24 July 2014

Who Turns Off your Facebook When You Die?

Let's face it, our digital lives are completely intertwined with real lives. Everybody is connected digitally in one way or the other. We all have one or more of these services like e-mail, Facebook, Instagram, Twitter, LinkedIn, etc. While we all manage them personally, what happens when we pass away? Who manages them to inform your friends and family that you are no longer around and how do you want your online life to be managed so that it will be delete or deactivated so that no one can hack or impersonate you?

As far as I know, there is no law in Canada allowing for the passing of your digital assets to your estate or beneficiary. Your digital assets is not the same as your physical and financial assets which can be passed on. This leaves a lot of problem for the survivors since online companies usually do not just allow anyone to get access to another person's account even if that person is deceased without going through some rigorous processes to prove death and that you are the person that has the authority to change or delete the account.

Currently in the U.S., there is a law that has been interpreted by the Wall Street Journal this way, "In 1986, Congress passed a law forbidding consumer electronic-communications companies from disclosing content without its owner's consent or a government order like a police investigation. Although that law predates the rise of the commercial Internet, courts and companies have largely interpreted it to mean that the families can't force companies to let them access the deceased's data or their accounts."

In short, when you die, your family cannot legally obtain access to your digital accounts. And most of these online companies are located in the U.S. and will follow U.S. law.

So how will you manage your digital life? The best way to do this is to create a document listing all your online accounts, username and password and keep it along with your Will. I have a template of this document and most of my clients have a copy of this template. I call it the "Last and Final Letter" which is a guide (not a Will) to the survivors on what and how you want things manage. The Last and Final Letter includes information about your bank accounts including online banking numbers and passwords, online accounts like Facebook, LinkedIn, e-mail accounts, etc.

If you are the executor, the process of deleting and deactivating account should be done slowly and in some cases, through a certain sequence. You may want to post an announcement first that person has passed away on their Facebook and LinkedIn account and that any communication coming from that deceased going forward should be ignored or reported (in case it was hacked). After a few weeks, start deleting them one by one starting with Social Network accounts like Facebook and LinkedIn and so on. The last thing to be deleted should be e-mail as these social network accounts usually connect to e-mail to verify deletion of the account.

E-mail should be kept longer and monitored so subscription can be unsubscribed and any correspondence replied to inform that the person is deceased. After which, the e-mail can be deleted as well.

Here's an article I found that provides a small guide about how an executor should handle digital assets.

Canadian law will continue to evolve and may address this issue in the future. But for now, this method should suffice as long as it is done properly and respecting the privacy of the deceased.

10 April 2014

The Value of a Comprehensive Home Insurance Coverage

A funny thing happened to one of our clients the other day. She lives in a condo with two kids under 3 years old. One day, she started smelling something bad coming out of her second bathroom so she called her property manager to complain and the property manager told her to call a plumber.

The next day, a plumber came in and told her that since she doesn't use that shower that she should just run the shower for a while and the smell should go away.

She did as the plumber suggested but the smell didn't go away. In fact, it just got worst each day. She called the plumber again and the plumber said he couldn't figure out what was wrong. So he decided to remove the wall to find out if there was a broken sewer line which could be the source of the smell. Once the wall was taken out, the smell got even worst, in fact, 10 times as worst. She described it as like hitting a wall of stink and it was unbearable.

The plumber found nothing wrong and said the smell must be coming from the apartment below. So she called her property manager and told him that they have to go into that apartment below and find out the source of the smell.

The property manager called the owners, and it turns out that the owners don't live there but their brother did and promised to go there later in the day to check it out.

Well, the owners didn't actually check out the apartment until the next day and when they did, guess what they found? It turns out the brother died while in the tub, maybe from a heart attack. The brother has been dead for more than three weeks and nobody even bothered to check in on the brother the whole time.

So what is the point of this story other than sharing a morbid story.

Well, our client could't stay in her apartment because the smell was unbearable, especially with two kids under 3 years old. She was talking to her neighbor and who was wondering what to do. Our client told her that she will be checking with her insurance company if the company will pay for the cleanup and for her to move out. She asked her neighbor if she had home insurance said that she doesn't because she's just renting and didn't see the need for having insurance and asked if insurance would have paid for it.

Fortunately, our client has a comprehensive condominium insurance policy which is an All Risk policy. This means that all perils are covered unless specifically excluded in the policy. This policy also includes coverage for Additional Living Expense and this coverage will pay for her food and lodging until her place has been cleaned up.

Additionally, her insurance will pay to move her stuff out of her apartment to be cleaned and put in storage then return them once the apartment has been sanitized. The cost for the removal, cleanup and return of her personal property alone is $5,000.

You wouldn't normally think that something like a bad smell would be covered by your home insurance. But under a Comprehensive policy, it does, especially in this situation. That's why it pays to have a Comprehensive Insurance policy because it covers unusual situations like these.

29 October 2013

Losing the Creditor Protection Status of Your Life Insurance

Life insurance, especially Permanent Life insurance like Whole Life and Universal Life Insurance is one of the most underrated tool that one can use as a savings vehicle. Depending on the type of insurance used, you can get returns like you get from a GIC or like a mutual fund with he added benefit that the returns in a life insurance policy are tax deferred or can potentially be tax free. These are some of the benefits of a life insurance policy with cash values.

Did you also know that the cash value in a life insurance policy is also protected from creditors? All life insurance policies and life insurance products like segregated funds offer creditor protection if set up properly. This is because there is a designated beneficiary in the policy. However, for a life policy to be properly protected, the beneficiaries have to be set up properly.

Bankruptcy

I recently came upon a client who is undergoing bankruptcy. The bankruptcy happened because of a divorce and the ex-wife is now entitled to payment and the client had to file for bankruptcy. So the ex-wife is now the creditor of the husband.

Prior to the separation, the husband has a Universal Life policy where he is putting extra funds in the policy to build up his investments and cash values. The ex-wife was designated as a beneficiary of the policy with the kids set up a contingent or secondary beneficiaries.

After the divorce, the husband no longer wanted the wife to be the beneficiary. He wanted his kids to be the new beneficiaries but he didn't think his children (aged 19 and 21) should suddenly inherit a lot of money at a young age should he suddenly pass away. He is afraid that they may squander the money if they get it at a young age and thought that 30 would be an appropriate age for them to get the life insurance proceeds.

Instead of speaking to me about his situation, he directly called the insurance company to have his beneficiaries changed. He changed the primary beneficiary from his ex-wife to his sister and set up his children as contingent or secondary beneficiaries and had his brother be the trustee for the children until the children turn 30.

Then he filed for bankruptcy. Big mistake.

Life Insurance in Bankruptcy

As a general rule, all assets of an individual are security for unpaid debts owing to a creditor. This applies whether or not the individual is bankrupt.

When someone files for bankruptcy, his properties are turned over to his trustee. The life insurance policy of that individual is then put into a status called "Assignment in Bankruptcy". When a policy is under Assignment in Bankruptcy. The owner of the life insurance policy cannot make any changes to the policy until that person is discharged from bankruptcy.

Remember when I said that a life insurance offers creditor protection? It does but only if at least one of these two conditions are met:
  1. The beneficiary is designated as "Irrevocable"
  2. The beneficiary designated are certain family members specified in the provincial insurance legislation. In most common law provinces, the family member must be a spouse, child, grandchild or parent of the life insured in order for the policy to provide creditor protection.
Did you see the problem here? The client, not wanting the have the ex-wife as a beneficiary, but at the same time was wary of having his young adult children inheriting a big insurance proceed designated his sister to be the primary beneficiary. He instructed his sister to manage the money and give it to the children when they turn 30.

Unfortunately, under the provincial insurance legislation, when you designate a sibling as a beneficiary, they are NOT considered as family members. Hence, no creditor protection exists. And when your policy is under assignment in bankruptcy, you cannot do any changes to the policy like changing beneficiaries, etc.

Because the client has built up significant values in the life policy, the creditor now wants the cash in the life policy to pay off his debts. So now the client will either be forced to surrender the life insurance policy and leave nothing to the children and use the cash values to pay the creditor, or he has to borrow money from someone equal to the amount in the life insurance policy to pay the creditor. And you know you can't just borrow money from anyone when you're in bankruptcy.

Fortunately, the trustee was kind enough to tell him that they're not going to force him to cancel his policy. But did tell him to borrow money from his brother or sister and pay the equivalent of the cash value in the policy then they will release his policy from bankruptcy. Once released, the client can how do what he wants with his policy.

How could the client have saved himself from this headache? There are two thing he could have done.
  1. Assign the children to be the beneficiaries and assign his sister to be the trustee for the children until age 30 or whatever age he decides to give the children the full amount. That way, the sister controls the money until the children reaches age 30. At which point, they are entitled to get the full amount.
  2. Assign the sister or the children to be the irrevocable beneficiaries.
There are some important issues that needs to be understood when you assign someone as an irrevocable beneficiary. Basically, you cannot change this beneficiary without the consent of the beneficiary which could be a problem if you happen to not get along with that beneficiary later on.

There are also some rules that govern bankruptcy with regards to protecting your assets. The main thing is that if it was deemed you did something for the specific reason of hiding them from your creditors, you will not get protection. The general rule of thumb is, any assets you protected say in your life insurance or RRSP within one year from bankruptcy, they are not creditor protected.

If the client changed the beneficiary just prior to filing bankruptcy, he may only get partial protection from his creditors on his life insurance or he may not get any protection at all. That is up to the court to decide. But if he changed the beneficiaries two years ago, then he will be fully protected if it was deemed the change wasn't for the purpose of protecting the assets from creditors.

To summarize, life insurance is a great way to invest and also protect your assets from your creditors. They offer competitive rates of return and the death benefit bypasses probate and is tax free.