In the legal world, it is common for science and technology to speed ahead of what is defined in the law books. This leaves lawyers, courts and judges sometimes scratching their heads to address concerns and issues that were simply not an issue ten years ago. One such area concerns the evolving need to consider estate planning for digital assets and property.
We see this problem of science and technology “outpacing” the law in estate planning when cutting edge science, and related assets, such as “cord blood banking” are often not considered during the estate planning process.
Estate Planning With Digital Assets
In the digital age, a common estate planning blunder is the failure to include digital assets in a clearly defined estate distribution plan, and this is a concern that continues to grow without much attention given to the subject.
As a result, the Revised Fiduciary Access to Digital Assets Act (Revised UFADAA) was created with the purpose to (1) give fiduciaries the legal authority to manage digital assets and electronic communications in the same way they manage tangible assets and financial accounts, to the extent possible.
And (2) to give custodians of digital assets and electronic communications legal authority to deal with the fiduciaries of their users, while respecting the user’s reasonable expectation of privacy for personal communications. Source.
Define Digital Assets
First, it is important to define what is meant by “digital assets” and then we can suggest some ways to make sure that these assets are included in your well prepared estate plan.
Wikipedia defines a digital asset as anything that exists in a binary format and comes with the right to use. According to techterms.com, “binary“, in this context, refers to the storage of data by computers which store data and perform calculations in a binary system using only zeros and ones.
Remember that asset protection is a critical part of any complete estate plan, as discussed in our prior post.
In the same way that the other “assets” discussed in that article must defined and titled so as to minimize risk and estate transfer problems, so do digital assets have unique value which must be determined upon the owner’s death.
Yet all too often, these digital assets are very difficult to locate and value, and thus may be forfeited due to the lack of direction.
Defining and Categorizing Digital Estate Planning Assets
First, to define what we’re talking about when we refer to digital assets, we are talking about stored data on a computer, in the cloud, or on the web that someone maintains a “right of use” over.
This sounds simple enough; however, it gets complicated because we’re talking about a lot more than someone’s saved documents or photos. Let’s explore this question further.
Second, the categories of digital assets that should be searched, identified, itemized AND accompanied by careful instructions in an estate plan are:
- website domain names
- crypto currencies such as Bitcoin
- online brand presence
- funds raised on crowdfunding websites
- blogs or vlogs
- social media content
- documents and photos stored in the cloud
The above list applies especially to entrepreneurs and business owners but also applies to individuals and is certainly NOT exhaustive. People really do NOT know how extensive one’s digital assets can be. Also, the possibilities that exist within any of the above categories are becoming more and more broad as technology evolves at a rapid pace.
For example, website domain names could include a plethora of possibilities ranging from your run of the mill website hosted on godaddy.com to sites created for free and hosted at any number of hundreds (if not thousands) of providers.
Millennial entrepreneurs are especially skilled at locating such services that offer free websites and blogs or any combination of web based possibilities for business enhancement.
Crypto currencies such as bitcoin accounts have real value in today’s marketplace, just as gold does in the physical world, and companies such using blockchain are now building platforms for these digital assets, so these assets and platforms must be able to be accessed. Other less obvious web based accounts and platforms sometimes have stored cash value due to services or products paid for in advance.
Online brand presence is another area that is evolving daily and is an essential part of any business planning strategy. This is especially critical for business continuity and succession planning where a new owner-manager will ultimately be taking control of the business and must have access to these digital assets.
Blogs, which are a website used for providing ongoing news, information, etc., may become extremely valuable assets with tens of thousands of followers and may be attracting substantial advertising revenue. This the value of the blog must be considered along with the value of the domain name.
Similarly vlogs, are video blogs, or podcasts that may have substantial audiences and thus substantial economic value..
Social media accounts and content could include anything from videos on a YouTube channel to Facebook Fan Pages to more sophisticated “click generating” assets for social media personalities or “influencers”.
Documents stored in the cloud could mean virtually anything stored on cloud based servers that would have asset value such as contracts, notes receivable, copyrighted materials, life insurance assets, records for IRA and 401(k) accounts, real estate deeds, liens and mortgages, stock trading accounts AND intellectual property records such as patents and trademarks.
All of the above are particularly critical for business owners who may have accrued massive value in ALL of these areas by virtue of a well established domain name, blog, online videos and social media pages that have cultivated substantial audiences.
In these cases, an independent valuation of the digital assets is likely critical and business succession planning for these digital assets such as the use of a buy-sell agreement is highly recommended.
Estate Planning Steps for Digital Assets
Next, specific estate planning steps MUST be taken to properly protect digital assets. These steps should be considered estate planning essentials for digital assets and property.
User Names and Passwords
USER NAMES and PASSWORDS are of course critical for accessing ALL digital assets and so this information is an essential part of any digital estate plan. This aspect and other suggestions for creating a digital estate plan are discussed in more detail to follow.
Some estate planning attorneys suggest that a separate digital last will and testament should be created and a separate digital executor should be appointed to administer digital assets.
This is a judgment call and may or may not be necessary, in my opinion, if the appointed executor is sophisticated enough to oversee the need to login to various accounts and access information on line.
These steps and instructions could just as easily be included in the primary last will and testament and personal property memorandum AND also be memorialized in any buy-sell agreement and operating agreement for business succession planning.
If a revocable or irrevocable trust is part of the estate plan, then these same instruction should be provided for the successor trustee. This is especially important if the successor trustee and personal representative are NOT the same person, just to assure that all appointed parties understand and are in the loop concerning digital assets.
Depending upon how the estate assets are titled, the digital assets may either be owned by the estate (under the authority of the personal representative) or owned by the trust (under the authority of the trustee) and this can vary particularly of the digital assets are owned by a business entity which may or my not be owned by the trust.
It is also important to consider estate planning essentials for digital assets and property when preparing a durable power of attorney, because most traditional documents do not authorize access and management for rights for digital (web based) accounts.
Remember, whereas a last will and testaments governs the distribution of one’s digital assets upon death, the durable power of attorney would govern if the owner became disabled and simply cannot manage his or her own business affairs. Thus, instructions for the power of attorney are critical for maintaining accounts, posting blogs, paying monthly fees and numerous other business functions that may cease if the owner becomes disabled.
In addition to the above documentation steps, there are some other important estate planning essentials for digital assets and property to consider.
It is critical to prepare a detailed list of website locations, user names and passwords so that the personal representative or power of attorney may easily access these accounts and the information contained in them.
This is also crucial in the event that digital assets are sold as they must be accessed and transferred to the third party purchaser.
Additional instructions should also be provided to assure that the personal representative understands how these accounts are to be administered.
As with all areas of estate planning, instructions concerning estate planning essentials for digital assets and property should be crystal clear and given in such as way as they are NOT open to varying interpretations. Care should also be given to who the personal representative is to be, as this personal will have direct access to sensitive private information.
It is important to know that without the above information, the personal representative or power of attorney may be blocked due to the privacy restrictions that prevail on the web and generally supersede other financial and estate planning concerns.
This privacy issue even impacts spouses and other family members, and thus valuable assets could be effectively blocked and rendered worthless without a clear ability and instructions to access. Privacy issues are a major concerning when considering estate planning essentials for digital assets and property
As with all estate planning, we emphasize that planning must be done when one is healthy and has a full grasp of the details.
Further, it is especially important when maintaining your estate planning essentials for digital assets and property, to review the digital estate plan and update it regularly (perhaps even more often than traditional plans) to accommodate changes in the assets. As is the case with all technology, changes can occur rapidly and without much thought.
For example, passwords can change for any number of reasons, and thus even a good digital estate plan may be rendered obsolete due to one simple changes. Regular estate planning reviews are therefore essential.
New platforms to accommodate this new wave of digital estate planning, such as trustedheir.com, are now arriving on the scene and can be made available to consumers through our top estate planning professionals.
Finally, if a business continuity succession plan funded by life insurance is in place, the insurance must be reviewed regularly to assure that that the death benefits are keeping pace with the potential for rapidly changing value of the digital assets.