ERISA Fiduciary Duties: Compliance Remains Essential
The Employee Retirement Income Security Act of 1974 (ERISA) establishes a comprehensive framework of fiduciary duties for many involved with employee benefit plans. Failure to comply with these strict fiduciary standards can expose fiduciaries to personal and professional liability and penalties. With ERISA litigation on the rise, a new administration, and recent news that the Department of Labor (DOL) is sharing data with ERISA-plaintiff firms, a refresher on fiduciary duty compliance is necessary.
What Plans Are Covered?
ERISA’s fiduciary requirements apply to all ERISA-covered employee benefit plans. This generally includes all employer-sponsored group benefit plans unless an exemption applies, such as governmental and church plans, as well as plans solely maintained to comply with workers’ compensation, unemployment compensation, or disability insurance laws.
Who Is A Fiduciary?
A fiduciary is any individual or entity that does any of the following:
Exercises authority over the management of a plan or the disposition of assets.
Provides investment advice regarding plan assets for a fee.
Has any discretionary authority in the administration of the plan.
Note that fiduciary status is determined by function, what duties an individual performs or has the right to perform, rather than an individual’s title or how they are described in a service agreement. Fiduciaries include named fiduciaries. Those specified in the plan documents are plan trustees, plan administrators, investment committee members, investment managers, and other persons or entities that fall under the functional definition. When determining whether a third-party administrator is a fiduciary, it is important to identify whether their administrative functions are solely ministerial or directed or whether the administrator has discretionary authority.
What Rules Must Fiduciaries Follow?
Fiduciaries must understand and follow the four main fiduciary duties:
Duty of Loyalty: Known as the exclusive benefit rule, fiduciaries are obligated to discharge their duties solely in the interest of plan participants and beneficiaries. Fiduciaries must act to provide benefits to participants and use plan assets only to pay for benefits and reasonable administrative costs.
Duty of Prudence: A fiduciary must act with the same care, skill, prudence, and diligence that a prudent fiduciary would use in similar circumstances. Even when considering experts’ advice, hiring an investment manager, or working with a service provider, a fiduciary must exercise prudence in their selection, evaluation, and monitoring of those functions and providers. This duty extends to procedural policies and plan investment and asset allocation, including evaluation of risk and return.
Duty of Diversification: Fiduciaries must diversify plan investments to minimize the risk of large losses, with limited exceptions for ESOPs.
Duty to Follow Plan Documents and Applicable Law: Fiduciaries must act in accordance with plan documents and ERISA. Plans must be in writing, and a summary plan description of the key plan terms must be provided to participants.
Fiduciaries also have a duty to avoid causing the plan to engage in any prohibited transactions. Prohibited transactions include most transactions between the plan and individuals and entities with a relationship to the plan. Several exceptions exist, including one that permits ongoing provision of reasonable and necessary services.
Liabilities and Penalties
An individual or entity that breaches fiduciary duties and causes a plan to incur losses may be personally liable for undoing the transaction or making the plan whole. Additional penalties, often at a rate of 20% of the amount involved in the violation, may also apply. While criminal penalties are rare, are possible when violations of ERISA are intentional. Causing the plan to engage in prohibited transactions may also result in excise taxes established by the Internal Revenue Code.
To limit potential liability, plan sponsors and fiduciaries should ensure the appropriate allocation of fiduciary responsibilities, develop adequate plan governance policies, and participate in regular training. Plan sponsors may purchase fiduciary liability insurance to cover liability or losses arising under ERISA. In addition, the DOL has established the Voluntary Fiduciary Correction Program (VFCP), which can provide relief from civil liability and excise taxes if ERISA fiduciaries voluntarily report and correct certain transactions that breach their fiduciary duties. The VFCP program was recently updated with expanded provisions for self-correction of errors, which are addressed in a previous advisory.
Texas Supreme Court To Review Whether A Corporate Trust’s Shareholder Has Standing To Sue On Behalf Of The Trust
The Supreme Court granted oral argument in In re UMTH Gen. Servs., L.P., 2023 WL 8291829 (Tex. App.—Dallas 2023), wherein a real estate investment trust entered into an advisory agreement with an entity and gave it authority to manage corporate assets. One of the trust’s shareholders sued the advisor and its affiliates, asserting claims under the advisory agreement for the alleged improper use of corporate funds for legal expenses. The advisor filed motions objecting to the shareholders’ claims due to a lack of capacity and standing. After the trial court denied the motions, the advisor filed a petition for writ of mandamus in the court of appeals, which was denied, and then in the Texas Supreme Court. The advisor argues that the trial court abused its discretion in allowing the shareholder to bring its claims directly rather than derivatively, as it lacked a personal cause of action and a personal injury, and that the shareholder lacked derivative standing because it did not maintain continuous or contemporaneous ownership of trust shares. The Supreme Court has set the case for oral argument.
Caring For Your Pet – Is a Pet Trust Right for Me?”
This Friday, Apr. 11, is National Pet Day — the perfect time to think about your furry, scaly, or fishy loved ones in the context of your estate plan! Who will take care of your pets? What happens if the person you want to take care of your pets doesn’t want to take care of them? What kind of guidelines and funds will be available to the person(s) taking care of your pets?
Most people remember the story of Leona Helmsley – the hotel magnate who left the bulk of her $12,000,000 estate to her Maltese, Trouble. And New Jerseyans may remember philanthropist Geraldine Rockefeller Dodge, renowned for her love of dogs, who in 1939 founded St. Hubert’s Animal Welfare Center. BUT – you do not need to have millions to provide care for your pets after your demise!
Not Bacon the Bank
People spend anywhere from $500 to $5,000 (depending on the pet) per year on their pets for regular expenses – food, veterinary care, grooming, toys, etc. Depending on your pet’s lifespan, your furry friend may require upwards of $50,000 for adequate care! A pet trust is ideal for anyone who wants to ensure that their dog, cat, gerbil, goldfish, or other pet is well cared for after his or her death.
Fetching the Right People
New Jersey law recognizes pet trusts as a formal way to provide care for your pet. You may create a pet trust during life or as part of your Last Will and Testament. A pet trust names a trustee who is responsible for overseeing the funds placed into the pet trust. This trustee may or may not be the same person as the caregiver who is responsible for the physical care and comfort of the pet.
Paws in the Right Direction
The pet trust can provide guidance to the caregiver and the Trustee. This is especially important if your pet has health issues that require specific medications or feeding requirements. Your pet trust can also set forth who should take care of your pet if your chosen caregiver does not want that responsibility. Many nonprofit organizations will either provide care for your pet or help your personal representative or trustee find them a suitable home.
Dog-gone it!
You can also name a remainder beneficiary of your pet trust who will receive the funds upon your pet’s death (if excess funds remain in the trust). It is important to keep Inheritance Tax in mind as you plan your pet trust – New Jersey may consider the trust a Class D beneficiary, subjecting the trust to Inheritance Tax rates of 15% or 16%. With proper planning, however, you can mitigate the tax burden of the trust so that your funds go to your desired purpose – caring for your pet.
Executor Nominated by Decedent Deemed Unfit to Serve
When is the executor nominated by the decedent in a will deemed unfit to serve as executor? Rarely – but a recent decision in Surrogates Court set forth the standard and deemed the nominated executor in that case unfit to serve.
In Matter of Estate of Ryan, 227 N.Y.S.3d 541 (Surr. Monroe January 24, 2025), the decedent named her step-daughter (Barbara) as executor in her will. The decedent’s daughter (Susan) objected to Barbara’s nomination and filed a competing petition for letters of administration. The court noted that “the burden is exceedingly high on one who seeks to deny letters testamentary to one nominated as an executor,” but granted Susan’s petition nonetheless, following an evidentiary hearing.
The court pointed to a number of failings by Barbara as executor. First, upon the decedent’s passing, Barbara did not promptly seek letters of administration. Rather, she engaged in what amounted to self-help: she sold assets of the decedent (condominiums in Mexico) and, rather than distributing the proceeds under the will, retained them, claiming the benefit of a Spanish-language “trust agreement” that was not produced at the hearing. Second, she left hundreds of thousands of dollars in bank accounts rather than distributing them. Finally, she did not seek probate of the decedent’s will until Susan brought her petition, some 18 months after the decedent had passed away.
Susan sought to disqualify Barbara as “one who does not possess the qualifications required of a fiduciary by reason of … improvidence … or who is otherwise unfit for the execution of the office,” citing Surrogate Court Procedure Act § 707(1)(d). The court agreed, stating “[e]ven if her actions do not fit the definitions of ‘improvidence,’ they would fall within the more generalized catch-all provision of ‘unfit for the execution of the office,’” added to the S.C.P.A. in 1993 to “modernize” the provision. The court concluded: “In the ‘modern’ view, then, Barbara’s actions, again seen as a whole, render her unfit to be the administrator of the Estate. The court has no guarantee that the administration would take place with the required alacrity upon her appointment, since she did nothing for nearly 18 months to distribute the more than $300,000 that without question was to be distributed to the beneficiaries. She has not made available the ‘trust’ agreement that she says entitled her to the proceeds of the Mexican properties, and she has set up the estate for a costly turnover proceeding to claw back those proceeds. She has exposed the estate to substantial liability for estate income taxes, interest and penalties.”
The court granted Susan’s petition for letters of administration and denied them to Barbara.
The Takeaway: While the burden of displacing the executor nominated by the decedent is “exceedingly high,” it can be met. Both nominated executors and those who might be aggrieved by an executor’s actions (or inactions) should bear this in mind in evaluating conduct by an executor under a will.
Court Reversed Order Setting Aside The Probating Of A Will Where The Evidence Was Insufficient To Support The Order
In In re Estate of Johnson, an administrator and a third party appealed the trial court’s judgment setting aside the probate of the decedent’s will, removing the administrator, and voiding the sale of an estate asset to the third party. No. 05-23-00087-CV, 2024 Tex. App. LEXIS 7635 (Tex. App.—Dallas October 28, 2024, no pet. history). The administrator filed an application to admit the will to probate, and her brother signed a “308 Waiver and 401 Agreement to a Court Created Independent Administration,” in which her brother waived “notice of service and objections in this matter” and agreed that his sister should be the independent administrator. At the hearing, the administrator proved up the will, and it was admitted to probate. Later, the brother filed a contest, alleging that the will was forged. After a hearing, the trial court set aside the probate of the will, and the administrator appealed.
The administrator first argued that the trial court could not consider her brother’s testimony based on the doctrine of judicial estoppel. “Judicial estoppel bars a party from successfully maintaining a position in one action and then maintaining an inconsistent position in a subsequent action.” The court of appeals noted, however, that a “will contest and the probate of the will are two parts of the same proceeding, and . . . inconsistent positions within that proceeding cannot be barred by the doctrine of judicial estoppel.” Id. The appellate court held that judicial estoppel was inapplicable.
The administrator also argued that the trial court abused its discretion when it did not exclude her brother’s testimony because his waiver and agreement constituted a quasi admission that was a judicial admission. The appellate court held that “A judicial admission is a formal waiver of proof that dispenses with the production of evidence on an issue. The fact-finder must take it as true and a party may not introduce evidence to contradict it so long as the statement stands unretracted.” Id. The court concluded, “We need not decide whether by his waiver and agreement Johnson judicially admitted that the May 24, 2018 will was valid because he later retracted it when he filed his objections, nullifying any treatment as a judicial admission.” Id.
The trial court found that “No admissible evidence was presented to establish that the May 24, 2018 Will was executed in the presence of Martha Brown and Mary Pierce, the two purported attesting witnesses.” Id. However, the court of appeals held that the trial court erred by shifting the burden from the will contestants to the original will proponents. “A court considering a will contest may not—as the court’s findings indicate it did here—require that will formalities be re-proven as a pre-condition to denying a will contest.” Id.
The court of appeals then reviewed the evidence by the brother, and held that it was not sufficient to support the trial court’s order setting aside the last will:
At the hearing on the will contest, Mr. Johnson testified that he was the decedent’s son, that he had dealt with his mother’s affairs for over 40 years, that he had managed his mother’s affairs for 22 years, that he had his mother’s driver’s license with her signature on it, that he had witnessed his mother sign documents throughout his lifetime, that he was familiar with her signature, and that the signature on the May 24, 2018 will was not his mother’s…
Moreover, Mr. Johnson had filed the “308 Waiver and 401 Agreement” in court October 8, 2020, after all these events occurred and after he possessed all the information he relied on at the contest trial to attempt to retract his waiver. In that waiver, he made affirmative representations that his mother “left a valid written Will (“Will”) dated May 24, 2018,” and that he “acknowledge[d] that [he] ha[d] received a copy of said Will. Such Will was never revoked.” He represented that he was “a named beneficiary in the Will” and that he had “received a copy of the documents previously filed in this matter, including a copy of the Will,” and that “each statement contained therein is true and correct.” This includes the application to admit the May 24, 2018 will to probate and representations made therein.
Mr. Johnson’s current testimony that the handwriting on the May 24, 2018 will was not his mother’s handwriting is troubling, but this record provides for but one conclusion: no evidence in the will contest provides a legally sufficient basis to undo the original probate proceedings. Mr. Johnson admitted knowing all the facts he sought to use to retract his waiver before he signed and filed the waiver in early October 2020. For that reason, the contest evidence does nothing more than raise surmise or suspicion, particularly in light of Ms. Brown’s original testimony that Ms. Johnson signed the will before her and Ms. Pierce.
Id.
Conflicting Rulings and Looming Congressional Inquiries Create New Levels of Complexity for State and Local Government Retirement Systems
Two recent decisions from the United States District Court for the Northern District of Texas have created confusion among private-sector retirement trustees governed by the Employee Retirement Income Security Act (ERISA) as to the factors to be considered in making investment decisions and assets allocations. Although state and local government retirement plans are exempt from ERISA, the fiduciary standards for investment of plan assets are generally the same in state laws as they are in ERISA.
The first decision issued on January 10th in Spence v. American Airlines determined that the trusts of the airline’s retirement plan for pilots failed to abide by the fiduciary duty of loyalty by considering matters other than pure economic return. The managers were criticized for their inclusion of ESG (environmental, social, governance) issues in the proxy voting and shareholder activism of the companies. Although there was no evidence presented that the particular investment offerings performed any less well than investment offerings with no ESG component.
In reaching its conclusion, the Court analyzed the key elements of fiduciary duty – prudence and undivided loyalty. On the first issue, the Court found that the consideration of ESG factors in reaching investment decision-making was ubiquitous in the retirement industry. At the very least, all investment decisions are based on measures of risk and every investment strategy, by necessity, must consider the effect of ESG factors on risk. Having found that the airline’s trustees acted prudently in using BlackRock products, the court turned to the question of undivided loyalty. The Court was critical of BlackRock’s proxy practices which included votes on social issues. The Court found that giving heed to those issues, even in the absence of an economic impact on the retirement products offered nonetheless places other factors ahead of the best interest of the plan participants. Ironically, there was no criticism of the investment results.
Only a month after the Spence decision, a different judge in the Northern District of Texas in Utah v. Micone, upheld the Biden-era rules from the Department of Labor (DOL) allowing ESG considerations if the economic or pecuniary measures of an investment were the same with an ESG as those without. In Utah, a number of state attorneys general, trade associations and others sued to invalidate the DOL rule as being contrary to ERISA fiduciary standards. In a 2023 decision, Judge Kacsmaryk upheld the rule as a valid exercise of agency discretion. In 2024, the U.S. Supreme Court vacated a 40-year-old rule of judicial deferral (Chevron deferral) to agency expertise in the case of Loper Bright Enterprises v. Raimondo. The 2023 decision was appealed to the U.S. Court of Appeals for the Fifth Circuit which returned the case to Judge Kacsmaryk to reconsider his earlier decision in light of the Supreme Court decision. Judge Kacsmaryk reaffirmed his decision. The Court found that ERISA defines whose interest a fiduciary must protect and what the fiduciary’s purpose is. He also found that ERISA says nothing about what a fiduciary may consider. The Court further found that a fiduciary cannot advance interests other than the those of the participants. Most significantly, the Court said: “[W]hen a fiduciary comes to two routes that each equally serve the plan’s financial interests, any choice the fiduciary makes is for the ‘exclusive purpose’ of financial benefit. He has acted with the duty ERISA requires. If a fiduciary chooses between financially equal plans using other factors, nothing about the fiduciary’s purpose has changed.”
When read side by side, Spence and Utah reach diametrically opposing results. So, where does that leave a prudent fiduciary? It leaves them uncertain and confused. More significantly, it leaves fiduciaries with the choice of selecting less potentially successful financial decisions that have an element of ESG consideration in favor of those decisions that eschew ESG altogether even though doing so may increase risk or decrease reward.
Contrary to a Greek chorus of naysayers, the American retirement programs, both for private and public sector employers has been generally successful. The tangential consideration of ESG as a measure of determining risk has not derailed or retarded that success. For public plans, which are expressly excluded from ERISA, a significant number of state laws have similarly attempted to restrict fiduciary discretion in investment decisions by mandating boycotts in some cases and outlawing them in others. At least one Congressional committee has expressed an interest in regulating public plan investment decisions even though the federal government has never provided any financial support to state and local pensions.
Fiduciaries should be left to exercise their sound discretion for the best interest of members and beneficiaries. Legislative forays into politicizing investment decisions have actually placed one set of social or political objectives ahead of the financial interests of the pension participants. This is no different than a decision by a wayward fiduciary who attempts to use the pension fund’s assets to achieve a goal other than achieving the highest and best return at a reasonable rate of risk.
This battle is neither new nor settled. Beginning with divestment requirements aimed at the former apartheid government in South Africa in the early 1980s, politically based rules and limits on investments have ebbed and followed. Fiduciaries should focus on “doing well,” meaning making money prudently for the retirement plan. If in doing so, the investment decision also does “good,” that salutary byproduct should not jeopardize the independence of retirement trustees to focus on securing a sound retirement for plan members and beneficiaries.
Mr. Klausner is the principal in the law firm of Klausner, Kaufman, Jensen & Levinson. For 47 years, he has been engaged in the practice of law, specializing in the representation of public employee pension funds.
The opinions expressed in this article are those of the author and do not necessarily reflect the views of The National Law Review.
Court Dismissed An Appeal From A Probate Court Order Due To A Lack Of Jurisdiction
In In re Estate of Carr, the court of appeals dismissed an appeal from a probate court order due to a lack of jurisdiction. No. 04-23-00287-CV, 2024 Tex. App. LEXIS 7827 (Tex. App.—San Antonio November 6, 2024, no pet. history). The order: (1) appoints a temporary dependent administrator pending a will contest and identifies the administrator’s duties; (2) authorizes the appellant to use estate assets to perform an autopsy; and (3) “further orders that the total amount of any expenses incurred and paid by the Estate for the storage of [Eddy Colbert Carr’s body], that have accrued on and after the date of this Order shall be deducted from [Gladys’s] share of the final distribution of any remaining Estate assets, to which she may be entitled as a beneficiary of the Estate.” Id. The appellant only challenged the third element of relief. we are not aware of any statute supporting such an order is final and appealable. The court of appeals noted:
Nor does the order actually dispose of all issues and all parties in a particular phase of the proceeding. The appointment of a temporary administrator by definition is “more like a prelude than a finale” because it does not dispose of a claim, if asserted independently, that would be the proper subject of a lawsuit. In other words, it sets the stage for the resolution of the will contest. And the portion of the order making the payment of certain storage expenses is contingent on the resolution of other issues during other discrete phases—the will contest, a subsequent determination of remaining Estate assets, and a further determination of whether Gladys is entitled to assets as an Estate beneficiary. It therefore cannot be said to dispose of any issue or party in a particular phase of any probate proceeding. Instead, the ruling is appropriately considered as part of the broader phases of the will contest and the determination of remaining Estate assets and beneficiaries, and it sets the stage for the resolution of those proceeding phases.
Id.
EBSA Releases Long-Awaited Update to Model Annual Funding Notices Reflecting SECURE 2.0 Changes
Following up on our recent blog post, SECURE 2.0’s Required Changes to Annual Funding Notice Become Effective in 2025, the Department of Labor released Field Assistance Bulletin 2025-02 on April 3, which addresses compliance questions regarding the required changes to AFNs under SECURE 2.0 and includes two updated model AFNs incorporating these changes.[1][2] FAB 2025-02 informs plan administrators that they can no longer rely on the prior model notices, and instructs plans that have already prepared or begun preparing 2024 AFNs to “consider the guidance in this Bulletin in evaluating whether the disclosures were consistent with a reasonable, good faith interpretation of section 101(f), as amended, and to take appropriate corrective action” if the plan administrator determines that standard was not met.
[1] Single-employer pension plan model annual funding notice (Appendix 1).
[2] Multiemployer pension plan model annual funding notice (Appendix 2).
Chapter 15: A More Efficient Path for Recognition of Foreign Judgments as Compared with Adjudicatory Comity
Chapter 15 of the United States Bankruptcy Code, which adopts the United Nations Commission on International Trade Law’s (“UNCITRAL”) Model Law on Cross-Border Insolvency, provides a streamlined process for recognition of a foreign insolvency proceeding and enforcement of related orders. In adopting the Model Law, the legislative history makes clear that Chapter 15 was intended to be the “exclusive door to ancillary assistance to foreign proceedings,” with the goal of controlling such cases in a single court. Despite this clear intention, U.S. courts continue to grant recognition to foreign bankruptcy court orders as a matter of comity, without the commencement of a Chapter 15 proceeding.
While it is tempting choice for a bankruptcy estate representative to seek a quick dismissal of U.S. litigation, without the commencement of a Chapter 15 case, it is not always the most efficient path.[1] First, because an ad hoc approach to comity requires a single judge to craft complex remedies from dated federal common law, there is a significant risk that such strategy will fail (and the estate representative will subsequently need Chapter 15 relief), increasing litigation/appellate risk and thus, the foreign debtor’s overall transaction costs in administering the case.[2] Second, the ad hoc informal comity approach is of little use to foreign debtors, who need to subject a large U.S. collective of claims and rights to a foreign collective remedy in the United States because it does not give the foreign representative the specific statutory tools available in Chapter 15—the ability to turn over foreign debtor assets to the debtor’s representative; to enforce foreign restructuring orders, schemes, plans, and arrangements; to generally stay U.S. litigation against a foreign debtor in an efficient, predictable manner; to sell assets in the United States free and clear of claims and liens and anti-assignment provisions in contracts; etc.[3]
Wayne Burt Pte. Ltd. (“Wayne Burt”), a Singaporean company, has battled to recognize a Singaporean liquidation proceeding (the “Singapore Liquidation Proceeding”) (and related judgments) in the United States, highlighting the inherent risks in seeking recognition outside of a Chapter 15 case. The unusually litigious and expensive pathway Wayne Burt followed to enforce certain judgments shows how Chapter 15 provides an effective streamlined process for seeking relief.
First, Wayne Burt sought dismissal, as a matter of comity, of a pending lawsuit in the U.S. District Court for New Jersey (the “District Court”). On appeal, after years of litigation, the Third Circuit concluded that the District Court did not fully apply the appropriate comity test and remanded the case for further analysis. Thereafter, the liquidator sought, and obtained, recognition of Wayne Burt’s insolvency proceeding under Chapter 15 in the U.S. Bankruptcy Court for the District of New Jersey (the “Bankruptcy Court”), including staying District Court litigation that had been in dispute for five years in the United States and ordering the enforcement of a Singaporean turnover order that had been the subject of complex litigation as well within two months of the commencement of the Chapter 15 case.
The Dispute Before the District Court
The Wayne Burt case originated, almost exactly five years ago, as a simple breach of contract claim and evolved into a complex legal battle between Vertiv, Inc., Vertiv Capital, Inc., and Gnaritis, Inc. (together “Vertiv”), Delaware corporations, and Wayne Burt. The litigation began in January 2020, when Vertiv sued Wayne Burt in District Court, seeking to enforce a $29 million consent judgment entered in its favor. At the time the consent judgment was entered, however, Wayne Burt was already in liquidation proceedings in Singapore. Thus, a year after the entry of judgment, the liquidator moved to vacate the judgment on the grounds of comity.
On November 30, 2022, the District Court granted Wayne Burt’s motion and dismissed the complaint with prejudice.[4] The District Court based its decision on a finding that Singapore shares the United States’ policy of equal distribution of assets and authorizes a stay or dismissal of Vertiv’s civil action against Wayne Burt. Vertiv appealed to the Third Circuit.
The Third Circuit Establishes a New Adjudicatory Comity Test
In February 2024, the Third Circuit, in its opinion, set forth in detail a complex multifactor test for determining when comity will allow a U.S. court to enjoin or dismiss a case, based on a pending foreign insolvency proceeding, without seeking Chapter 15 relief.[5] This form of comity is known as “adjudicatory comity.” “Adjudicatory comity” acts as a type of abstention and requires a determination as to whether a court should “decline to exercise jurisdiction over matters more appropriately adjudged elsewhere.”[6]
As a threshold matter, adjudicatory comity arises only when a matter before a United States court is pending in, or has resulted in a final judgment from, a foreign court—that is, when there is, or was, “parallel” foreign proceeding. In determining whether a proceeding is “parallel,” the Third Circuit found that simply looking to whether the same parties and claims are involved in the foreign proceeding is insufficient. That is because it does not address foreign bankruptcy matters that bear little resemblance to a standard civil action in the United States. Instead, drawing on precedent examining whether a non-core proceeding is related to a U.S. Bankruptcy proceeding, the Third Circuit created a flexible and context specific two-part test. A parallel proceeding exists when (1) a foreign proceeding is ongoing in a duly authorized tribunal while the civil action is before a U.S. Court, and (2) the outcome of the U.S. civil action could affect the debtor’s estate.
Once the court is satisfied that the foreign bankruptcy proceeding is parallel, the party seeking extension of comity must then make a prima facie case by showing that (1) the foreign bankruptcy law shares U.S. policy of equal distribution of assets, and (2) the foreign law mandates the issuance or at least authorizes the request for the stay.
Upon a finding of a prima facie case for comity, the court then must make additional inquiries into fairness to the parties and compatibility with U.S. public policy under the Third Circuit Philadelphia Gear[7] test. This test considers whether (1) the foreign bankruptcy proceeding is taking place in a duly authorized tribunal, (2) the foreign bankruptcy court provides for equal treatment of creditors, (3) extending comity would be in some manner inimical to the country’s policy of equality, and (4) the party opposing comity would be prejudiced.
The first requirement is already satisfied if the proceeding is parallel.[8] The second requirement of equal treatment of creditors is similar to the prima facie requirement regarding equal distribution but goes further into assessing whether any plan of reorganization is fair and equitable as between classes of creditors that hold claims of differing priority or secured status.[9] For the third and fourth part of the four-part inquiry—ensuring that the foreign proceedings’ actions are consistent with the U.S. policy of equality and would not prejudice an opposing party—the court provided eight factors used as indicia of procedural fairness, noting that certain factors were duplicative of considerations already discussed. The court emphasized that foreign bankruptcy proceedings need not function identically to similar proceedings in the United States to be consistent with the policy of equality.
In the Wayne Burt appeal, the Third Circuit vacated the District Court’s order finding that although there was a parallel proceeding, the District Court failed to apply the four-part test to consider the fairness of the parallel proceeding.
The Chapter 15 Case
On remand to the District Court, Wayne Burt’s liquidator renewed his motion to dismiss. Following his renewed motion, protracted discovery ensued, delaying a District Court ruling on comity.
Additionally, during the pendency of the appeal, Wayne Burt’s liquidator commenced an action in Singapore seeking that Vertiv turn over certain stock in Cetex Petrochemicals Ltd. that Wayne Burt pledged as security for a loan from Vertiv (the “Singapore Turnover Litigation”). Wayne Burt’s liquidator contended that the pledge was void against the liquidator. Vertiv did not appear in the Singapore proceedings and the High Court of Singapore entered an order requiring the turnover of the shares (the “Singapore Turnover Order”).
As a result, Wayne Burt’s liquidator shifted his strategy to obtain broader relief than what adjudicatory comity could afford in the pending U.S. litigation—recognition and enforcement of the Singapore Turnover Order. The only way to accomplish both the goal of dismissal of the U.S. litigation and enforcement of the Singapore Turnover Order is through a Chapter 15 proceeding.
On October 8, 2024, Wayne Burt’s liquidator commenced the Chapter 15 case (the “Chapter 15 Case”) by filing a petition along with the Motion for Recognition of Foreign Proceedings and Motion to Compel Turnover of Cetex Shares (the “Motion”). Vertiv opposed the Motion, contending that, under the new test laid out by the Third Circuit, the Singapore Liquidation Proceeding should not be considered the main proceeding because it may harm Vertiv.[10] Vertiv further contended that even if the Singapore Liquidation Proceeding was considered the main proceeding, the Bankruptcy Court should not “blindly” enforce the Singapore Turnover Order and should itself review the transaction to the extent it impacts assets in the United States.[11]
Less than two months after the Chapter 15 Case was commenced, the Bankruptcy Court overruled Vertiv’s objection, finding that recognition and enforcement of a turnover action was appropriate.[12] In so ruling, the Bankruptcy Court applied the new adjudicatory comity requirements set forth by the Third Circuit, in addition to Chapter 15 requirements.
The Bankruptcy Court began its analysis with finding that recognition and enforcement of the Singapore Turnover Order is appropriate under 11 U.S.C. §§ 1521 and 1507. Under Section 1521, upon recognition of a foreign proceeding, a bankruptcy court may grant any additional relief that may be available to a U.S. trustee (with limited exceptions) where necessary to effectuate the purposes of Chapter 15 and to protect the assets of the debtor or the interests of creditors. Courts have exceedingly broad discretion in determining what additional relief may be granted. Here, the Bankruptcy Court found that the Singapore insolvency system was sufficiently similar to the United States bankruptcy process.
Under Section 1507, a court may provide additional assistance in aid of a foreign proceeding as along as the court considers whether such assistance is consistent with principles of comity and will reasonably assure the fair treatment of creditors, protect claim holders in the United States from prejudice in the foreign proceeding, prevent preferential or fraudulent disposition of estate property, and distribution of proceeds occurs substantially in accordance with the order under U.S. bankruptcy law. Here, the Bankruptcy Court found that the Singapore Turnover Litigation was an effort to marshal an asset of the Wayne Burt insolvency estate for the benefit of all of Wayne Burt’s creditors and that enforcement of the Singapore Turnover Order specifically would allow for the equal treatment of all of Wayne Burt’s creditors.
Finally, the Bankruptcy Court found that recognition and enforcement of the Singapore Turnover Order was appropriate under the Third Circuit’s comity analysis. Specifically, the Bankruptcy Court found that the Singapore Turnover Litigation is parallel to the Motion, relying on the facts that: (1) Wayne Burt is a debtor in a foreign insolvency proceeding before a duly authorized tribunal, the Singapore High Court, (2) Vertiv has not challenged the Singapore High Court’s jurisdiction over the Singapore Liquidation Proceeding, and (3) the outcome of the Bankruptcy Court’s ruling would have a direct impact on the estate within the Singapore Liquidation Proceeding as it relates to ownership of the Cetex shares. The Bankruptcy Court concluded that the Singapore Liquidation Proceeding and the Chapter 15 Case are parallel.
The Bankruptcy Court’s analysis primarily focused on the third and fourth factors of the Philadelphia Gear test, determining that it was clear that the first factor was met because the Singapore Liquidation Proceeding is parallel to the Chapter 15 Case and that the second factor did not apply as there was no pending plan. The third inquiry was also satisfied for the same reasons detailed above for the Singapore insolvency laws being substantially similar to U.S. insolvency laws. The fourth inquiry—whether the party opposing comity is prejudiced by being required to participate in the foreign proceeding—was satisfied for the same reasons stated for Section 1507.
In recognizing and enforcing the Singapore Turnover Order, the Bankruptcy Court overruled Vertiv’s opposition finding it rests on an “unacceptable premise” that the Bankruptcy Court should stand in appellate review of a foreign court. Such an act would directly conflict with principles of comity and the objectives of Chapter 15. The Bankruptcy Court noted that this is especially true where the party maintains the capacity to pursue appeals and other necessary relief from the foreign court.
Vertiv appealed the Bankruptcy Court’s decision to the District Court, and the appeal is still pending.
Implications
Adjudicatory comity and Chapter 15 both aim to facilitate cooperation and coordination in cross-border insolvency cases. Indeed, Chapter 15 specifically incorporates comity and international cooperation into a court’s analysis, as Chapter 15 requires that a “court shall cooperate to the maximum extent possible with a foreign court.” In deciding whether to use adjudicatory comity and/or Chapter 15 it is important to consider the ultimate objective and the cost-benefit analysis of each approach. While seeking comity defensively in a U.S. litigation, without Chapter 15 relief, is possible, it can lead to inconsistent and unpredictable outcomes. Additionally, the multiple factors involved in applying adjudicatory comity can led to protracted discovery and, concomitantly, delaying recognition. By contrast, the Bankruptcy Court’s recent analysis demonstrates that the existing Chapter 15 framework, along with the well-established case law interpreting Chapter 15, provides an effective, reliable, and efficient tool for recognition and enforcement of foreign orders. That is particularly true, whereas here, a party seeks multiple forms of relief.
[1] Michael B. Schaedle & Evan J. Zucker, District Court Enforces German Stay, Ignoring Bankruptcy Code’s Chapter 15, 138 The Banking Law Journal 483 (LexisNexis A.S. Pratt 2021).
[2]Id.
[3]Id.
[4]Vertiv, Inc. v. Wayne Burt Pte, Ltd., No. 3:20-CV-00363, 2022 WL 17352457 (D.N.J. Nov. 30, 2022), vacated and remanded, 92 F.4th 169 (3d Cir. 2024).
[5]Vertiv, Inc. v. Wayne Burt PTE, Ltd., 92 F.4th 169 (3d Cir. 2024).
[6]Id. at 176.
[7]Philadelphia Gear Corp. v. Philadelphia Gear de Mexico, S.A., 44 F.3d 187, 194 (3d Cir. 1994)).
[8]Wayne Burt PTE, Ltd., 92 F.4th at 180.
[9]Id.
[10]See Vertiv’s Brief in Opposition to Motion for Recognition of Foreign Proceedings and Motion to Compel Turnover of Cetex Shares, Case No.: 24-196-MBK, Doc. No. 29, at 10-14 (D.N.J October 29, 2024).
[11]Id. at 13.
[12]In Re: Wayne Burt Pte. Ltd. (In Liquidation), Debtor., No. 24-19956 (MBK), 2024 WL 5003229 (Bankr. D.N.J. Dec. 6, 2024).
ESOP Transactions and the Duty to Monitor Revisited
Key Takeaways:
Board’s Duty to Monitor the Trustee: A company’s board of directors has a fiduciary duty to monitor the ESOP trustee’s actions in an ESOP transaction, ensuring that the trustee is acting in the exclusive interest of the ESOP participants and has sufficient information to make informed decisions with respect to the transaction.
Trustee Certification and Fairness Opinion: Historically, it has been standard practice for the ESOP trustee to provide a certification confirming several aspects of a transaction, including a financial advisor’s opinion on the adequacy of the deal consideration and the fairness of the transaction’s terms.
Role of Special Meetings: Based on recent caselaw, advisors have begun holding a special meeting with the board and trustee before the closing of the transaction to further support the position that the board has fulfilled its monitoring duty.
ESOP Transactions and the Duty to Monitor Revisited
While the Department of Labor has provided little guidance on the scope of the duty to monitor in the context of an ESOP transaction, since Bensen1 several practitioners have adopted the practice of having the ESOP sponsor convene a special meeting of the board of directors with the trustee shortly before the scheduled closing of the transaction. The purpose of the meeting is to aid the board in meeting its fiduciary duty to monitor the trustee. During the meeting, the board asks questions of the trustee regarding its due diligence process and ensures that the trustee has had access to and sufficient time to review the information that has been provided during such process to enable it and its advisors to analyze the financial condition of the company, determine its range of value and analyze other material terms of the proposed transaction.
What is the Duty to Monitor in an ESOP Transaction?
With respect to a selling shareholder or board member acting in a fiduciary capacity under ERISA by virtue of appointing a trustee or other fiduciary, generally the duty to monitor requires a review, at reasonable intervals, of the performance of the appointee(s) in such a manner as may be reasonably expected to ensure that their performance satisfies the needs of the ESOP.2 No single procedure is appropriate in all cases and the actions required to be taken to satisfy the duty to monitor will vary in accordance with the facts and circumstances of the particular transaction.3 In addition, the courts have found that the duty to monitor also requires a certain degree of self-education on the part of the sellers and directors of the company in order for them to ask the proper questions of the trustee and its advisors and to be knowledgeable enough to determine whether the trustee is discharging its fiduciary duties. To make matters a bit more complicated, this latter requirement itself triggers a duty to disclose all relevant information as some courts have noted that the board cannot reasonably rely on the acts of a trustee or other fiduciary if it knows that that trustee or other fiduciary does not have the proper information needed for them to perform their valuation and other duties.4
The Role of the Independent Trustee and Board Interaction
On the other hand, an important fact in the context of an ESOP transaction is that an independent trustee is engaged so that they act independently and are not influenced by management or the sellers. An independent trustee, for example, will never share with the company or the sellers the valuation that it relies upon for purposes of a transaction or the details of its valuation process. Therefore, a review by the board of the valuation as part of its duty to monitor is not possible. In addition, to ensure that the trustee maintains its independence the board should preclude itself from “meddling with the trustee’s performance of its duties.”5 In Fish, the company’s board of directors met with the independent trustee two times in the course of a four-month transaction. It otherwise generally relied on the company’s management team to negotiate with and provide information to the trustee. Ultimately, the court found that through this process the board satisfied its duty to monitor as it had gained a foundational understanding of the nature of the trustee’s responsibilities, a basic understanding of the work performed by the trustee and an awareness that the trustee was acting in the exclusive interests of the ESOP participants.
Trustee Certification and Fairness Opinion in ESOP Transactions
Further, it is standard practice in all ESOP transactions to require the trustee to provide the company with a trustee certificate through which the trustee certifies, in part, that it finds that the purchase price is not in excess of adequate consideration and that the transaction is prudent, in the interests of the ESOP participants and for the exclusive purpose of providing benefits to the ESOP participants. It is also standard practice for the trustee, in making this certification, to rely upon and attach to the certificate a copy of the adequate consideration and fairness opinion of its financial advisor. This opinion by the financial advisor generally opines that (i) the price paid by the ESOP for the company stock does not exceed fair market value, (ii) the interest on any ESOP loan is not in excess of a reasonable rate of interest, (iii) the terms of the ESOP loan are at least as favorable to the ESOP as would be the terms of a comparable loan between independent parties and (iv) the terms of the overall transaction are fair to the ESOP from a financial point of view. This opinion will describe the transaction, and the various documents and information reviewed and relied upon by the financial advisor. Both the trustee certificate and the opinion are reviewed by the company and its advisors prior to the closing of the transaction. It stands to reason that in reviewing the trustee certificate and fairness opinion the company should be able to identify whether there are any errors or gaps in what the trustee and its financial advisor are relying upon. All of the information and documents reviewed by the trustee and its advisors, as described in the opinion, should provide the selling shareholders and the board with some assurance that the trustee has discharged its fiduciary duties.
Will A Special Meeting Sufficiently Fulfill the Duty to Monitor?
Not necessarily. As with all cases, facts play an important role and sufficient bad facts will inevitably undo the protection that even the best of processes can provide. Nonetheless, the insertion of this meeting into standard practice in connection with an ESOP transaction – and provided the company allows the trustee to operate independently and does not insert itself into the decision-making process – is likely to hold great weight as proof that the board of directors is properly monitoring the trustee and thereby discharging its fiduciary duty.
[1] Su v. Bensen, No. CV-19-03178-PHX-ROS (D. Ariz. Aug. 15, 2024).
[2] See gen., 29 C.F.R. § 2509.75-8, Q&A 17.
[3] Id.
[4] See, e.g., Foster v. Adams & Assocs. Inc., No. 18-cv-02723-JSC, 2020 BL 250202, at *6 (N.D. Cal. July 6, 2020)
[5] See, Fish v. Greatbanc Tr. Co., No. 09 C 1668, 2016 BL 330978, at *63 (N.D. Ill. Sept. 1, 2016).
5 Ways Estate Attorneys Can Bring Order to Their Clients’ Digital Asset Chaos
Digital assets are exploding. According to NordPass, the average person now has 168 online accounts, and that list is growing all the time — in both volume and value. A new survey from Bryn Mawr Trust found that Americans estimate an average value of $191,516 in digital assets; yet, 76% of them still have little to scant knowledge of digital estate planning. More problematic, many advisors still do not acknowledge digital assets as a general asset category to address with clients. As a result, many estate plans inadequately address — or completely ignore — access to and the disposition of digital assets.
Digital assets, at a high level, include: digitally stored documents, email accounts and electronic communications, loyalty program rewards and airline miles, photos and videos, social media accounts, cryptocurrency, subscriptions, online businesses, other digital interests, and accounts controlled by service providers. They all now demand proper estate planning.
Why does any of this matter? Overlooking digital assets leaves the legal representatives of the estate (i.e. executor, administrator, and personal representative):
Potentially locked out of valuable digital assets and accounts, resulting in a direct financial or sentimental loss to the estate and its beneficiaries.
Spending countless hours and resources trying to gain access to said accounts.
Dealing with exposed personal identifiable information from the decedent’s various online accounts, leaving them vulnerable to identity theft and other cybersecurity risks.
In addition to failing to comprehensively serve evolving client needs, a lack of planning in this area could expose attorneys and other advisors to potential future liability. How to access and transfer digital assets should be a standard part of every client conversation for the modern estate planning advisor.
Digital assets are more ubiquitous and valuable than ever, so why does a large swath of the estate planning community still lag behind in addressing this critical area?
This generally stems from a lack of understanding of:
The prevalence of digital assets in most clients’ lives;
The potential negative impact if these assets are overlooked;
How to address this topic with clients;
How to effectively incorporate digital interests into estate plans and accompanying materials; and
Where to turn to for technical guidance and support.
The following general guidelines are aimed to help estate planning advisors better understand this developing area and begin to guide clients through the digital estate planning process, in order to protect clients, their legal representatives and beneficiaries, and our practices:
1. Educate Clients on the Importance of Digital Asset Planning
Most clients don’t realize the risks of ignoring their digital behaviors and footprint. In fact, you have probably heard some say:”I don’t have any digital assets.”
Further, many advisors and clients operate under the ill-advised assumption that, if they don’t own any cryptocurrency, then they don’t have any digital assets. However, the reality is the majority of people have a plethora of digital assets and accounts. Whether they realize it or not, our clients are creating digital footprints in a multitude of ways, every day, often without a second thought. As technology progresses, our digital and physical lives are reaching new levels of entanglement.
So, if a client has, at a minimum:
Photos or videos on a device or in a cloud
Email accounts (and other online electronic communications, Slack, Google Chat, WhatsApp, etc.)
Social media profiles
Online banking, utility, or shopping accounts
Cloud storage (Google Drive, iCloud, etc.)
Loyalty programs or airline miles
…they are accumulating digital assets, accounts, and interests that require protection and planning.
Many clients may also now have an interest in or accumulate:
Domain names and websites
Digital works, recordings, and content (artists and creators)
Ecommerce and other online businesses (i.e. Etsy, Amazon, etc.)
Cryptocurrency, NFTs, and Forex
Gaming tokens
Metaverse or other virtual property
Avatars, digital twins, and personalized bots (and customized AI large language models)
Name, image, and likeness (NIL) considerations, where applicable
… which require even more protection and planning.
The diverse categories of digital assets above demonstrate why it’s important to ask clients questions about their digital behaviors as part of the standard estate planning conversation. Here are a few examples of questions to help initiate the digital asset planning discussion:
Do you use online bill pay for any of your recurring expenses?
Who handles this in your household?
How many personal email accounts do you use?
How much shopping do you do online?
What are your three most important digital assets?
How do you store photos and videos?
Do you use social media?
What, if any, important information do you still receive through traditional mail?
If something suddenly happened to you, is there information in cyberspace or data in a device that would need to be accessed to help administer your estate or that you would want to be transferred to a certain individual or deleted?
These questions are just the beginning of the conversation and can provide a wealth of information to direct the structure of the digital asset aspect of the plan, which should be based on the needs and desires of the client.
2. Help Clients Inventory Their Digital Assets
Most clients underestimate the size of their digital footprint. Beyond social media and email, they often have a mix of valuable, sentimental, and potentially vulnerable digital accounts with personally identifiable information that need managing. As part of gathering general asset and liability information for a client at the beginning of the planning process, collecting information regarding digital assets, accounts, and devices and understanding digital behavior should be standard practice.
There are online services to help you handle this, but here are some tips if you want to do-it-yourself:
Start with Hardware
An inventory should have an area for clients to list all devices that store data, access online accounts, or store biometric information:
Computers & Laptops
Smartphones & Tablets
External Drives, Flash Drives & Hard Wallets
E-Readers, Digital Cameras & Music Players
Wearables, Smart Glasses & Gaming Devices
Alarms & Smart Home Systems
Tip: Even old devices may store sensitive data that requires attention and protection.
Include Stored Data
The inventory should go beyond hardware and map out where digital files reside:
Cloud Services: Google Drive, iCloud, Dropbox, etc.
Local Drives & External Storage: Hard drives, SD cards, USBs
Backups & Archives: Time Machine, Windows Backup
AWS Drives and Services
Applications
Many clients and advisors overlook the personal and financial data tucked away in the cloud, applications, or on forgotten drives. Where is that manuscript? Where are all the family photos and videos stored?
List Online Accounts & Digital Assets with Monetary or Sentimental Value
The inventory should also include all online accounts and digital assets with monetary or sentimental value, as this is where assets can be overlooked, which could result in financial or other loss. Encourage clients to list:
Email Accounts: The gateway to most digital assets and accounts in a paperless world.
Social Media: Facebook, LinkedIn, Instagram, etc.
Financial Platforms: Banks, PayPal, Venmo, Wallets/Exchanges
E-Commerce & Subscriptions: Amazon, streaming services, food delivery
Utilities & Loyalty Programs: Household bills, airline miles, hotel points
Cryptocurrency (date acquired, purchase price, type, blockchain, method stored, public exchange/self-custody? If self-custody, how held [hot storage/cold storage]? How are keys/recovery seed phrases stored?)
NFTs (date acquired, price, blockchain, internet location, transfer rights, royalties, etc.?)
Pro Tip: Have them scan emails for receipts and password reset links to uncover forgotten accounts.
Flag Web-Based Assets & Intellectual Property
For entrepreneurs, creators, or side hustlers, dig deeper:
Domain Names & Hosting Accounts
Websites, Blogs & Online Stores (Shopify, Etsy, and Amazon)
Creative Works: Copyrighted materials, trademarks, code, art, photography, etc.
Having an inventory of the digital assets and accounts of a client stored in a safe location will save significant time and expense in the future. It is also important to periodically update the inventory as digital interests change and expand. Sharing this type of information is prohibited under several federal laws, such as the Computer Fraud and Abuse Act and the Stored Communications Act.
3. Help Clients Set Wishes For Each Asset
Not all digital assets and accounts should be treated equally. Digital asset planning cannot be done using a one-size-fits-all approach. Digital assets and behaviors can vary widely among clients, much like general planning needs for traditional assets.
For instance, some clients will want to preserve family photos or social media accounts, while others may want certain accounts deleted for privacy. It’s important to note: even if digital assets and accounts can be legally accessed by an estate representative, legal access does not equate to actual use, and oftentimes, additional pre-planning measures are required to provide instructions on how to use digital assets or what to do with them once accessed (i.e. an Etsy shop or small online business with intellectual property). This type of use information is not customarily included in the legal documents in an estate plan and instead should be provided through instructions manuals, a tech management plan, or other user related information as part of the overall planning process.
Others clients still may want to liquidate and transfer crypto assets to their estate representatives, which can require additional technological expertise and assistance, and the timing of this can also have potential tax and valuation implications. Cryptocurrency poses its own set of unique planning challenges, which can vary depending on the type of crypto and how it is held (i.e. public exchange or self-custody [which can also take on various forms]) and planning for this type of interest will be further addressed in a future article.
It is important to discuss the following considerations with clients:
Access/Transfer
Can the digital asset be legally transferred or does the user only have a lifetime license?
Can the digital asset be legally owned or accessed by a trust?
Are there revenue-generating accounts, cryptocurrency wallets, or loyalty points that should be preserved or transferred to the estate?
Should online businesses or websites be transferred to a successor or closed and how are these activities being supported during transitional periods?
What information is going to need to be immediately accessible to legal representatives in the event of sudden incapacity or death?
Preserve
Should sentimental assets like family photos, records, videos, or social media profiles be archived for future generations? Who should be the recipient(s)? Should these digital memories be saved in other formats to ensure ease of access?
Is there any intellectual property, like creative works or digital art, that need to be preserved?
Are there recurring subscription fees for software, programs, or platforms connected to or necessary to use/access the digital interest?
Is the digital asset or interest located online or contained in a computer, device, or hard drive? How are items of tangible property that can have intangible digital components handled in an estate plan?
Close
Which accounts should be permanently closed or scrubbed to protect privacy, such as unused subscriptions, wearables, or social media profiles?
Is there any sensitive data that should be wiped, like email accounts or online shopping accounts, or data on a device to prevent identity theft?
Be Aware of Online Tools & RUFADAA Compliance
As part of this conversation, clients must also understand the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), a law adopted by most states to regulate access by a fiduciary (i.e. executor, administrator or personal representative of an estate, trustee of a trust, agent under power of attorney, and guardian of an incapacitated person’s estate) to the digital assets and accounts of a user. Under RUFADAA, users must explicitly authorize fiduciary access based on a three-tier hierarchy:
An Online Tool (an agreement between the user and a service provider separate, which provides directions for the disclosure or non-disclosure of digital assets)
Estate planning documents that address fiduciary access (if an Online Tool is not available or used); and
Terms of Service Agreements (TOSAs) apply if neither of the first two exist. However, many TOSAs restrict or prohibit asset transfers or are silent on fiduciary access, often requiring a court order for access in many situations.
Even if fiduciary access provisions are incorporated into an estate plan, some service providers may still require a court order authorizing access before it is provided or may limit access to certain information. For example, electronic communications, such as the contents of an email, are subject to a heightened standard of privacy under RUFADAA and access must be specifically authorized in estate planning documents or an Online Tool to be disclosed. Obtaining court orders to access digital accounts can be time consuming and expensive — increasing the importance of clear instructions and directives for digital assets to reduce delays and potential legal hurdles.
In addition, identifying accounts where Online Tools have been utilized is important to include in the digital asset inventory. The use of an Online Tool is similar to a beneficiary designation for traditional assets (i.e. retirement plans, investment accounts, and life insurance policies) without the well-settled law to invalidate designations in a variety of situations. Using Online Tools has many benefits and can streamline access, but should be done with great care and reviewed as part of an overall estate plan.
Additionally, new tech solutions have entered the marketplace to help advisors and clients manage digital estates and legacies. These platforms offer inventory tools, secure storage, and digital memorialization services. Such platforms can help reduce legal hurdles, ensure a secure and seamless transition of digital assets and important information, and better serve future estate representatives and practitioners as they carry out the client’s wishes.
4. Partner With Tech-Savvy Professionals & Advisors
The transfer and access of property, including digital assets (that are not controlled by an Online Tool or TOSA), is carried out through the estate administration process, and what a fiduciary is allowed or prohibited to do is determined by jurisdictional estate and fiduciary laws and the provisions of a will or revocable trust.
Unlike physical assets, which can often be easily identified and transferred, digital assets may be protected by passwords, encryption, and privacy policies. They could also have complicated technological components, making them difficult to access without the help of seasoned experts.
While some clients have more complicated technological needs, one solution to address this situation is to empower the fiduciary to be able to hire technology experts to assist with administration of the digital estate.
Another option is to appoint a technology advisor or committee in the planning documents for the fiduciary to utilize. Technical advisor appointments can define the scope of the advice to be provided, requisite technical expertise aligned with a specific digital asset, and include discretionary powers that can be modified by the fiduciary.
Lastly, estate advisors should be familiar with different types of advisors to serve their clients digital interests and needs. For example, some digital assets may be hard to value, requiring specialized expertise from qualified appraisers. Other clients may have their personal or business IT systems hacked, requiring referrals to competent cybersecurity teams and outfits.
5. Make It Legally Binding and Review Regularly
These are many types of clients with varying digital usage that impact both technical and legal aspects of an estate plan. A well-structured digital estate plan should be actionable, secure, and seamlessly integrated with an overall estate plan.
A basic estate plan typically includes:
A will
In some states, a revocable trust
Financial and healthcare powers of attorney
At a minimum, practitioners should discuss with their clients the laws governing fiduciary access to digital assets in their jurisdiction, and whether the client intends to provide for the access or deletion of their digital assets and accounts.
Best Practices for Drafting Digital Asset Provisions
The will should include a clear digital asset clause specifying the client’s intent regarding:
Fiduciary access to digital assets, electronic communications, and online accounts.
A definition of digital assets.
Revocable trusts and financial powers of attorney should echo these directives.
Wills and/or revocable trusts should designate beneficiaries for each digital asset.
Never list usernames or passwords directly in a will or trust. Instead, store this information in a secure location instead.
For clients with complex digital assets, additional documents may be necessary, such as:
Instruction manuals detailing access and management procedures.
Technology management plans to optimize access and use.
As discussed above, if Online Tools are used as part of the planning process, the designated recipient named in the Online Tool or the directive provided will trump fiduciary access provisions in a will or revocable trust.
Reviewing the overall plan on a regular basis helps ensure the plan remains current and provides an opportunity to realign the plan with life changes, new digital assets, and technology platforms designed to help clients and practitioners manage digital assets.
Estate Planners: the Time to Act is Now
Digital assets must no longer be treated as an “emerging” asset class. It’s 2025 — they’ve effectively emerged. For practitioners putting off digital asset planning, make no mistake: digital asset proliferation isn’t going anywhere. The need for this type of planning will only further spike and grow more complicated. Our clients have a digital life, and we must acknowledge that managing digital footprints, devices, accounts, and assets is non-negotiable for a comprehensive estate plan.
As trusted advisors, we must keep apprised of the legal and technical developments surrounding digital assets with the same diligence we apply to staying atop legislative and tax changes that may impact planning. There is too much at stake to ignore or take lightly this growing challenge. Doing so puts our clients at risk and exposes our practices to potential liability. Our clients expect us to secure their digital legacies with a modern approach to the planning process. They expect us to help them bring order to their digital chaos.
Now, it’s time we deliver.
Estate Plan vs. Life Care Plan: Understanding the Difference and Why You May Need Both
When planning for the future, many people think of estate planning as the go-to solution. While an estate plan is an essential part of securing your legacy, it doesn’t address the practical and financial challenges of aging. That’s where a Life Care Plan comes in.
Both estate planning and life care planning help individuals and families prepare for the future, but they serve different purposes. Understanding the difference can help you make informed decisions about your long-term well-being and financial security.
What is an Estate Plan?
An estate plan is a legal strategy that ensures your assets, healthcare decisions, and legacy are managed according to your wishes—both during your lifetime and after your passing.
Key Elements of an Estate Plan:
Last Will and Testament: Outlines how your assets will be distributed after you pass away
Trusts: Can help manage assets during your lifetime and provide for your loved ones in a tax-efficient way
Financial Power of Attorney: Authorizes a trusted person to handle financial matters if you become incapacitated
Healthcare Power of Attorney & Living Will: Ensures medical decisions align with your preferences if you are unable to make them yourself
Guardianship Designations: Important for parents with minor children or those caring for a loved one with special needs
An Estate Planning Can:
Protect your assets and ensures they go to the right people
Minimize taxes and legal disputes
Prevent court involvement in decisions about your care and finances
Provide clear instructions for loved ones during difficult times
What is a Life Care Plan?
A Life Care Plan is a comprehensive roadmap for aging, focusing on quality of care, financial security, and long-term well-being. Unlike an estate plan, which primarily addresses what happens after you pass away, a Life Care Plan helps you and your family manage aging-related challenges while you’re alive.
Key Elements of a Life Care Plan:
Health & Safety Planning: Identifying risks and resources to help seniors remain at home safely for as long as possible
Care Coordination: Connecting with in-home caregivers, assisted living, or nursing home options as needs change and advocating for the best, most appropriate care
Financial Planning for Long-Term Care: Exploring options like Medicaid planning, VA benefits, and asset protection strategies to avoid exhausting personal savings
Legal Protections: Ensuring power of attorney, healthcare proxies, and other documents are in place to avoid guardianship proceedings
Support for Family Caregivers: Providing resources to ease the burden on loved ones who assist with care
Life Care Planning Can:
Help seniors stay independent while preparing for future care needs
Reduce financial strain by incorporating Medicaid and other benefits into the plan
Prevent families from having to make difficult care decisions in a crisis
Ensure the senior’s wishes are honored regarding medical care and living arrangements
Estate Plan vs. Life Care Plan: Which Do You Need?
Feature
Estate Plan
Life Care Plan
Focus
Asset distribution & legal affairs
Aging, care coordination, & financial planning
Timing
Addresses issues after death or incapacity
Addresses issues during aging & declining health
Legal Documents
Wills, trusts, power of attorney, healthcare proxy
Power of attorney, healthcare directives, Medicaid planning
Financial Protection
Minimizes taxes & probate costs
Helps protect assets from long-term care costs
Medical & Care Planning
Directs end-of-life healthcare choices
Coordinates medical providers, in-home care, assisted living, & nursing home options
Family Impact
Reduces legal disputes over inheritance
Reduces caregiver burden, family disputes over care,& financial stress
Why Having Both is Crucial
An estate plan alone is not enough to prepare for the challenges of aging. A Life Care Plan ensures that your care needs and finances are managed properly while you’re alive, while an Estate Plan ensures your legacy is handled as you wish after you pass.
For example, imagine an 85-year-old who has a will, but suddenly experiences cognitive decline. Their estate plan may dictate what happens to their assets after their death, but it won’t address who will manage their care, how they will afford it, or whether they can stay at home safely. That’s where a Life Care Plan steps in—helping them age in place, access benefits like Medicaid, and ensure their spouse isn’t left financially vulnerable.
Get Started with a Plan for Your Future
Whether you’re planning for your golden years or helping a loved one navigate aging, a well-structured Life Care Plan and Estate Plan work together to provide peace of mind.
As elder care attorneys, we help families:
Preserve assets while securing quality care
Avoid costly mistakes in Medicaid and long-term care planning
Reduce stress on family caregivers
Ensure legal protections are in place