Digital Assets: A Call to Action
Examining the risks and challenges posed by digital assets to estate planning and administration.
Digital assets like social media accounts, emails, cryptocurrency, and photos have become integral parts of our lives. But what happens to these assets when someone passes away or becomes incapacitated?
STEP and the Microsoft-funded Cloud Legal Project at Queen Mary University of London collaborated on research examining estate practitioners’ views and experiences with digital assets. The aim was to understand how often practitioners deal with digital assets, the risks and challenges they pose for estate planning and administration, and the measures taken to assist clients.
Over 500 STEP members globally across estate and wealth planning sectors responded to the survey. The results offer valuable insights into practitioners’ and clients’ experiences:
Key Findings:
- Digital assets are now common in modern estate planning and administration, with demand for advice expected to increase significantly.
- Clients seek digital asset advice for estate planning and administration, most frequently about social media and email accounts.
- Clients often struggle to access a deceased or incapacitated family member’s digital assets, causing distress and frustration.
- Third-party service providers can create practical, procedural, and legal obstacles for estate planning and administration of digital assets.
- There is wide variation in policies, practices, and tools for dealing with clients’ digital assets, highlighting the need for more practitioner education on best practices.
- Law reform is needed to enable effective estate planning and administration for digital assets.
A Call to Action
Accessing a loved one’s digital assets after death can be challenging. As digital assets become more prevalent, effective solutions grow increasingly critical. These solutions require a joint response – organizations like STEP and its members must engage with governments and service providers globally to produce industry solutions and best practices that help families plan for their digital futures with certainty and clarity.
STEP recommends a threefold approach focused on education, collaboration, and legislation:
Education: The estate industry should work towards establishing, gathering, and sharing best practices for helping clients with digital assets. Public awareness about what constitutes digital assets and the implications of failing to plan for them also needs to increase.
Collaboration: The estate industry needs to collaborate with cloud service providers to highlight issues and find more effective solutions for accessing digital assets upon death or incapacity. While some encouraging pre-planning options exist, providers also need clear procedures for estate administration. The estate industry can provide legal and practical knowledge to inform technical solutions that work for families.
Legislation: Legal systems need clear rules around property rights and personal representatives’ rights to access digital assets. Some positive steps like the Law Commission of England and Wales’ 2021 digital assets project exist, but wider efforts and greater international collaboration are needed for consistent global standards. Legislation like the U.S. Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) provides an example approach.
Loss of Mental Capacity: A Global Perspective
As our population ages and dementia cases rise, more people are at risk of losing the ability to make decisions for themselves. STEP’s groundbreaking report, “Loss of Mental Capacity: A Global Perspective,” reveals the increasing challenges families and advisors face in navigating mental incapacity issues.
The Troubling Reality
- Requests for advice on mental capacity are skyrocketing, driven by aging demographics.
- Financial abuse of vulnerable individuals is on the rise, especially when capacity is uncertain or others make decisions on their behalf.
- Capacity is an extremely complex issue that perplexes practitioners, service providers, and families alike.
The Crucial Role of Powers of Attorney
While powers of attorney are vital for incapacity planning, the report finds:
- Barriers like costs, family tensions, and cultural taboos prevent many from creating powers of attorney.
- Stronger safeguards are needed in many jurisdictions to prevent abuse by appointed representatives.
- A demand exists for globally recognized and portable powers to accommodate today’s cross-border lifestyles.
The Way Forward
To protect the rising number of incapacitated individuals, STEP calls for:
- Robust and consistent global legislation on powers of representation
- Enhanced safeguards against financial exploitation of vulnerable persons
- Greater education about capacity, planning needs, and the roles/duties of representatives
With an aging population, the challenges surrounding mental incapacity can no longer be ignored. STEP’s insightful report charts a path toward better protecting the rights, dignity, and assets of our most vulnerable members of society.
Meeting The Needs of Modern Families
Navigating the dynamics of modern families can be quite intricate. With their diverse structures and complex needs, addressing their requirements demands expertise and collaboration that transcends borders, cultures, and professional domains.
STEP has embarked on a research initiative, generously supported by TMF Group, aimed at gathering valuable insights into the families advised by STEP members and their wealth and succession planning requirements. This project aims to uncover the primary complexities and limitations confronting families and their advisors presently. Its objective is to elucidate the prevalent themes within this domain and pinpoint areas where STEP can direct its future efforts to tackle any identified challenges effectively.
Key Findings
1. Families are changing, with ‘blended families’ on the rise.
Families are evolving, witnessing a surge in ‘blended families’ in recent years. Over the last decade, respondents have noted significant shifts in family structures. A substantial proportion has observed an uptick in multi-jurisdictional families (78%); cohabiting families (73%); mixed-ethnicity families (61%); same-sex relationships (54%); and non-biological children (51%). The prevalence of ‘blended families’ has become commonplace, with 96% of respondents now advising this family type, and three-quarters witnessing a rise in their numbers over the past decade.
2. Complexity is often leads to conflict
Complexity often breeds conflict. From intergenerational and cultural clashes within families to legal and tax disputes stemming from differences across jurisdictions, outdated legislation, and language in wills and trust documents, respondents increasingly encounter disagreements, ruptures in family relationships, and litigation due to the complexities of modern families.
3. New family constructs and dynamics are driving demand.
The emergence of new family structures and dynamics is driving demand. The escalation in complexity and potential for conflict associated with modern families has led to a growing demand for advisors and their services. Tax advice, trusts, global/cross-jurisdictional services, and family governance advice have particularly witnessed heightened demand, with succession planning ranking as the top issue for which clients seek guidance.
4. One size doesn’t fit all.
There’s no universal solution. A one-size-fits-all approach no longer suffices to address families’ needs. Traditional frameworks must be reassessed in light of new family structures and the pronounced trend towards ‘global families’ residing and working in diverse jurisdictions. Advisors are compelled to recalibrate their strategies, adopting a collaborative, cross-border approach by working with other professionals to ensure the family’s requirements are met. They are also embracing a broader skill set to navigate increasingly intricate family dynamics.
5. Communication and early planning are essential.
Communication and early planning are paramount. Respondents unanimously underscore the significance of effective communication, particularly within families. Early and transparent discussions about planning and succession are identified as crucial factors for families.
ADDRESSING THE CHALLENGES
Addressing the challenges of advising modern families requires expertise and collaboration across borders, cultures, and professions. STEP acknowledges the importance of engaging with families and governments globally to develop industry solutions and best practices. We recommend the following actions for legislators, families, and advisors.
For Legislators:
- Review legislation on cohabitation rights for couples, siblings, and platonic relationships across jurisdictions.
- Revisit legal definitions of family members and children to address discrepancies in the law.
- Examine inconsistencies in protective measures for incapacity planning.
- Identify tax-related issues for multigenerational families living across jurisdictions.
For Advisors:
- Ensure flexibility in creating family structures and stress test them to avoid contentious circumstances.
- Understand cultural and legal differences in multi-jurisdictional families.
- Provide bespoke planning tailored to each family’s needs and collaborate with other professionals.
- Develop soft skills to support complex family dynamics.
For Families:
- Maintain clear, ongoing communication with advisors to navigate family complexities.
- Engage in early succession planning to prevent conflicts.
- Prioritize family dynamics alongside legal and tax planning.
- Regularly review and update wills, trusts, and documents to reflect intentions.
Wills and Trusts: Buyer Beware
Uncovering the impact of unqualified advisors in the estate planning sector
Writing a Will is one of the most important things you can do to ensure your final wishes are carried out and your loved ones are provided for. However, a report from STEP reveals the alarming consequences of using unqualified or incompetent Will writers and estate planners.
Bad advice has both a financial and personal cost
Beyond the financial impact, flawed wills and bad advice can devastate families. The report shares the story of an elderly woman whose relationship with her nephew was destroyed after being advised to set up an unnecessarily complex legal structure he thought gave him control of her assets.
While costs are always a consideration, the peace of mind from proper estate planning is invaluable.
When engaging a will writer or estate planner, verify their credentials, qualifications, and ethical standards. Be wary of scare tactics, false promises, and hidden fees. Ultimately, ensuring your legacy is handled properly by a qualified, trustworthy professional is invaluable.
Digital Legacy Scorecard
STEP’s Digital Legacy Scorecard is a system for rating cloud service providers on their legacy provisions – that is, the extent to which they have planned what happens to their users’ accounts in the event of their death or incapacity.
The Scorecard assesses the level of difficulty of getting timely access to a user’s account in the event of their death or incapacity, based on the service provider’s Terms of Service Agreement.
The Digital Legacy Screen is important in respect to fact that estate practitioners and their clients are increasingly struggling to access and close digital accounts on the death of a family member.
This is leading to distress and frustration. Cybercrime and identity theft is at an all-time high. In addition to the sentimental and financial value of these accounts, closing accounts that may contain sensitive information is an important step in the estate administration process.
A major part of the challenge is that cloud service providers all have different terms of service. Some address what happens on death or incapacity, to varying extents, and some have no provision at all.
The Scorecard rates service providers in two stages. The first is a series of basic requirements that include:
Having clear and publicly displayed criteria for determining what events trigger an account to be deemed inactive.
The provisions for account holders to pre-determine options that allow access for a fiduciary or designated recipient in the event of death or incapacity.
The amount of attention and publicity present in the platform to promote among the users the awareness of this type of planning feature.
Service providers that include either a planning tool or a simplified process for access by fiduciaries then qualify for getting into the second stage – the merit section of the Scorecard. There are three merit levels:
- Bronze level: Sufficient communication and explanation of legacy options of a user’s account.
- Silver level: Additional support is offered by a service provider in accessing a user’s account, such as consultations or access channels for fiduciaries/advisors.
- Gold level: A fully integrated platform that covers all aspects of estate planning and the administration and distribution of a user’s account at both incapacity and death.
To advance to the next merit category, a service provider must meet all of the requirements in the prior merit category in order to progress to the next.
The Scorecard is a living tool and our aim is for the categories analysed and the rating system to evolve as this area develops.
STEP Global Representative Power (GRP) for Property and Financial Affairs
The Society for Trust and Estate Practitioner (STEP) experts have developed the STEP Global Representative Power (GRP) as a “gold standard” model power of representation document. The GRP:
- Aims to bring uniformity, coherence, and simplicity to protecting incapacitated adults and their property across borders.
- Is a response to the variability in capacity representation laws globally, as many jurisdictions lack robust power of attorney frameworks.
- Along with its guiding principles, promotes consistent cross-border legislation around incapacity issues.
- The Principles affirm respect for dignity/autonomy aligned with the UN Disabilities Convention.
- Provide a template for asset protection laws supporting the Hague Convention on international protection of adults.
- Allows a capable adult to appoint a representative to make financial/property decisions if they become incapacitated.
- Focuses only on financial/property matters, not personal/health matters, though some jurisdictions combine both.
Guiding Principles
The STEP GRP is anchored on the following Guiding Principles:
- Accessibility: Enhancing opportunities for individuals to understand the use and benefits of a GRP and encouraging individuals to make them.
- Flexibility: Recognising that individuals making a GRP may wish to include directions, wishes, or limits on a power, which should be facilitated within any document template.
- Abuse prevention: Minimising the risk of undue influence, misuse of a GRP, and abuse of vulnerable people.
- Universality: Ensuring effective operation of a GRP in a cross-border context.
Essential Features of the STEP GRP
Language Consistency:
STEP aims to promote consistency in language across borders, suggesting the term “global representative power” (GRP) for uniformity. This consistency is crucial for effective translation and understanding of the GRP in diverse jurisdictions.
Requirements
STEP recognizes the varying requirements in different jurisdictions for creating a power of representation. They recommend flexibility in the creation process, allowing different methods for validly establishing a GRP. STEP also suggests that jurisdictions without specific legislation or standardized forms consider adopting the STEP GRP Model Application Form template.
According to STEP, the GRP should commence when the grantor loses mental capacity to make financial decisions. However, the grantor should have the flexibility to determine an earlier start date for the GRP. The appointed representative should have full powers to make financial decisions, with flexibility for the grantor to limit these powers as desired.
Grantors should be able to impose conditions on their representatives, such as consultation or reporting requirements. Grantors should also have the flexibility to authorize specific transactions that might otherwise be restricted, providing individualized options while maintaining the integrity of the representation process.
Consistent Standards
Differing standards between jurisdictions can cause confusion, especially in cross-border situations. To address this, STEP proposes the adoption of a global framework for decision-making on behalf of incapacitated adults. This framework should prioritize protecting the interests of adults unable to protect themselves due to impairment, aligning with the principles outlined in the Hague Convention. STEP emphasizes that an adult’s decision-making ability is context-specific, time-specific, and rights-based, focusing on their capacity to understand, retain, and weigh information relevant to a decision. In the context of creating a GRP, this entails ensuring the adult understands what a GRP is, the powers it confers, when they commence, their ability to amend or revoke appointments, and that if they lose decision-making ability, their representative will act on their behalf during their incapacity.
Consistent Legislation
The variation in processes, both at state and administrative levels, poses a barrier to the universal operation of a GRP in cross-border contexts. Financial institutions and stakeholders have diverse internal policies aimed at preventing misuse and abuse of GRPs, essential for community trust. STEP advocates for uniform processes and suggests establishing online registers once domestic legal frameworks are in place to prevent misuse. While jurisdictions may have differing requirements for GRP validity, STEP proposes recognition of a GRP’s validity across jurisdictions. Through promoting the GRP, STEP aims to increase understanding and awareness, potentially consolidating information on jurisdictional requirements. These principles also aim to facilitate worldwide ratification of the Hague Convention and streamline mental capacity cross-border rules within the EU. States are urged to ratify the Hague Convention and utilize resources from the Hague Conference on Private International Law. Acceptance, recognition, and enforcement of a GRP depend on the private international law rules of the jurisdiction where it is used. The Hague Convention offers a mechanism for representatives to obtain a certificate confirming their authority, enabling them to act in other ratifying jurisdictions without additional formalities. If the Hague Convention doesn’t apply, the private international law rules of the receiving jurisdiction will determine the necessary formal steps for acceptance and recognition.
Safeguards against the misuse of GRPs
STEP notes the potential for misuse and abuse of GRPs and the importance of safeguarding the rights and interests of vulnerable people.
STEP endorses a legislative framework that includes the following safeguards to prevent and respond to misuse:
- Restrictions on who is able to make a GRP, including that the person making a GRP must be an adult.
- The requirement that the person has the mental capacity to create a GRP.
- Restrictions on who is able to witness a GRP, with a requirement that the witness be independent of the grantor and representative(s).
- Restrictions on who may be appointed as a representative (for example, restrictions on paid care providers being a representative).
- Recognising the ability of the grantor to create a GRP that gives full powers; powers that are limited or restricted and powers that are subject to specified conditions
Next-Gen User Guide
Navigating the unique challenges and opportunities of being a next-generation member of a family business can be complex. That’s why we’re pleased to provide this comprehensive “Next Gen User Guide”. This insightful guide offers valuable perspectives and practical advice to help the next generation find their way, whether that means joining the family firm, taking on a leadership role, or exploring alternative ways to contribute to the business’s success. Covering topics like different roles, developing as a leader, and building a support network, this guide is a valuable resource for any next-gen family member seeking guidance on their journey.
MODERN FAMILIES: A Private Client Perspective
The concept of family has transformed dramatically in recent decades, moving far beyond the traditional notion of a married heterosexual couple with children. Today’s families come in a diverse array of structures – single parents, same-sex couples, cohabiting partners, blended families, and more.
As family dynamics evolve, new challenges and considerations arise for private client practitioners advising these “modern families” on matters like estate planning, succession, tax, and more. Cultural shifts, changing laws around marriage/parenthood, and unique complexities like multi-jurisdictional assets all impact how advisors must serve their modern family clients.
This supplement “Modern Families: A Private Client Perspective,” explores the profound changes impacting families today from the lens of the trust and estate field. Through a collection of articles, commentary, and analysis, it delves into key issues and considerations practitioners must grapple with, from drafting trusts for polygamous clients to estate litigation risks from generational family splits.
The supplement aims to provide valuable guidance for advisors as they navigate the nuances of the 21st-century family in their practices. With insight into evolving social norms, emerging trends, regulatory updates, and more, it is a must-read for those committed to effectively advising today’s modern families.
Tackling Economic Crime
Introduction
Economic crime, including tax evasion, money laundering, and terrorist financing, poses significant threats to the global financial system. Private wealth structuring vehicles, such as trusts, have sometimes been misused to facilitate these activities, gaining public attention through high-profile cases like the Panama and Paradise Papers. However, these abuses are the exception rather than the norm.
In response, STEP, a global professional body of fiduciaries, lawyers, and accountants, is at the forefront of developing solutions to combat economic crime. By upholding professional standards, promoting transparency, and collaborating with governments, STEP is committed to ensuring that private wealth vehicles are used ethically and legally. This report provides an expert analysis of current measures aimed at tackling financial crime, highlighting gaps in the system, and offering practical recommendations to strengthen global efforts in safeguarding financial integrity.
Existing Initiatives: Tax Transparency and AEOI
Over the past decade, several regimes have been introduced to enhance transparency and ensure automatic exchange of information (AEOI) across tax jurisdictions. Measures such as the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) have been instrumental in curbing tax evasion and promoting financial transparency. These initiatives obligate financial institutions and professional advisors to disclose information regarding beneficial owners of trusts and other financial arrangements.
FATCA and CRS Disclosures
Both FATCA and CRS require the disclosure of information about the beneficial owners of trusts and other financial structures. These measures ensure that tax authorities have visibility into the value of assets held in trust and the benefits distributed to beneficiaries, promoting accountability and transparency across jurisdictions. However, challenges remain, particularly in ensuring that tax authorities can correctly interpret the disclosed information.
Data Protection and Whistleblowing
Despite the effectiveness of tax transparency initiatives, they come with challenges. One significant concern is data protection. The automatic exchange of financial information may include details irrelevant to tax matters, raising privacy concerns. Moreover, whistleblowing remains an underdeveloped mechanism in some jurisdictions, limiting the detection and reporting of economic crimes. There is a pressing need for strengthened whistleblower protection policies to encourage more disclosures.
Addressing Bribery and Corruption
Bribery and corruption represent significant threats to global economic growth and stability. STEP and other professional bodies have been at the forefront of combating these issues by promoting transparency and supporting the highest ethical standards among practitioners. Through collaboration with governments and law enforcement, we are committed to eradicating corruption and reinforcing public trust in financial and legal systems.
The Four Lines of Defense
The fight against economic crime relies on a four-pronged defense strategy. It begins with professionals setting up trusts, followed by those administering the arrangement. Third-party professionals doing business with these entities, such as banks and lawyers, act as the third line of defense. Finally, tax authorities, regulators, and society at large play a crucial role in oversight and enforcement. Each line must function effectively to safeguard against the misuse of financial structures.
Tackling the Key Problems
While existing measures have significantly improved transparency and reporting, several gaps remain. From poor-quality Suspicious Activity Reports (SARs) to the absence of verified beneficial ownership data, these issues hinder the fight against financial crime. Proposed solutions include the introduction of compliance passports for individuals, standardization of reporting processes, and the verification of beneficial ownership information. These steps will improve the quality of data available to authorities, enhance cross-border cooperation, and ensure more effective enforcement of anti-money laundering (AML) measures.
Social and Economic Benefits of Trusts
Trusts have a longstanding foundation in English common-law tradition, but they are often perceived as being only for the super-rich or for improper purposes.
However, historical anecdotes demonstrate the resilience and fairness of trusts, which protect familial interests. The evolution of trusts has been demand-driven by individuals and families managing assets, as well as companies using trusts for commercial purposes.
The adoption of international agreements and updated anti-money laundering laws demonstrate a commitment to transparency and accountability in Trust arrangements.
Negative perceptions of trusts often stem from sensationalized stories, though Trusts serve essential societal functions, from education to charity and retirement planning. They enable support for disadvantaged youth, COVID-19 relief efforts, and vulnerable individuals. The report examines how trusts benefit society beyond sensational narratives.