UPDATES ON WASHINGTON TRUSTS AND ESTATES A Review of the Recently Enacted and Proposed Laws relating to Trusts and Estates Presented by: Stephanie R. Taylor RANDALL|DANSKIN A Professional Service Corporation

WASHINGTON UNIFORM ACCESS TO DIGITAL ASSETS ACT What are Digital Assets? E-Mail Accounts (Gmail, Yahoo, AOL, Hotmail, etc.); Pictures (Flickr, Picasa, Instagram) Videos (YouTube, Vimeo) Document Accounts (Google Docs, Sribd) Online Files (Word/Excel, Health Records) Websites, Domain Names, Blogs and We Hosting Accounts Social Networking Accounts (Facebook, Twitter, LinkedIn, Google+) iMusic (iTunes, Amazon) iBooks (Kindle, e-books); Devises, such as laptops, smartphones, tablets and associated accounts; Shopping Accounts and Online Businesses (Ebay, Amazon) Bill payment accounts (Bank, Paypall) and asset account login management

CONSIDERATIONS FOR DIGITAL ACCOUNTS Who can access and control these accounts upon your death or incapacity? How do your representatives obtain access to these assets? How are digital assets transferred to your beneficiaries? How can your online legacy be protected and preserved? How do fiduciaries discover all of the information when the need arises?

OWNERSHIP OF DIGITAL ASSETS Each provider has its own policies and service agreements Not necessarily uniform Ownership may terminate at death Ownership may be transferrable Examples: Yahoo! – an account is private property, so the family must take legal action to receive account information. Microsoft Hotmail – allows an authorized representative to receive information Facebook – closes certain access to the account Myspace – no access allowed to family members

FEDERAL & STATE LAW Federal Electronic Communications Privacy Act – generally forbids an online provider from providing access to any person who is not an account owner Computer Fraud and Abuse Act (“CFAA”) – permits the government to charge a person with violating the CFAA when that person has exceeded his access by violating the access rules put in place by the computer owner and then…obtains information The U.S. Department of Justice (“DOJ”) has stated that violating a term of service on Facebook or Match.com is a federal crime under the CFAA, however they have also stated it is not their intention to prosecute “minor” violations DOJ prosecuted mother under CFAA who posed as 17 year old and bullied her daughter’s classmate. State Law – all 50 states have enacted criminal laws prohibiting unauthorized access to electronic data.

UNIFORM FIDUCIARY ACCESS TO DIGITAL ASSETS ACT (UFADAA) RCW 11.120 - Act allows: Fiduciary A Personal Representative, Guardian, Trustee and/or Attorney-in-Fact (RCW 11.120.020(13)) Access Not a transfer of ownership Digital Assets A record that is electronic (RCW 11.120.020(9)) Does not include the underlying asset or liability unless the asset or liability is itself an electronic record User Direction A user may use an online tool to direct the custodian to disclose to a designated recipient or not to disclose some or all of the user’s digital assets, including the content of electronic communications. (RCW 11.120.040) If no online tool, may provide direction in Will, trust, POA, or other record Overrides contrary provision in a terms-of-service agreement Unless agreement requires user to act affirmatively and distinctly from the user’s general assent

UFADAA Access by Personal Representative (RCW 11.120.080) Unless otherwise provided by Will or Court, a Personal Representative has the right to access: The catalogue of electronic communications sent or received by the decedent Required documentation: Written request Certified copy of death certificate Certified Letters Testamentary (or small estate affidavit); Other information (if requested)

UFADAA Access by Conservator/Guardian (RCW 11.120.140) A conservator/guardian appointed due to a finding of incapacity under RCW 11.88.010 has access to: The content of electronic communication sent or received by the AIP; The catalogue of electronic communications sent or received by the AIP; and Any other digital asset in which the AIP had a right or interest Conservator/Guardian may suspend or terminate accounts for good cause

UFADAA Access by Attorney in Fact (RCW 11.120.090) To the extent a power of attorney expressly grants authority, the agent has the right to access the content of electronic communication sent or received by the Principal. Without the express grant and unless otherwise provided by a power of attorney or a court, the agent has the right to access (RCW 11.120.100): The catalogue of electronic communications sent or received by the Principal; and Any other digital asset in which the Principal has a right or interest

Access by Trustee (Section 6) UFADAA Access by Trustee (Section 6) A trustee that is an original account holder has the right to access each digital asset held in trust (RCW 11.120.11); A trustee who is not an original account holder has the right to access (RCW 11.120.120), if the original user consented to such disclosure in the trust document: The content of electronic communication sent or received by the original user The catalogue of electronic communications sent or received by the decedent; and Any other digital asset in which the decedent at death had a right or interest

Fiduciary Authority (RCW 11.120.150) UFADAA Fiduciary Authority (RCW 11.120.150) Subject to fiduciary standards of care, loyalty and confidentiality A fiduciary who is an account holder under the previous sections has the following authority: Subject to the terms-of-service agreement and copyright or other applicable law, may take any action concerning the asset to the extent of the account holder’s authority and the fiduciary’s powers under state law; Has lawful consent for the custodian to divulge he content of the electronic communication; Is, as defined by federal law, an authorized user A fiduciary may not impersonate the user

HOW TO PLAN FOR THE TRANSFER OF DIGITAL ASSETS Transferring ownership rights may preserve value and accessibility LLC Corporation Partnership or Trust Limitations in Terms and Condition of Service Agreements Distinctions between individual and entity ownership E.g., Facebook page for individuals v. Facebook page for entity

HOW TO PLAN FOR THE TRANSFER OF DIGITAL ASSETS Estate Planning Provisions Powers of Attorney Wills Trusts Specific instructions to digital assets Who receives them? Not sufficient to include as personal property. What should be done with them? Destroyed Distributed Reviewed Memorialized

DELEGATION OF AUTHORITY BETWEEN CO-TRUSTEES Washington RCW 11.98.016 An individual trustee, with a co-trustee’s consent, may, by a signed, written instrument, delegate any power, duty or authority as trustee to that co-trustee; unless such power, duty, or authority is expressly conferred upon only one trustee A delegating trustee may be liable for failing to participate in the administration or failing to attempt to prevent a breach of trust

ENHANCED DELEGATION RCW 11.98.071- Trustee’s Delegation of Duties A trustee may delegate duties and powers that a prudent trustee of comparable skills could property delegate under the circumstances What can be delegated? Delegation is not limited to the performance of ministerial acts May include: discretionary acts; selection of trust investments; management of specialized investment programs; and other activities requiring significant judgement

ENHANCED DELEGATION Requirements of Enhanced Delegation – RCW 11.98.071 The Trustee must exercise reasonable care, skill and caution in: Selecting a delegate Establishing the scope and terms of the delegation Consistent with the purpose and terms of the trust; Periodically reviewing the delegate’s actions under the terms of the delegation Enforcing the delegate’s duties under the terms of the delegation

ENHANCED DELEGATION Duty of Delegate The delegate owes a duty to the trustee to exercise reasonable care to comply with the terms of the delegation In addition to any other duty “inherent” in the delegation A delegate, by accepting the delegation, submits to the jurisdiction of the courts of the trust’s situs

ENHANCED DELEGATION Liability of Trustee Assuming the trustee used reasonable care (as required above), the Trustee is not liable to the beneficiaries or to the trust for an action of the delegate to whom the function was delegated; Trustee is not relieved of the duty to compel the delegate to account for the delegate’s actions (Washington law)

DIRECTED TRUST - WA Definitions Statutory Trust Advisor (“STA”) (RCW 11.98A.030) One or more persons … including … trust advisor, special trustee, trust protector, or committee, who, under the terms of the governing instrument … who has a power or duty to direct, consent to, or disapprove an action, or has a power or duty that would normally be required of a trustee. Governing Instrument RCW 11.98A.020- The will, trust instrument, court order, exercise of power of appointment, or binding agreement under RCW 11.96A.220 appointing, designating, or providing for a method for appointing a statutory trust advisor under RCW 11.98A. Compare – I. C. §15-7-501(1)(d): any revocable or irrevocable trust document whether created inter vivos or testamentary

DIRECTED TRUST Definitions (con’t) Directed trustee (RCW 11.98A.100) A trustee that, under the terms of the governing instrument: Must follow the direction of the STA as to a particular duty or function, to the extent the trustee follows any such direction; May not undertake a particular duty or function without direction from a STA, to the extent the trustee fails to undertake such duty or function due to the absence of such direction; Must obtain the consent or authorization of a STA with respect to a particular duty or function, to the extent the trustee timely seeks but fails to obtain such consent or authorization; or Must obtain the consent or authorization of a STA with respect to a particular duty or function, to the extent the trustee obtains such consent and authorization and acts in accordance therewith, but only if and to the extent that the governing instrument clearly indicates that the protections of directed trustee status are intended by the testator, trustor, or power holder

DIRECTED TRUST POWERS - WA Powers and Duties of a Statutory Trust Advisor – RCW 11.98A.030 The governing instrument may grant the STA any of the following duties (or greater ones): The power to direct the acquisition, management, disposition or retention of any trust investment; The power to direct a trustee to make or withhold distributions to beneficiaries; The power to consent to a trustee’s action or inaction relating to investments of trust assets; The power to consent to a trustee’s action or inaction in making distributions to beneficiaries; The power to increase/decrease any interest of any beneficiary of a trust, to grant a power of appointment to one or more trust beneficiaries, or to terminate or amend any power of appointment granted in the trust (some exclusions apply); The power to modify or amend the governing instrument to obtain favorable tax status or respond to changing law; The power to modify or amend the governing instrument to take advantage of changes in rules regarding the term of the trust; The power to appoint a successor trustee, trust advisor, or statutory trust advisor; The power to change the governing law or principal place of administration of the trust; The power to remove a trustee, trust advisor, or STA for the reasons stated in the governing instrument

FIDUCIARY OBLIGATIONS Powers and Duties of STA The exercise of a power by an STA is exercised in the sole and absolute discretion of the STA and is binding on all other persons Governing instrument may provide otherwise; The STA has a fiduciary duty with respect to each power granted and must act in good faith and honest judgment; Governing instrument may not limit this duty; STA has no duty to monitor the administration of the trust to determine whether the power should be exercised Request of trustee or qualified beneficiary; However, STA may have a duty based upon power granted and facts and circumstances

DIRECTED TRUST Duty to Inform and Report STA shall Keep the trustee and qualified beneficiaries reasonably informed of the administration of the thrust with respect to the specific duties or functions being performed; Upon request by the trustee, provide the trustee with requested information regarding the administration of the trust with respect to the specific duties or functions being performed by the STA; and Upon request by a qualified beneficiary, provide the qualified beneficiary promptly with such information as is reasonably necessary to enable the qualified beneficiary to enforce his or her rights under the trust with respect to the specific duties or functions being performed by the STA This can be waived by the terms of the governing instrument

DIRECTED TRUST Acceptance of STA Declining/Resigning as STA Written notice to the trustee; Taking affirmative action to exercise powers or perform duties granted by the STA; or Any other means provided in the governing instrument Declining/Resigning as STA STA may at any time decline to serve or resign by written notice to the then serving trustee of the trust

BREACH OF DUTY Remedy for Breach of Duty If a STA commits or threatens to commit a breach, a trustee or a beneficiary may file a petition under TEDRA; To compel the STA to perform the STA’s duties; To enjoin the STA from committing a breach; To compel the STA to redress a breach by payment of money or otherwise; To require the trustee to assume responsibility for a power/duty given to a STA in a governing instrument; To remove the STA; To set aside the acts of the STA; To reduce or deny compensation of the STA; To impose an equitable lien or a constructive trust on trust property; or To trace trust property that has been wrongfully disposed of and recover the property or its proceeds Other damages available by statute or common law, including damages

DIRECTED TRUST Liability for Breach A STA is chargeable in the same manner as a trustee However, if a STA acted reasonably and in good faith under the circumstances then known to the STA, the court, in its discretion, may excuse the STA in whole or in party from liability if it would be equitable to do so

JURISDICTION RCW 11.98A.080 By accepting appointment, the STA submits to the jurisdiction of WA courts regardless of other agreements that provide otherwise STA is not a necessary party to a TEDRA Proceeding or Agreement unless the matter that is the subject of the proceeding or agreement affects the duties or functions being performed by the STA

LIABILITY OF DIRECTED TRUSTEE A directed Trustee is not liable, either individually or as trustee for the following: Any loss that results from compliance with the STA’s direction or from actions taken with the prior consent or authorization of the STA; Any loss that results from any action or inaction of the STA with respect to any power granted to the STA in the governing instrument; Any loss that results from a failure to take any action proposed by a directed trustee that requires the prior consent of a STA, if the directed trustee who had a duty to propose such action timely sought but failed to obtain the consent

LIABILITY OF DIRECTED TRUSTEE A directed trustee has no obligation to monitor the actions taken by the STA or at the STA’s direction If the STA is required to follow the direction of a STA, then, except to the extent that the terms of the governing instrument provides otherwise, the directed trustee has no duty to: Monitor the conduct of the STA, Provide advice to the STA, Consult with the STA, including, without limitation, any duty to perform investment or suitability reviews, inquiries, or investigations or to make recommendations or evaluations with respect to any investments to the extent the statutory trust advisor has authority to direct the acquisition, disposition, or retention of any such investment; Communicate with or warn or apprise any beneficiary concerning instances in which the directed trustee would have exercised his or her discretion in a different manner; or Commence a proceeding against the STA; NOTE: the trustee is not relieved of its duty to act in good faith and in honest judgment.

PROPOSED – DECANTING STATUTE Washington’s Trust and Estate Dispute Resolution Act (“TEDRA”) (RCW 11.96A) Matter includes Any issue, question or dispute involving…the determination of any question arising in the administration of an estate or trust… RCW 11.96A.125 - The terms of a will or trust, even if unambiguous, may be reformed by judicial proceedings under this chapter to conform the terms to the intention of the testator or trustor if it is proved by clear, cogent, and convincing evidence that both the intent of the testator or trustor and the terms of the will or trust were affected by a mistake of fact or law, whether in expression or inducement. This does not limit the ability to reform the will or trust using the Binding Nonjudicial Agreement (“TEDRA Agreement”) provided for in RCW 11.96A.220.

DECANTING STATUTE Decanting Statutes Purpose To provide a relatively simple and low-cost procedure for modernizing trust documents, at the same time protecting the interests of beneficiaries; Statute would allow complete replacement of the original trust document with a new, updated trust document July 2016, twenty three (23) states had some form of trust decanting statute

DECANTING STATUTE What Trusts May be Decanted Irrevocable, Express Trusts in which the terms of the trust grant the trustee or another fiduciary the discretionary power to make principal distributions. Does not apply to Revocable trusts unless they are revocable by the settlor only with the consent of the trustee or an adverse party; Wholly charitable trusts Trust in which the fiduciary does not have the authority to make discretionary principal distributions unless the court appoints a special fiduciary Exception: a fiduciary may decant to create a SNT if the decanting will further purposes of the first trust.

DECANTING STATUTE Who May Decant? Fiduciary Power exercisable by the fiduciaries of the first trust. Generally, the fiduciary must have discretionary power over principal; Extent of decanting power depends on extent of discretion Limited distribution discretion – limited by ascertainable standard (MESH) The interests of each beneficiary in the second trust must be substantially similar to such beneficiary’s interest in the first trust. Administrative modifications, not dispositive provisions. Expanded distribution discretion May modify beneficial interests, subject to restrictions to protect interests that are current, noncontingent rights or vested remainder interests, to protect qualifications for tax benefits and to protect charitable interests.

DECANTING STATUTE Fiduciary Power No duty to exercise decanting power If exercised, the power must be exercised with the fiduciary duties of the authorized fiduciary Good faith, In accordance with its terms and purposes, and In the interest of the beneficiaries The exercise of the decanting statute must be in accordance with the purposes of the first trust May not disregard Settlor’s intent Modification only to better effectuate the settlor’s broader purposes

DECANTING STATUTE Fiduciary Power Power may be exercised without consent of the beneficiaries or the court Exception: modifications that may benefit the fiduciary personally (Conflict of Interest Rules) “Qualified Beneficiaries” are entitled to notice and may petition the court if they believe the authorized fiduciary has breached its fiduciary duty Any party may petition the court for: Instructions; Appointment of a special fiduciary; Approval of an exercise of decanting power; Determination of breach of duty; Determination that savings provisions apply; or Determination that the decanting is invalid

DECANTING STATUTE Decanting Procedure History – a derivative of the power to make discretionary distributions The decanting power was exercised by making a distribution from one trust to another, and a second trust, separate and distinct from the first trust was required Current Procedure Trustee may simply modify the first trust The second trust is just a modified first trust No need to retitle assets Continuation of first trust No need to treat it as terminated for income tax purposes No need for new EIN Trustee may create wholly new second trust

QUESTIONS??? Stephanie R. Taylor RANDALL|DANKSIN A Professional Service Corporation 601 W. Riverside Avenue, Suite 1500 Spokane, WA 99201 (509) 747-2052 – Fax: (509) 624-2528 srt@randalldanskin.com