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«Aggregated Summary of Reports Provided by ABA-PTL and ACTEC-Prac List serves 2015 Heckerling Estate Planning INSTITUTE Edited, Aggregation of On-Site ...»

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Session II-E Covering Your Assets (Digitally and Ethically Speaking) and Managing Cyber Risks: Are You, Your Firm, and Your Clients Cyber-Secure? (Ethics Session) John T. Rogers, Jr., Scott Brown, Suzanne B. Walsh Cyber-attacks used to be science fiction; now they are very real. They range from annoyances such as spam e-mail to sophisticated schemes to destroy or steal data, steal money, disrupt business, and damage reputations. As professionals, we face not only risks of our own losses, but also risks of liability if we do not take reasonable steps to protect client information and confidentiality (including posthumously). This panel will discuss the latest threats, what the future holds, and what you and your clients should (and should not) be doing to address cyber risk and post-mortem issues from the legal, ethical, and practical standpoints.

Reporter: Michael Sneeringer Esq.

Mr. Rogers, Mr. Brown and Ms. Walsh took turns informing the audience on the topics of what digital assets are, what threats there are, and what estate planning practitioners should be doing to keep their firms and clients safe from threats. Ms. Walsh also presented the general session on this subject on Tuesday afternoon.

The presenters’ materials were illustrated using a PowerPoint presentation. Each presenter had a specific subtopic within the presentation and spoke for about 30-45 minutes.

Mr. Brown spoke first and focused his presentation on cyber security.

He began by giving the audience the evolution of cyber-attacks beginning with spam and viruses, all the way to the present with today’s hactivism and state sponsored hacking.

Mr. Brown posed to the audience the question of how could estate planning practitioners, as employees within their respective firms, be smart about cyber security? He noted that some of the security measures that he takes are not using public Wi-Fi and using his own 3G card, among others. He noted that the cloud is where the new crop of victims lay and described the catalyst as to how some of today’s celebrities were hacked. He also described the Internet of things and how some of our home technologies, such as thermostats and garage door openers, are vulnerable to cyber-attack. He challenged the audience to use whole disk encryption, and described the trouble with anti-virus products. He noted that clients should focus on “achievable security.” Mr. Brown next explained the difference between internal (inside of the organization) and external threats hackers;

some opportunistic and others focused). He noted that our own federal government and the N.S.A. are another type of threat.

Mr. Brown then explained how we can help our clients. He explained that we need to implore our clients to be prepared. One technique to prepare our clients Mr. Brown noted was to have them go through a simulated hack.

Who is on the client’s reaction team and how would he or she handle it (IT hygiene)?

After explaining that estate planning practitioners need to educate their employees, use duel factor authentication and perform all software updates, Mr. Brown rushed through the remainder of his slides including, but not limited to: performing a security risk assessment; not using USBs; having a plan in the event of a cyber-attack;

implementing office social media guidelines; and implementing communication policies.

Mr. Rogers spoke next. He touched on some of the Model Rules and cybersecurity. He emphasized Model Rule 1.1.

comment 8, Model Rule 1.6. comment 18 and discussed Arizona Ethics Opinion 05-04. Mr. Rogers made the comment that the client can require the lawyer to take certain steps for his or her security. He put up a PowerPoint slide with the top ten worst passwords of 2013. Mr. Rogers’ key point was that as estate planning practitioners, we need to meet the expectations of our clients.

Mr. Brown then spoke briefly on what to do if you or a client is a victim of a cyber-attack. He noted that the first thing to do would be to call someone that knows what he or she is doing; if the hacker/attacker is a “known” actor, the victim should consider legal action.

Ms. Walsh then spoke on covering your assets. She began by defining digital assets. She then explained why fiduciaries need access to digital assets and how estate planning practitioners can locate and help fiduciaries gain access to such accounts.

Ms. Walsh spent much of her time explaining digital asset planning, including some websites with valuable information on this topic. She noted that websites such as VAIL and Google’s digital asset planning option help martial assets of clients post-death.

Ms. Walsh noted the type of estate planning that should be undertaken, including nominating a fiduciary to handle digital assets, while at the same time not naming specific accounts or including passwords in client documents (think, one day that Last Will may become public record).

Ms. Walsh noted recent developments in the law, such as Nevada recognizing electronic wills and the cases of Ajemian v. Yahoo, In re Castro and Estate of Karter Yu. She concluded with the point that it is necessary for clients to plan and even if they do plan, pick a digital asset fiduciary, and the court approves of the fiduciary. Websites have subtly noted that they employ algorithms to detect changes to a user’s pattern in order to terminate a nominated fiduciary’s access.

The presenters’ concluded their presentation by taking questions from the audience. Of the answers posed, Mr.

Brown answered one question concluding that to save emails going back years (2008 was his example) was unreasonable. The presenters’ also noted that estate planning practitioners and their clients need to plan for the worst and have a plan for if, and when, there is a breach.

Session II-F Restricted Charitable Gifts: Drafting Agreements that Stand the Test of Time (Charitable Giving Series) Alan F.

Rothschild, Jr., Susan N. Gary, Michele A.W. McKinnon Donors want to help charities and charities need and want that help, but over time problems can develop over the interpretation of restricted gifts. To minimize later conflict, a gift agreement should describe the charitable use as clearly as possible and should plan for future changes in circumstances, while keeping in mind a complex set of laws. This program will suggest ways to draft an effective charitable gift agreement which achieves the donor’s goals, and provides lasting benefits to the charity.

Reporter: Beth Anderson Esq.

This is the second of two charitable special sessions from Wednesday. In this session the presenters discussed eleven hypothetical fact patterns in light of what could or should have been done to prevent the issues and avoid litigation.

Hypo 1 Longtime donor of the university who in the past has made substantial gifts to the athletics department for basketball is approached to make a gift to the music department for violin chair. This is not a normal gift for the donor, but the donor will make the gift if it’s the greatest need for the university. What happens five years later when the music department terminates its violin program?


The Gift Agreement is perfect place to capture donor’s intent with a clear statement of purposes and restrictions, anticipate changes in circumstances and address what would happen upon changes to circumstances. At the time of the gift the donor’s intent was to do provide for the “greatest need” but it’s unclear from the agreement the next “greatest need” beyond the initial purpose of the gift. How do you determine, donor’s intent when the agreement is unclear; look to statements at the time of the gift, past giving history (basketball). The best circumstances you can talk to donor if donor is still alive to determine what’s next for this gift. If donor’s dead, you want flexibility under the terms of the agreement to do what is consistent with donor’s intent.

What if the agreement doesn’t include a change in circumstance provision? The Uniform Prudent Management of Institutional Funds Act (“UPMIFA”) provides for modifications to restrictions. UPMIFA is default law, and applies only if the gift agreement doesn’t provide otherwise. UPMIFA only applies to Non-profit corps and provides

guidance on three areas:

1. Investment of assets, Endowment funds;

2. Construction to unclear language in donor agreements; and

3. Modify donor restrictions – using cy pres and deviation doctrines.

Even with the ability to modify, you still need to know donor’s intent, but under cy pres and deviation you can go to court to determine intent. This requires notifying the Attorney General (AG) and is expensive. Often charities don’t want to incur that cost or alert the AG. If the gift is older than 20 years and “small” less than $25,000 (could be increased by states up to $100,000), UPMIFA provides for a small old fund modification which is great tool to clean up old endowments. It still requires notifying the AG, but the charity does not have to go to court.

Hypo 2

Harry and Sally a couple of successive real property developers and your clients of 20 years want to support the arts. The community has a local arts council, but its financial stability is “iffy”. They are concerned the board won’t be able to handle a large gift, and want the children involved in the gift. What should they do?


A donor advise fund (DAF) at the local community foundation (CF). The donors can include children in the advisory process, either as primary or successors, and the charity is not in control of the money. The board of the community foundation is providing over sight and investment strategies.

What about a private foundation? Depending on size of the gift a private foundation may be a god option. If the donor wants to lock in the purpose of the private foundation then use the trust form for the private foundation.

DAF may provide more control because the CF will have the ultimate oversight whereas, PF can have mission statements changed overtime. PF is good if you want “real control” over everything and want to include family on the investment side.

Hypo 6 – Who should be the parties to the agreement?

Donor wants to establish a scholarship to study Latin. A new development officer drafts up the agreement and the foundation signs. After the gift is made the foreign language department is notified of the gift, and tells the foundation that the major is being terminated. Should the university have been a party to this gift during the planning period?

Discussion Yes, university should have been a party with respect to purpose restriction to make sure it would work.

Foundation cannot commit university to governance/policies, and advance approval is usually required for naming chairs or other big decisions.

Hypo 7 Donor created 3 scholarships, with gift agreements but didn’t read the terms. Donor is now getting reports and notices charges for administration fees, and fees vary among the scholarships.

Discussion Pressure is on organizations to raise operating funds, but charging fees for administration of gifts is not directly addressed by UPMIFA. Many agreements do mention charging fees and if donor agrees then its fine, but if it’s not covered in the gift agreement then murkier especially when restricted assets are used for other purposes. The nonprofit should show that the amount of the fee is tied to the costs of administrating the funds, but if it’s used for other operations (fund raising) may not have the authority to do this. Additional expenses can mess up the spend rate for the endowment fund (example. rate is 4-5% plus 1% admin fee may risk longevity of the fund).

Hypo 9 - Endowments Historic home receives a large bequest and the board of the non-profit declares this gift an endowment. Later a big storm does significant damage to the home’s gardens. May the board use the endowment to repair the high grove?

Discussion Board designated endowment not a real endowment, so board can use if for any purpose. Designated as an endowment hoping to get more contributions, and if coupled with solicitations for contributions to the endowment then any money received from that solicitation may be earmarked as donor restricted endowment.

Hypo 10 - Naming Rights Donor Cougar donated 10 million to have the school theater named after her. Five years after gift, donor is convicted of statutory rape. Can theater change the name?

Discussion Lack of terms in gift agreement may make it difficult to remove the name especially if the agreement does not contain a policies/procedures addressing when the name could be changed. Court may determine the name was in consideration of the gift and may have to return the gift. Most organizations have a policy explaining generally what happens to named buildings, outlining time limits, future changes, what happens if the building is changed, destroyed, no longer used, incorporate policy into the gift agreement and provide a copy of the policy (cold body of policies – not this donor specific).

Hypo 12 Donor transferred private business stock to charitable remainder trust (CRT) and then sold the business. Donor wants to satisfy pledges from assets of the CRT, but the pledges are legally binding obligations.

Discussion The mere promise to make the gift is not legally binding – it’s only a promise. May have detrimental reliance that can later make it legally binding – must be some kind of consideration before the pledge is binding. Ground breaking/loans on new construction for example. If legally binding, the CRT is treated as a private foundation, and self-dealing rules would treat payment of the donor’s (a disqualified person) binding obligations as self-dealing and subject to excise taxes.

Hypo 15 Rules of Prof Conduct – based on state ethics opinions Be aware of conflicts of interest especially when serving on a board of the organization and drafting related documents. You may have a conflict between your duty of loyalty to charity and duty of independence to donor.

Hypo 16 Donors made gift to university for the purpose of performing a Shakespeare play each year. No one (other than the donors) like Shakespeare plays and university changed the play schedule. Do the donors have standing to force university to put on play?

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