What is an Online Trust?
An Online Trust is a trust that you form online via an Internet website. The Online Trust document you sign may be reviewed by a licensed attorney before it is signed electronically. After the document is electronically signed, it is executed online by one or more witnesses as required by the law. You can also send a link of the Internet document to your state’s probate court and assume that the probate court has received the document for its records.
Unlike a traditional trust, an Online Trust can be formed in about 15 minutes or less if the client has minimal assets and estate planning needs and is a relatively simple estate. The Online Trust is generally a revocable, amendable living trust created primarily to avoid a court-supervised probate proceeding after death.
Recently the Louisiana Legislature amended the probate code allowing Online Trusts by adding the following language: "Any person authorized to draft or prepare a trust instrument may use written or electronically recorded signatures. A trust instrument executed with a written or electronically recorded signature is enforceable and admissible in evidence as if it had been signed." The Louisiana Legislature also recently enacted a law providing for the creation of a trust on the Internet. The Louisiana statute provides the following in part: Section A: "Any person authorized to draft or prepare a trust instrument may use a trust instrument generated on the Internet. A trust instrument generated on the Internet, signed by a person of majority age, is enforceable as long as it complies with all other requirements for creating a trust under the trust laws of the State of Louisiana. The written or electronically recorded signature shall include a method by which the signer of the trust instrument acknowledges that the signer understands the risks associated with a trust instrument generated on the Internet , including the risk that the trust instrument may contain typographical errors, may not be appropriately generated or formatted, or may be subject to electronic transfer to incorrect persons." Section B: "If the testator or settlor of a will or trust has a mandatory form of identification such as a driver’s license or state or federally issued identification card and an e-mail address, any custodian may send the will or trust instrument via its mandatory Internet site to any person or agency, including the clerk of court and the testator’s or settlor’s internet service provider." Providing additional context for the Louisiana Online Trust law, the Louisiana Legislation Research Council explained in its "Digest" of the Bill (herein CT House Bill 393), "Present law requires any type of spectators to the execution of a testament or trust to be physically present at the signing of the testament or the designation of the trust and requires that the testator or settlor read the testament or trust instrument in the spectation of the spectators. This bill provides that this requirement may be satisfied if the trust instrument is generated on the Internet. Section B provides that if the settlor has a mandatory form of identification and an email address, any custodian can send the trust instrument via its mandatory Internet site to any agency, including the clerk of court, and the trustor’s or settlor’s Internet service provider." The Louisiana Estate Planning Council ("LEPC") recently endorsed the Louisiana Online Trust law. The Louisiana statute is similar to similar laws that already exist in California, Florida and Hawaii and also somewhat similar to the Uniform Power of Attorney Act that has been enacted in 16 other states, Louisiana included. Online Trusts continue to grow in popularity and now allow Louisiana residents to execute a valid trust via the Internet.
Online Trusts from a Legal Perspective
Legislation like the Florida Statutes (notably Section 736.0102) and the Uniform Trust Code (UTC) outline the legal framework for creating and managing trusts, whether online or in person. These statutes define trusts, identify the key players (e.g., trustees, beneficiaries), outline the duties of trustees, describe the trust property, and the powers of trustees (see, e.g., Section 736.081).
The person who creates a trust (the Settlor) has the freedom to choose the appropriate law under which the trust will be governed (see Section 736.0702). The law chosen applies to the validity of the trust, its purposes, powers, and duties of the trustee, and the rights of beneficiaries. For example, Section 736.0603 provides rules on the creation of a trust. Section 736.0701 sets forth rules on the administration of such a trust.
To clarify, Florida has not yet adapted the Electronic Signatures in Global and National Commerce Act (E-Sign Act), the federal law that allows for electronic signatures in interstate and international commerce. However, Section 668.006 does provide that electronic records and signatures are given the same force and effect as paper and traditional signatures.
The millennial generation is tech-savvy. The reality is that people are creating wills and trusts online and storing them on their computers and cloud services without knowing the legal implications, and there will be lawsuits regarding the validity of online trusts and wills that don’t comply with legal requirements.
Most Courts Recognize Online Trust
The answer to this question is that it is not clear whether online trusts are legally valid. Very few cases actually address these types of issues, but the most recent case (Dec 2016) to address this issue, held that "it was well-established law that …an unsigned will could not be admitted to probate under any circumstances."
This case looks at both digital wills and online trusts. While the decision regarding the digital will was clear in terms of not recognizing an unsigned will for probate, the court was not prepared to make a decision on the trust. It left the question open – deciding that it could not decide how to feel about "digital" documents in general.
They refer to this as "handwritten wills that have been holographically drafted by the testators…signed, dated and properly witnessed."
I think that ultimately the law will not differentiate between a handwritten will drawn up by an individual, and a trust or will that is completed online and signed digitally. I don’t think that technology itself (be it date, type or method) will be the concern of courts. Rather, it will be whether there is proper execution in accordance with the legislation.
The issue at hand here is not technology, per se. The issue comes down to whether the document is signed and dated (even electronically), and complying with the other provisions outlined in the relevant legislation.
Advantages of Online Trusts
When it comes to the benefits of using an online trust, the most obvious one is that it saves a huge amount of time. For someone who has significant wealth and assets, setting up a trust has traditionally been the job of a law firm and estate planning specialist, which takes time and money. Online trust companies, which allow you to set up a trust yourself, give you the flexibility to complete the whole matter in one session. All you need is a good guide to take you through the various options and a comprehensive form to fill out with digital guidance.
Online trusts are also much less costly than the traditional route, which can require thousands of dollars to get started and continue as long as you have an active estate plan, since the advisors are then in charge of handling all future changes.
Just as with traditional trusts, online trusts can save a lot of future estate taxes and hassle as your wealth continues to expand. By transferring some of your wealth into your trust, you can avoid paying large amounts of inheritance tax after your death. Some states also have inheritance taxes for spouses and children living in the same state as the decedent, and a trust can help you avoid those taxes as well.
Potential Risks and Challenges with Online Trusts
A major potential risk with online created trusts is fraud. It may seem unfair to second guess a deceased person’s choice of an online service as the estate planner for their family, but electronic fraud is very possible. The National Conference of Commissioners on Uniform State Laws has a model law on remote signatures, but at this point, only a limited number of states have enhanced their laws to fully address this. Fraud rings have been known to present death certificates in order to make off with bank and brokerage assets. There are many electronic banking products and platforms out there which could be subject to misappropriation.
Another risk is exposures posed by security vulnerabilities. Like any online created document, your will could disappear into the ether. Online companies may not have the same kind of data and privacy protection that you expect from your financial institution. A hack or data breach could compromise your documents.
Even putting aside these significant risks , there is always some concern whether these documents will stand up in court. What happens to a person’s wishes if a court finds that a document did not have the proper signing formalities, even though the person signed it. One possible issue to consider is whether you have the capability or interest in being able to enforce the document in court. For example, if this is an asset which you would want to go straight to your children or some other beneficiary, you may want to consider a different alternative which offers additional protection.
Generally speaking, the best way to avoid risks from online trusts is to hire an attorney. At minimum, you should consult with an attorney to answer questions about trusts and your needs. Proper legal review can help provide peace of mind that your plan is properly in place and would be effective at your death.
Setting Up a Legally Binding Online Trust
The first step to creating a legal online trust is to choose a platform, such as a website or software program that has the ability to generate and store legal documents. Some of these platforms are free, while others charge a fee for access to their templates and programs. You should carefully review the options available to you so that you choose a platform that meets your needs and fulfills the legal requirements for a valid trust.
Once you have chosen a platform, consider whether the trust complies with applicable state laws. Each state has its own set of rules for retirement accounts and trusts, such as the requirements for who can be a trustee and beneficiary and what forms of property can be placed in the trust. If you and your beneficiaries all live in the same state, creating a trust online is very straight forward. You can often use a template online that incorporates all of your state’s requirements directly.
However, if you or any of the beneficiaries live in different states, you should consider consulting with an attorney who is familiar with internet/common law trusts so that all of the legal requirements for a valid trust are met.
Finally, a note on obtaining legal advice. Internet trusts can be a useful and cost-effective way to establish a trust. However, a trust is a complex document that may not be appropriate for every situation. Therefore, you should consider consulting with an attorney before creating an online trust.
The Future of Online Trusts
While the trend of migrating trusts to an online platform is relatively new, it is the future of asset management. The convenience and reduced fees of using an online service will continue to draw individuals toward their use. Technology is often updated and adapted to provide a better or more secure experience. As long as online platforms continue to provide the same or better service than the old-fashioned way of creating a trust, individuals will make the switch to the new trend. Though the same issues still apply as trust has for thousands of years, legislation is being brought forward that provide a statutory basis for the legality of online trusts. In the United States , for example, the Revised Uniform Law on Electronic Wills and Trusts Act was enacted in a number of states and its provisions for the execution and revocation of electronic wills have been adopted by some.
Some Canadian jurisdictions have also enacted legislation or amendments to extend the law to include electronic wills. In some other jurisdictions, the law has yet to catch up with the impact of digitalization. As mentioned above, digitalization of the law tends to negatively impact the use and legality of online trusts so amendments to the legislation are paramount to ensure the future of the use of online trusts remains bright.
