How to Plan Your Estate in the Time of COVID-19

Estate planning is a difficult subject to think about, but it is important. That is especially true in the middle of a global pandemic. However, social distancing restrictions have changed the process. Here’s what you need to know.

How Does Estate Planning Work?

Delaware law requires certain legal documents including wills, trusts and other estate planning instruments to be signed in the presence of adult witnesses. The purposes of having a notary and/or witnesses physically present at the signing ceremony are to attest that the person signing is the person whose name is on the signature block.

29 Del. C. § 4309(c) reads: “a notary public or electronic notary public shall not notarize a document without the person signing the document being personally present” (emphasis added). This statute was drafted before the COVID-19 pandemic. Delaware is in different circumstances since its Wills Act was passed.

Senior citizens are the most at-risk age group for severe illness from COVID-19, according to the World Health Organization. Taking into account the fact that many Delawareans need to update or create a new will, durable power of attorney, and advance healthcare directive, these clients were stuck between a rock and a hard place under the current law.

How Can You Plan Your Estate During the Pandemic?

To alleviate the conflicting stressors of in-person meetings and living without an estate plan, Delaware Governor John Carney issued the eighth modification of his emergency order on April 15. The order says it was issued to ensure the health and safety of Delaware’s citizens by loosening strict compliance requirements with any statute that requires essential actions to take place in person, such as estate planning. In regard to witnessing and notarization, the order permits remote eNotarization and remote eWitnessing until the order is lifted. Delaware has permitted electronic notarization in the previously-mentioned § 4309(c), however, the notary must be “personally present” with the signor.

Remote eNotarization and eWitnessing have been added to the language of a few states’ will statutes in recent years. With today’s high-resolution video chat technology, improving network security, and digital signature software, most of the policy concerns that underlie traditional will statutes can be satisfied even if the parties are in different locations.

What Else Has Changed About Estate Planning in the Age of COVID-19?

Governor Carney’s Eighth Emergency Order allows for remote eNotarization, but only if certain requirements are met: (1) The notarial officer must be a licensed Delaware attorney, (2) all parties must be in Delaware and affirm that fact during the call, and (3) the attorney shall confirm the identity of the signors by his/her knowledge and perception or by photo identification. Many firms have asked clients to move their camera around the room to show if anyone else is present and that they are located where they say they are located.

Remote eWitnessing has similar requirements. The attorney must confirm the identities of the witnesses and they also must be located in Delaware. The witnesses may witness the documents transmitted by electronic means. This means they can sign an emailed or faxed copy, or they can use eSignature software like DocuSign or DocVerify. This also means that they do not have to sign the wet-ink original of each document. The parties can all sign the original at a later date, but the Recorder of Deeds has been instructed to accept any of these signed copies as long as they were executed while the Emergency Order was in effect.

The estate planning documents themselves must contain a statement, or have a separate document certifying the fact, that they were “notarized and/or witnessed pursuant to the 11th Modification of the Declaration of a State of Emergency for the State of Delaware Due to a Public Health Threat approved on April 15, 2020. The Authorized Notarial Officer’s name and Bar/License Number must also be included.

Law firms that begin to offer estate planning over video conference must weigh the technology options before moving forward. A few law firms have subscribed to DocVerify, which is one of the few secure videoconferencing clients with built-in electronic notarization, witnessing, and signing. There are also more popular options like Zoom, Skype for Business and FaceTime, but these chat clients do not have an eNotary feature.

Law firms must decide what level of distancing they are comfortable with as well as what their clients are comfortable with. Some may be comfortable with following CDC guidelines on limiting building occupancy and requiring clients to wear masks. For other firms, estate planning over video conference may be the only practicable option until there is a seasonal decline in cases or a vaccine. Until then, Delaware law firms and their clients have more options than before the Emergency Order.

What You Need to Know About Blockchain

You may have first heard about blockchain from a client or a friend, but it’s important to have baseline information about what it is and what differentiates it from cloud computing or your dedicated server. It is much less about geeking out on computer science and more about getting rid of the need for trust.

What Is Blockchain?

Blockchain is a technology that encrypts, replicates, and verifies data across an array of servers to make the digital records more reliable than traditional cloud or single location-based servers. Blockchain networks can be relatively small and only include a small number of “nodes” (servers or users) within a single company for example, or they can be completely open to millions of different users around the world. The data, when recalled is pulled from all nodes (individual servers) where it was stored to verify the data was not modified by hackers. That stored data is compared to be sure no discrepancy exists and consensus exists among all nodes in the blockchain. This redundancy ensures the data has not been modified. A blockchain is a “self-auditing” network having no central authority approving the transactions. A blockchain may require an “oracle” to make rules, but ideally has no user with super-authority to make modifications to data without blockchain verification. Therefore, blockchain networks are more redundant than traditional centralized servers, leading to safer and more reliable record-keeping that does not require a single trusted repository.

How Is Blockchain Used?

Blockchain, also known as distributed ledger technology, has worlds of applications outside of its most well-publicized one, the digital currency Bitcoin. New companies that have developed a blockchain-related application are being formed every day with some of the most promising involving legal and financial transactions. Blockchain has garnered attention in the legal and finance world not only because of Bitcoin and Ethereum, but because many are comparing blockchain’s disruptive potential to the internet. Many lawyers understand the value of eSigning, emailing, and online agreements, but many lawyers have become so accustomed to traditional record keeping that they have not come to appreciate the potential for blockchain record keeping.

Blockchain technologies related to corporate stock and record keeping have great potential to guard against different types of defective or fraudulent transfers. The current popular method of maintaining records in Microsoft Excel or an application, such as QuickBooks, is vulnerable to creditor accusations of manipulation. The immutable record provided by a transaction in a blockchain allows the books and records to be more defensible if the blockchain retains verified data on:

  1. How corporate assets were acquired;
  2. When assets were acquired;
  3. From whom assets were acquired;
  4. How much was paid for assets; and
  5. How assets were disposed of or transferred.

Delaware’s Blockchain Amendments

Delaware is on the forefront of Corporate law. On July 21, 2017, Delaware Governor John Carney signed Senate Bill 69 into law which amended sections of the Delaware General Corporate Law (DGCL) to include blockchain amendments, giving legal efficacy to digital distributed ledgers. At least seven states as of today have enacted blockchain legislation with many more coming. The new Delaware legislation, which applies to the stock ledgers of Delaware corporations, raises the question of how blockchain could be applied to other non-corporate organizations to document their ownership, management, and even internal record keeping and bookkeeping.

Apart from newly-formed and existing corporations who want to move their books and records to a blockchain system, lawyers may also be approached by client entrepreneurs who are developing a new blockchain technology. It is important to have threshold knowledge about blockchain since the frequency of these questions will only increase and you will need to be able to inform your clients’ and your own decisions. Our experience with blockchain entrepreneurs and legislators in Delaware has led us to start to build technology to solve the transparency and record-keeping issues posed by Series LLCs. We have also benefitted from this experience by better understanding how we can guide clients and their businesses through the changing world of blockchain law by improving technology and transactions and removing trust from the equation.

What is a Delaware Opinion Letter and When Do You Need One?

You have been shopping around for the best terms on financing commercial real estate.  Your broker has told you that conventional bank financing will not be as favorable as a newer form of securitized financing.  Your broker recommends a Commercial Mortgage Backed Securities (CMBS) loan to finance the purchase of the property.  CMBS loans are typically for tens of millions of dollars and are used to finance commercial real estate purchases.  A bank will create a CMBS by “bundling” multiple mortgage loans and selling them in securitized form as bonds.  CMBS loans, like traditional Real Estate Investment Trusts (REITs), enable banks to loan more money out and allow wealthy investors to invest in high-yield real estate.  You like the idea and learn the lender is requiring you form a single-purpose Delaware LLC.  You have been told that the entity is to have a single equity member and a second non-equity special member to reduce the likelihood of the property going into bankruptcy.  This reduces the risk to the lender, allowing it to offer lower rates.  The catch is you will need to hire Delaware counsel to give an opinion letter.

What is an Opinion Letter?

The licensed Delaware attorney will review your organizational documents and loan documents and provide an opinion on these documents before the lender will fund the loan. This is drafted to meet the requirements of the lender and to make sure the entity has the power and authority to close on the deal and perform its obligations.

When to Obtain an Opinion Letter

A Delaware Opinion Letter should not be overlooked until the last minute. It may take 20 hours of legal services to do all the work required to render the opinion. In the opinion letter, the Delaware attorney will state assumptions, qualifications, and limitations regarding the legal existence of the LLC, whether it was properly formed, whether it is currently in good standing with the Delaware Secretary of State, and whether its governing documents were executed. We also often provide suggestions to revise and restate the borrower LLC’s Operating Agreement to be consistent with the loan agreement’s restrictions on the borrower.

Why is an Opinion Letter Needed?

The main reason a lender will require the opinion letter at closing is because they want reassurance that the LLC operating agreement will be enforced should the borrower default on the loan. Lenders are more comfortable knowing that provisions in an operating agreement designed to protect the lender are more likely to be enforced in Delaware compared to any other state. Most lenders require the borrower to be a Delaware single-purpose entity (SPE) LLC because the Delaware LLC Act and Delaware’s case law favor what the parties agree to in the written contract, and Delaware will be the governing body of law should the borrow and lender go to court.

We at The Williams Law Firm receive calls from lead counsel and principals of borrower entities in states across the country. We represent these types of clients who need us to help in this specific capacity. Our nimble practice allows us to turn around drafts of opinions prior to closing day for a comparatively favorable fee paid at closing. We would welcome the opportunity to assist you.

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