The COVID 19 pandemic has created a perfect storm. On one hand, the demand for trust and estate planning has surged. It seems as though people are more motivated to face their mortality and get their affairs in order than ever before. One the other hand, signing the necessary planning documents such as trusts, powers of attorney, deeds, wills, and health care directive documents with the proper legal formalities has been a challenge. That is because the signatures on these documents generally require a notary or two independent witnesses to be fully effective, with notarization being the preferred approach (for everything other than a will, which must be witnessed in California).
Traditionally, social distancing and notarization do not go hand-in hand. Under California law, the notary must personally and physically appear before the person signing the documents (see Civil Code 1189, and Government Code 8202). According to the National Notary Association, a phone call, email, or web broadcast does not constitute a personal appearance.
But, as with many areas of the law, there is a loophole. California Civil Code Section 1189(b) provides that any certificate of acknowledgment (which is the most common type of notarization used for nearly all estate planning documents) taken in another state shall be sufficient in California if it is performed in accordance with the laws that state. In other words, if another state's laws do not require an "in-person" appearance before the notary, and will permit a video call type of appearance before that state's notary, that notarization will be sufficient in California.
Enter the world of remote online notarization.
Remote Online Notarization
Virginia was the first state to authorize its notaries to notarize documents remotely online. Since then, numerous states have passed laws authorizing their notaries to do the same. Furthermore, several large online remote notarization platforms have entered the market. By using these platforms, someone in California (or another state) can connect over a video call with a notary in a state such as Virginia that allows the notary to verify the signer's identity remotely, observe them electronically sign the document, and then affix their electronic stamp (seal) to that document. These documents are locked down with encryption so that future tampering supposedly cannot be an issue, and documents can then be downloaded for storage, printing, forwarded to others, etc.
It sounds really great..and I've got to tell you, I think it is.
Recap of My Journey
I reached out to a couple of the major remote online notarization platforms starting back in April to inquire about the possibility of using their platform to get my client's signatures notarized remotely. Their stated policy is to not notarize trusts (of any kind) or any amendments to trusts. That decision appears to be based on the Federal E-Sign Act and Uniform Electronic Transactions Act prohibitions against using electronic signatures to sign wills or "testamentary" trusts (which are trusts created by the terms of a will).
After a bit of discussion with one of the major online notarization platforms, its general counsel and ultimately the company itself became willing to notarize "living trust" documents for my firm's clients. Here's why: Technically, unlike testamentary trusts, living trusts are not expressly excluded by the Federal E-Sign Act and the Uniform (and California) Electronic Transactions Act. Therefore, electronic signatures on a living trust can potentially be treated the same as a pen-and-ink signature in the eyes of the law. The company was also already in the practice of remotely notarizing electronically signed powers of attorney, health care directives, and even deeds, so now it seemed as though the whole package (including the living trust) could be notarized online.
I was excited. We had an available solution to remotely notarize all the documents that our clients needed. This was going to solve a lot of problems and make things much more convenient (and safe) for everyone involved.
Since this was a new and cutting-edge solution, I had to look as deeply as I could into the legal enforceability and acceptance of the documents we would be be notarizing remotely, particularly the living trusts, powers of attorney, and deeds. I was not going to recommend or embrace a new way of doing things, regardless of how safe and convenient it may be, unless I felt confident that I could stand behind the end result.
In short, my research raised significant concerns surrounding the enforceability and acceptance of these documents if they were to be remotely notarized with an electronic signature.
Although it is true that the Electronic Transactions Act(s) and E-Sign Act do not expressly disallow living trusts and durable powers of attorney, there is some considerable concern surrounding their enforceability unless and until some amendments are made to the laws in this area.
The most significant of these concerns are as follows:
Problem #1: Trusts Used for Personal Purposes (Which Most Living Trusts Largely Are) May Not be Considered a "Transaction" Covered by the Electronic Transactions Act(s) or the E-Sign Act
The definitional requirement of a "transaction" under the Acts involves a matter relating to business, commercial or governmental affairs between two or more persons.
Legal commentary surrounding other state's e-signature statutes, which largely appear to be derived from a report dated September 21, 1998 of The Task Force on State Law Exclusions, states that "Trusts can be used for both business and personal purposes. By virtue of the definition of [a] transaction, trusts used outside the area of business and commerce would not be governed by this Act."
Although the above commentary is not the law, it does reflect a glaring uncertainty that can't be ignored. The truth is, it hasn't been tested yet in California, so if a trust were challenged based on it being signed electronically, it could potentially be held to be invalid. We just don't know.
Problem #2: Some California Estate Planning Attorneys Are Concerned that the Exclusion of "Testamentary" Trusts Under the Act May be Applicable to Living Trusts as Well
A California Lawyers Association letter to the Secretary of State indicates that it is "unclear" whether living trust instruments may be validly executed using electronic signatures given the Civil Code section 1633.3(b)(1) prohibition against using electronic signatures to sign testamentary trusts.
Although I personally believe that to be the least concerning of all factors discussed here, the mere fact that the letter states that "many practitioners advise Californians not to sign revocable trusts with electronic signatures, and accordingly not to use a remote notarization platform in another state that can be performed only with an electronic signature" goes to show that, if a living trust signed and notarized electronically were to be challenged by a disgruntled beneficiary later on, there would be a large pool of attorneys happy to contest its validity.
Furthermore, I (the author of this post) believe that a particularly valid concern here is that, to the extent that a living trust document calls for other trusts to be created with the grantor's property in the future (such as trusts for a spouse or children, for instance), those trusts may be considered to be equivalent to a "testamentary" trust excluded under the Acts, because they are not being created immediately at the time the living trust document is signed.
Problem #3: General Powers of Attorney Pose a Risk of Not Being Considered a "Transaction" for Purposes of the Acts
Unlike a limited or special power of attorney appointing an agent for a singular, transactional purpose, there is concern that a general, open ended power of attorney appointment (such as what is used for estate planning purposes) would not be covered by the Acts. Assembly Bill 3095 in California (Santiago) even attempted to include appointment of an agent under a power of attorney as a transaction under the California Electronic Transactions Act, but that Bill did not pass.
Problem #4: Individual (i.e. Non-Couple) Estate Planning Clients May Have Enforceability Issues With E-Signatures Due to the Lack of Involvement of Another Party
As discussed above, a "transaction" under the Acts must include interaction between two or more persons. Consequently, to the extent that the execution a trust does not involve another person and is a unilateral act, it may not be considered a transaction as defined in the Acts. Therefore, there is a chance that an electronic signature may not be treated as a signature in the eyes of the law for the purposes of establishing a trust if it is signed by only one person.
Problem #5: Electronically Signed Documents and Documents Notarized by Remote Notaries in Other States May Not Be Recordable
California Government Code 27201(b) requires that recorded documents contain an "original signature" except as otherwise provided by law. Although Government Code 27279(b) allows a recorder to accept a digital or digitized image of a signature, that only is permissible between government entities which (I think) also includes authorized submitters under the Electronic Recording Delivery Act of 2004.
The point here is, there is a high probability that a recorder's office in California will not accept an electronically signed and notarized real estate deed. That is a problem, because the recording of deeds transferring property to a client's living trust and/or changing how title is held for estate planning purposes is critical. Similarly, if an electronically signed power of attorney needed to be used to sell real estate on behalf of the person who had signed the power of attorney, the same problem arises.
Problem #6: Will Financial Institutions Even Accept Electronically Signed and Notarized Trusts and Powers of Attorney?
Even setting aside all of other concerns discussed above, there are still practical considerations with electronic signatures and remote notarization for living trusts and powers of attorney. For example, if someone takes their electronically signed and notarized trust to a bank or other financial institution to update their accounts to the name of their trust, will it be accepted? Who knows. At a bare minimum, my concern is those documents would be met with more suspicion and potentially require a higher level of approval by management or the legal team if they were to be accepted.
Where to go from Here
The bottom line is that unless and until there are some updates to the laws affecting electronic signatures for trust and estate planning related documents, it is simply too risky to use a remote notarization platform with electronic signatures at this time.
I hope that in the (not too distant) future, electronic signatures and remote online notarization will be a standard and acceptable option in California. Once feasibility studies are conducted and ultimately approved by the legislature, or some relevant case law provides authority supporting electronic signatures, we might start to break ground. Until then however, in my opinion, it is impossible to implement without putting the integrity of a client's estate plan at risk.
Therefore, for the time being, pen and ink signatures will remain the gold standard for executing trusts and other estate planning documents.
In an attempt to respond to the need for social distancing in light of COVID 19, my firm recommends and has implemented options for clients to sign their documents with a notary and witnesses in an organized and expedited fashion (in a matter of minutes in most cases).