virtual Resort for $635,000 USD, PR NEWSWIRE (Nov. 12, 2010)(Entropia Universe was the game).

3 Sex.com was sold in 2010 by Escom LLC (then in ) to Clover Holdings LLC. Escom LLC was the alter ego of Gary Kremen, who died in 2006.

4 Things That Happen on Internet Every 60 Seconds, Blog.go-globe.com (Aug. 21, 2017).

5 The term “digital asset” is defined in Section 2(10) of the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) as an “electronic record”. In turn, the term “electronic record” consists of two words each of which is defined in the Act: “electronic”, which means technology having electrical, digital, magnetic, wireless, optical, electromagnetic or similar capabilities; and “record”, which means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form. Id. §§ 2(11), 2(22).

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digital property has little or no A decedent’s life story could be account has not been accessed for financial value,6 but those items lost if family members or fiduciaries several months. In addition, federal of digital property with financial cannot access these digital assets.7 or state criminal laws related to the value must be included in state On the flip side, access to digital unauthorized access to computers and federal inheritance and estate assets may either lead to or prevent have a significant on tax returns, and in the inventory the disclosure of secrets or hurtful fiduciaries who may want to use the and of guardianships, information (affairs, addictions, etc.). person’s username and password to conservatorships, decedents’ By designating appropriate people directly access the person’s online estates or trust administration. to take care of or delete certain accounts and retrieve the account Simply stated, digital assets such as information or accounts, the digital contents. Clear authority for domain names, advertising revenue services user can avoid the exposure fiduciary access to online accounts from Web pages and blogs have of such private details. and digital property is needed to financial value. Even video game keep administration costs down, to characters and the virtual weapons Fiduciaries therefore need access provide for a smooth administration, and used in multiplayer to an incapacitated or deceased to avoid committing a , and universe games have financial value person’s electronically stored to ensure no valuable or significant which must be counted by the user’s information, e-mail accounts, and property is overlooked. 8 fiduciary. other online accounts to fully accomplish their fiduciary duties THE IMPEDIMENTS TO FIDUCIARY Still further, consider the unique to an incapacitated or deceased ACCESS sentimental value of digital assets person. Fiduciaries often need to to the family and friends of an act quickly to meet federal and Traditionally, after a person became incapacitated or deceased person. state tax filing requirements and incapacitated or died, the duly- Many people now store their the requirements of state courts appointed fiduciaries would go to photographs, diaries and letters in and state fiduciary laws to promptly the person’s home; look through a computer instead of in a shoebox inventory and protect the person’s the person’s paper records; and or in albums stored on a bookshelf. property. Acting quickly is especially watch the person’s U.S. mail for Family trees are created and stored important for online accounts bills, account statements, and other in online genealogical accounts because service providers may important information needed for such as Ancestry.com or 23andMe. close the person’s account and the administration process. If a com. Blogs have replaced diaries. delete the person’s data if the client’s bills and account statements are delivered by e-mail, and her

6 But see Greene, Passing Down Digital Assets, WALL STREET JOURNAL (Aug. 31, 2012)(according to survey from McAfee, consumers value their digital assets on average at more than $35,000). Determining the value of digital property may be difficult. Comparables may be hard to find. Market conditions can change quickly as technology evolves and is replaced, as fads come and go, and as lifestyles change. For a person’s Web pages and blogs that receive advertising revenues, those cash flows can be used to establish value. Those cash flows may fluctuate significantly from one year to the next, however, and may be worth little to no money if the person dies.

7 Prangley, Haller & Coventry, Web of Estate Planning Considerations for Digital Assets, 40 ESTATE PLANNING 3, 4 (May 2013).

8 One online site predicts that by next year, the average person will have 200 online accounts. Editor, 68 Million Reasons Why Your Small Business Needs a Password, Blog.Dashlane.com (Jan. 6, 2017).

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checkbook registers and tax returns 2013 contained a lengthy report at its conclusion. Notably, the final are saved only in a digital format, about the family of a deceased sentence of the court’s opinion the first challenge is finding that Canadian teenager and their efforts stated, “Of course, nothing prevents person’s valuable or significant to gain access to and control her Facebook from concluding on its digital property. The second digital legacy memorialized inside own that Applicants have standing challenge is finding the passwords Facebook, Twitter, Tumblr, Yahoo to consent on Sahar’s behalf and that allow access to those accounts and Hotmail accounts. None of providing the requested materials and records. A third challenge is the services would allow the family voluntarily.”13 the federal and state criminal and to retrieve the passwords or any data privacy laws that threaten to other information of the deceased Making matters worse, federal fine or incarcerate a fiduciary or the because it would violate the and state privacy laws exist that custodian producing a beneficiary’s decedent’s privacy. All of the criminalize the unauthorized access or decedent’s digital property. But companies cited their TOSA and of computers and digital accounts. the greatest impediment by far to state and federal criminal laws in Those same laws prohibit providers fiduciary access to digital assets support for their position.10 of digital accounts from disclosing is the Term of Service Agreement account information to anyone (TOSA). Every provider of digital In similar fashion, the without the account holder’s services has a TOSA. Most users District Court for the Northern consent. These laws are intended 11 breeze by the terms of the TOSA and District of California prevented to provide 14 click “I Accept” when prompted the estate of British fashion model against fraud and identity , to do so.9 Yahoo’s TOSA lays it out Sahar Daftary in September, 2012 but they have a chilling effect on plainly: “Upon receipt of a death from compelling Facebook to turn fiduciaries who are trying to carry certificate, your account may be over the decedent’s Facebook out their duties of marshalling, terminated and all contents therein account contents as part of a valuation and distribution. permanently deleted.” ’s to determine her .12 The court cited In 1986, Congress passed a law The page of the first Wall both Facebook’s TOSA and federal (the Electronic Communications Street Journal Weekend issue of electronics in arriving Privacy Act of 1986) (ECPA)

9 Lamm, Study Shows Users Don’t Read Terms of Services Agreements, Blog.digitalpassing.com (July 14, 2016)(98% of users missed “gotcha clauses” planted in a fictional TOSA).

10 Fowler, Life and Death Online: Who Controls a Digital Legacy?, WSJ WEEKEND A1, A12 (Jan. 5-6, 2013).

11 The United States District Court for the Northern District of California is the chosen court having jurisdiction over any disputes arising under the Terms of Service Agreements for Facebook, Apple, Google, LinkedIn, Twitter, WordPress, Yahoo! and YouTube. Microsoft selected Washington State for its dispute resolution forum. Lamm, Kunz and Riehl, Digital Death: What to Do When Your Client Is Six Feet Under but His Data Is in the Cloud, 47th Annual Heckerling Institute on Estate Planning at III-E-(1)-16 (Jan. 2013).

12 The issuer of insurance on Sahar’s life declined to pay out death proceeds, alleging the model had committed . The of Sahar’s estate wanted access to her online accounts to refute that allegation.

13 In re Request for Order Requiring Facebook, Inc. to Produce Documents and Things, No. C 12–80171 LHK at 3 (N.D.Cal. Sept. 20, 2012).

14 Pennsylvania’s against computer hacking and unauthorized access can be found at 18 Pa. C.S.A. §§ 7601 – 7616.

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forbidding consumer electronic- information even by bringing a civil e-mail service website.17 That bill communications companies from action against the service provider. was never enacted into law. disclosing content without its owner’s The practical reality is that providers consent or a government order are unwilling to supply digital At or about the same period of like a search warrant.15 Courts information to the fiduciary of an time, a group of learned attorneys 18 and companies largely have individual for fear of violating federal and professors began drafting a interpreted this law to mean that and state . “Uniform Fiduciary Access to Digital families and fiduciaries are unable Assets Act” (UFADAA). UFADAA to force companies to allow access THE LEGISLATIVE RESPONSE – FROM went through six committee to the deceased’s data or to their UFADAA TO RUFADAA drafts prior to its final reading and accounts. For example, e-mail approval by the Uniform Law Beginning about fifteen years ago, accounts provided to the public Commission on July 16, 2014. By the commentators started lobbying for by Google, Microsoft and Yahoo!, middle of 2015, UFADAA had been legislation on this topic because and social networking accounts introduced by legislatures in at least fiduciaries were finding it necessary 19 provided to the public by Facebook, 27 states. UFADAA, however, to have access to and control over Google+ and MySpace, enjoy the was only adopted by one state – digital property and electronic statutory privacy protections under Delaware – and that state enacted communications with increasing the ECPA. UFADAA less than one month after frequency. For example, here in its final reading and approval.20 Although a “lawful consent” Pennsylvania, State Representative exception exists in the ECPA,16 Tim Briggs and 12 other Pennsylvania It turns out that UFADAA had without a law that authorizes legislators introduced a short bill some very powerful adversaries fiduciaries to access the digital (H.B. 2580) on August 23, 2012 to opposed to its adoption. The largest assets of a decedent or a principal, amend the PEF Code to provide Internet service providers (and the lawful consent exception has personal representatives with the their lobbying group, NetChoice) meant that the online account power to take control of, conduct, were opposed to the fundamental service provider may choose to continue or terminate the account premise that was at the heart of voluntarily disclose the contents of a decedent found on any social UFADAA: the presumption that the of the electronic communications networking website, microblogging fiduciary has the same authority and files, but you cannot compel or short message service website, or as the account holder just as if the service provider to disclose that the account holder were the one

15 18 U.S.C. §§ 2510 et seq. Title II of this law is known as the Stored Communications Act and contains the sections most relevant to this topic. Id. §§ 2701 - 2712.

16 Id. § 2702(b)(3).

17 The Pennsylvania statute was virtually identical to similar statutes that were enacted in Oklahoma (Okla. Stat. §58-269)(2010)) and Idaho (Idaho Code §15-3-715(28)(2011)).

18 The Uniform Law Commission (ULC).

19 Klein, Who Will Delete You? Fiduciary Access to Digital Assets, ActionLine at p. 10. (Fla. RPPTL Section)(Winter 2015).

20 Delaware H.B. 345 was signed by Governor Markell on Aug. 12, 2014.

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exercising the authority.21 UFADAA opposition and the apparent defeat default rule is non-disclosure unless had stated that any provision of a of the Act in every legislature save the user indicates otherwise through TOSA limiting third-party access or one, the Uniform Law Commission an online tool or through her or his requiring notice of change in the went back to work. They reversed estate planning documents. Even account holder’s may not be field on the underlying presumption if one of those indicia is present – enforced to bar fiduciary access, of UFADAA – that a user would want even if the user has consented to and also had stated that any choice her or his fiduciary to have access the disclosure - a custodian has of law provision that had the effect to digital assets – and instead the right to require a court order of limiting a fiduciary’s access to presumed that no user would want to protect itself from liability in the digital assets was unenforceable. her or his fiduciary to have access event disclosure is made.26 Finally, UFADAA flatly had stated to digital assets without of an that any provision of a TOSA that affirmative consent being provided PLANNING CONSIDERATIONS limited a fiduciary’s access to the by the user.23 Instead of a default As of this writing, RUFADAA has digital assets was void as against the setting of “privacy off” for fiduciaries, been adopted by 40 states, with strong public policy of applicable the default setting became “privacy five others (including Pennsylvania) state law UNLESS the account holder on”. having current, active bills. 27 affirmatively agreed to restrict Pennsylvania’s version of RUFADAA fiduciary access by means of an The essence of RUFADAA is the currently is found in Senate Bill 320, act of independent significance order of priority for overcoming which was introduced by State separate and apart from the the presumption of non-disclosure: Senator Killion (Chester/Delaware) account holder’s general assent to via online tool (e.g., Facebook’s and eight others on February the other provisions of the TOSA.22 Legacy Contact or Google’s Inactive Account Manager)24, 27, 2019. The Pennsylvania Bill Neither the major internet and or via a direction in an estate currently is under review by the tech companies, nor civil liberty planning document (e.g., Will, Power Senate Judiciary Committee. The organizations such as the ACLU, of Attorney, Trust). If no written Pennsylvania Bill would add a new were in favor of this approach. direction exists other than the TOSA, Chapter 39 to the Probate Estates 28 Faced with such formidable the TOSA will control.25 Thus, the and Fiduciaries Code.

21 UFADAA § 7(a)(2).

22 Id. § 7(b) – (d).

23 RUFADAA § 4.

24 For an in-depth discussion of these two online tools, see Brown & Bruch, Online Tools under RUFADAA: The Next Evolution in Estate Planning or a Flash in the Pan?, Probate & Property Vol. 33, No. 2 at 61-62 (March/April 2019).

25 RUFADAA § 4 cmt. at 11 (2015).

26 Klein, Florida Fiduciary Access to Digital Assets Act – “The 411” What You Should Know, ActionLine at 23 (Fla. RPPTL Fall 2016).

27 Lamm, Ajemian v. Yahoo! Case Update, Blog.digitalpassing.com (April 2, 2018); see Legislative Report By Act (UniformLaws.org Apr. 26, 2019).

28 S.B. 320, sec. 2.

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Unfortunately, the Pennsylvania Bill by strong passwords plus store their password lists in a has not been enacted as of this strong encryption may be safe deposit box, home safe or writing. Consequently, advance practically impossible to access. with their attorney. Passwords planning with clients is very Consequently, without knowing also require frequent updating, important. Some common sense the passwords, a person’s and frequent updates don’t rules to be adopted by you and fiduciaries and family members work well with written lists. your clients might include: may not be able to fully Electronic methods of storage access a person’s smartphone, probably are preferable to just 1. Have your clients prepare computer, online account, or a written list. An electronic list a complete list of passwords, electronically stored information. of passwords can be kept on a online accounts and other client’s smartphone, computer, digital property. 4. Conduct a digital fire drill zip drive or Web site. Free and with your clients. Ask your client: commercial software is available 2. Have accessible backups if your computer is lost, stolen to keep track of passwords, and of valuable or significant or destroyed in a fire, flood, popular software or Web-based electronically-stored information. tornado or hurricane today, services to keep electronic lists Locating digital property can what valuable or significant of accounts and passwords take a significant amount of digital property would you include Dashlane, LastPass, time and effort to find and lose? Similarly, if you were in an 1Password, EnPass, KeePass and gain access. Valuable digital accident today or died today, Keeper.30 property may be overlooked or how would your family and may be inaccessible. fiduciaries access your valuable 7. Web-based services or significant digital property? such as AfterSteps, E-Z-Safe 3. Passwords are an obstacle and SecureSafe can store an to fiduciary access.29 Most 5. Minnesota Attorney Jim electronic list of passwords, service providers won’t reveal Lamm is one of the most savvy online account information or reset an incapacitated or commentators on this evolving and other digital property and deceased person’s password, area of our practice. He has also provide a mechanism for even for a duly-appointed prepared a template for use authorized fiduciaries or family guardian, conservator, executor, as a “Digital Audit”, which can members to access the list. trustee or agent acting under a be downloaded at http:/www. The user tells the in power of attorney. Computer digitalpassing.com/digitalaudit. advance which key people security and computer forensics pdf. can unlock this information experts are expensive. Even at the appropriate time and, with expert help, however, 6. Written lists are inherently after being contacted by that digital property protected insecure: advise your client to fiduciary or family member, the

29 Passwords are supposed to be an obstacle to unauthorized access. Clifford Stoll is reputed to have said, “Treat your password like your toothbrush. Don’t let anybody else use it, and get a new one every six months.” Fiduciaries, of course, should not be unauthorized users.

30 Lamm/Kunz/Riehl, supra note 11, at III-E-(1)-18. See also Gray, Digital Estate Planning: Preparing for Tough Times, Blog.forbes.com (Feb. 9, 2019) (cybersecurity contributor to Forbes Magazine recommending usage of password managers)..

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company will grant access after is a free e-mail application variations of this case study when a verification procedure. available for Microsoft Windows, discussing Pennsylvania Rules 1.6 Apple Mac OS and Linux-based (confidentiality of information) and 8. At least one vendor computer systems. Facebook 1.7 (: current – Directive Communication or Google+ social networking clients). Systems – has designed a accounts can be downloaded product that specifically into a single archive from the Certainly the duty of confidentiality complies with the “online Account Settings page. Another is one of the most fundamental 31 tool” standard of RUFADAA. Web-based service called aspects of the client-lawyer 32 Entitled “Digital Asset Directives Backupify will automatically relationship. Conceptually, Management”, the program create periodic backups of a Attorney must not share H’s manages the online approvals client’s electronically stored revelations with W. Attorney, for multiple internet service information at Facebook, however, represents BOTH H and providers as opposed to Twitter, Google Gmail, Flicker, W. H’s revelation thus implicates managing the passwords Picasa, LindkedIn, Blogger, etc. Pennsylvania Rule 1.7 which states themselves. If account that a lawyer may not represent a passwords are not needed to ETHICAL CONSIDERATIONS client if either the representation of access the digital property, the one client will be directly adverse fiduciary or attorney can avoid Let’s get back to H and W and their to another client, or if significant risk any potential violation of federal Attorney. Which of the Pennsylvania exists that the representation of one or state laws. DSC’s no-password Rules of Professional Conduct might client will be materially limited by feature has the added benefit provide guidance? This scenario the lawyer’s responsibility to another of minimizing ID theft and fraud should be familiar to most of our client.33 One possible approach potential. readers from the continuing legal would be for Attorney to make education programs on Ethics best efforts to persuade H to tell 9. Make sure your clients aimed toward to the practitioner W about the secret accounts. If back up their data. Valuable of probate and trust law. Probate Attorney is unsuccessful, however, or significant data stored online and Trust Law lawyers represent Attorney must withdraw from the should be regularly backed- spouses all the time. It is frankly joint representation of H and W.34 up to local storage media. To impractical in the majority of cases Unfortunately, that action is likely locally back up an online e-mail to dissuade spouses from serving to lead to a host of unpleasantries. account, clients should use an as agent for one another under W probably will be suspicious, e-mail application installed on Powers of Attorney or as Executor for especially when Attorney advises their personal computer. For the other’s estate. Consequently, H and W to obtain separate example, Mozilla Thunderbird readers of this article will have seen counsel. It is possible that Attorney’s

31 Szabo & Kurin, Digital Asset Planning, Password Sharing & the Risk of Liability, Blog.netchoice.com.

32 PA. R. PROF. COND. 1.6 cmt. 2 (duty of confidentiality underscores the “trust that is the hallmark of the client-lawyer relationship”).

33 Id. 1.7(a)(1), (2)..

34 Id. 1.7 cmt. 4.l

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withdrawal from representation will each other, that reticence might The comments to Pennsylvania cause damage to the , yet demonstrate the need for separate Rule 1.1 include the following continuing to represent H would be representation ab initio. This phrase in its explanation of the directly adverse to W. approach is blessed by Comment requisite knowledge and skill to be 31 of Pennsylvania Rule 1.7. In this considered competent: “keep[ing] Fortunately, the Pennsylvania case study, Attorney also should tell abreast of changes in the law and Rule allows Attorney to continue H and W, in each other’s presence, its practice, including the benefits to represent both H and W that each can supersede her or and risks associated with relevant notwithstanding the existence of his estate planning documents by technology”.38 The comments a concurrent conflict of interest IF making direct designations with their to Pennsylvania Rule 1.6 similarly each affected client gives informed digital providers to disallow access warn us of the risks associated 35 consent. The experienced notwithstanding the designation with relevant technology, i.e., practitioners with whom I have in the POA or the Will. Remember an attorney may be found to discussed this question over the – the designation with the service have violated her or his duty of years address the potential for provider prevails or trumps in confidentiality if the attorney has not conflicts of interest between spouses RUFADAA. made “reasonable efforts to prevent in estate planning engagements the inadvertent or unauthorized at the onset of the engagement. I Let’s now turn to our own legal disclosure of, or unauthorized access call their process “Show-and-Tell” practices and our own usage of to, information relating to the because the attorney advises and reliance upon the Internet for representation of a client.”39 both spouses that any information attorney-client communications. provided to the attorney by one As attorneys, we struggle with The technology risks faced spouse must be revealed to the digital assets in our respective by lawyers are surveyed most other spouse. In essence, the practices. Securing the thoroughly in an ABA Formal Opinion attorney gets the approval of both communication of protected client issued just two years ago by the spouses in writing up front to the information implicates the twin ABA’s Standing Committee on Ethics joint representation. That way, if duties of competency (set forth in and Professional Responsibility.40 H is reluctant to sign any written Pennsylvania Rule of Professional The conclusion of that Opinion is, waiver of confidentiality Attorney Conduct 1.1)36 and confidentiality asks both H and W to sign as to (set forth in Pennsylvania Rule 1.6).37

35 Id. 1.7(b)(4).

36 “A lawyer shall provide competent representation to a client. Competent representation requires the legal knowledge, skill, thoroughness and preparation reasonably necessary for the representation.”

37 “A lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation or the disclosure is permitted [under other parts of this Rule].”

38 PA. R. PROF. COND. 1.1 cmt. 8.

39 Id. 1.6 cmt. 18.

40 ABA Comm. On Ethics & Prof’l Responsibility, Formal Op. 17-477 (2017)(updating Formal Op. 99-413).

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“[A] lawyer generally may • Understand and Use President and CEO of a technology transmit information relating to Reasonable Electronic Security group whose profession is to the representation of a client over Measures protect digital assets from the latest the internet without violating the cybersecurity threats, over 357 Model Rules of Professional Conduct • Determine How Electronic million new malware variants were where the lawyer has undertaken Communications About Client introduced in 2016 alone, and 83% reasonable efforts to prevent Matters Should Be Protected of all attacks came through the inadvertent or unauthorized access. use of e-mail attachments or web • Label Client Confidential However, a lawyer may be required links.44 Information to take special security precautions to protect against the inadvertent • Train Lawyers and or unauthorized disclosure of client Nonlawyer Assistants in information when required by an Technology and Information agreement with the client or by Security law, or when the nature of the information requires a higher degree • Conduct of security.”41 on Vendors Providing Communication Technology The Formal Opinion sets out seven (7) considerations42 as guidance to These considerations also factor attorneys in securing attorney-client into the determination of whether communications: the lawyer made “reasonable efforts” to prevent the inadvertent • Understand the Nature of or unauthorized disclosure of the Threat confidential information.43

• Understand How Client The ever-evolving sophistication of Confidential Information is cyber-attacks makes protecting Transmitted and Where it is client confidentiality all the more Stored challenging. According to the

41 Id. at 1.

42 Id. at 5-10.

43 Id. at 11.

44 Beringer, Ethical Implications of Digital Assets: What You Need To Know, PEPC 2018 Ethics Forum (April 24, 2018). Successful cyberattacks are conducted 82% by outside cybercriminals; 11% are from company insiders; and 7% are conducted by nation states such as Russia or China. Id.

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