Estate Planning for your Digital Assets
The term “digital asset” does not have a well-established definition, for the pace of technology is faster than the law can adapt to it. Simply stated, digital assets are electronic ones and zeros; that is, information inscribed on a tangible medium or stored in an electronic or other medium, and which is retrievable in perceivable form. Common types of digital assets in which you may have an interest include:
Personal. Personal digital assets include email and text messages, e-books (e.g., Kindle and Nook), word processing and .PDF files, photographs, videos, music files (e.g., mp3s and iTunes), spreadsheets, PowerPoint presentations, tax records and returns, and similar materials.
Social media. Social media assets involve interactions with other people on websites such as Facebook, LinkedIn, and Twitter. These sites are used not only for messaging and social interaction, but also can serve as storage for photos, videos, and other electronic files.
Financial accounts. Many people manage their financial affairs online, including bank and PayPal accounts, investment and brokerage accounts, bill payment (e.g., utilities, credit cards, car payments, mortgage payments), and income taxes.
Business accounts. A professional such as a physician, attorney or CPA will have client records, many of which will contain confidential information.
Other digital assets. You may own a variety of other digital assets, such as domain names, blogs, loyalty program benefits (e.g., frequent flyer miles, credit card rewards, and business discounts or vouchers), and gaming property (e.g., virtual money, avatars, or other assets earned when playing online games).
Why planning is so important
We tend to take our digital assets for granted, but this is unwise. Key benefits of planning include:
Assist others upon death or incapacity. When individuals are prudent about their online life, they have many different usernames and passwords for their accounts. This is the only way to secure identities, but this devotion to protecting sensitive personal information can wreak havoc on families and fiduciaries upon incapacity and death, as their rights to access digital assets are often unclear. Proper planning may make this process less complicated.
Reduce identity theft. In addition to needing access to online accounts for personal reasons and closing probate, family members need this information quickly so that a deceased’s identity is not stolen. Until authorities update their databases regarding a new death, criminals can open credit cards, apply for jobs, and get state identification cards under a dead person’s name.
Prevent financial loss to estate. Failure to plan for digital assets upon death and disability may cause financial loss to the estate from four perspectives. For example, electronic bills for utilities, loans, insurance, and other expenses need to be discovered quickly and paid to prevent cancellations. For example, without power the furnace may not run and keep pipes in the house from freezing, or the security system may not work if the residence is burglarized.
Avoid losing personal story. Many digital assets are not inherently valuable, but are valuable to family members who extract meaning from what the deceased leaves behind. Historically, people kept special pictures, letters, and journals in albums, scrapbooks, or shoeboxes for future generations. Today, this material is stored on computers or online and often is never printed. Personal blogs and Twitter feeds have replaced physical diaries, and email messages have replaced letters. Without alerting family members that these assets exist, and without telling them how to get access to them, the story of the life of the deceased may be lost forever. This is not only a tragedy for family members but also, possibly, for future historians who are losing pieces of history in the digital abyss.
Protect secrets. Sometimes people do not want their loved ones to discover private emails, documents, or other electronic material. They may contain hurtful statements or personal rantings. A professional, such as an attorney or physician, may have files containing confidential client information. Without designating appropriate people to take care of electronically stored materials, the wrong person may come across this type of information and use it in an inappropriate or embarrassing manner.
Impediments to Planning
User agreements. When an individual signs up for a new online account or service, the process requires the person to agree to the provider’s terms of service. Service providers typically include policies that govern what happens to the digital material on the death of an account holder, but individuals rarely read the terms of service carefully, if at all. Nonetheless, the user is at least theoretically made aware of these policies before being able to access any service. The terms of these “clickwrap” agreements are often upheld by the courts.
Ownership. A problem may also arise when one does not actually own the digital asset but merely has a license to use that asset while alive. It is unlikely that a person can transfer to heirs or beneficiaries music, movies, and books purchased in electronic form, although one may transfer “old-school” physical records (vinyl), CDs, DVDs, books, etc., without difficulty.
One approach being taken by some states, which either have or are considering granting fiduciaries the ability to access accounts, is to provide by statute that provisions of user agreements that would act to restrict fiduciary access are void as against public policy. Many issues may arise, however, with these types of provisions, such as whether they improperly interfere with freedom of contract or are unconstitutional attempts to circumvent federal law.
Planning suggestions
Legal uncertainty reinforces the importance of planning to increase the likelihood that an individual’s wishes concerning the disposition of digital assets will actually be carried out. Digital assets are valuable, both emotionally and financially, and they are pervasive.
Backup to tangible media. The user should consider making copies of materials stored on Internet sites or “inside” devices on tangible media of some type, such as a CD, DVD, portable hard drive, or flash drive. The user can store these materials in a safe place, such as a safe deposit box, and then leave them directly to beneficiaries named in the user’s will. Of course, this plan requires constant updating and may remove a level of security if the files on these media are unencrypted. However, for some files, such as many years of vacation and family photos, this technique may be effective.
Prepare a comprehensive inventory. Consider creating an inventory of digital assets listing how and where they are held, along with usernames, passwords, and answers to “secret” questions. Careful storage of the inventory document is essential. Giving a family member or friend this information while alive and competent can backfire. For example, if someone gives his or her daughter the online banking information to pay bills when he or she is sick, siblings may accuse her of misusing the funds. Further, a dishonest family member might be able to steal money undetected.
If maintaining a separate document with digital asset information is the best route, this document should be kept with the will and durable power of attorney in a safe place. The document can be delivered to the executor upon the individual’s death, or agent upon the individual’s incapacity.
Another option is to use an online password storage service. One then needs to pass along only one password to a personal representative or agent. This one password, however, is then extremely powerful—it unlocks the door to the entire digital world.
Remember that giving someone else one’s username and password may violate the terms of service in the contract. Accordingly, use of the access information may be deemed a state or federal crime because it exceeds the access that the user agreement permits.
Provide immediate access to digital assets. You may be willing to provide family members and friends immediate access to some digital assets while you are still alive. You may store family photographs and videos on websites that permit multiple individuals to have access.
Place digital assets in a trust. One of the most innovative solutions for dealing with digital assets is to create a revocable trust to hold the assets. A trust may be a more desirable place for account information than a will because it would not become part of the public record and is easier to amend than a will. Assuming the asset is transferable, the owner could transfer digital property into a trust (new or existing) and provide the trustee with detailed instructions regarding management and disposition.
In addition, accounts could be registered in the name of the trust, so that the successor trustee would legally (and, one hopes, seamlessly) succeed to these accounts. In addition, many digital assets take the form of licenses that expire upon death. They may survive the death of the settlor if the trust owns these accounts and assets instead. When a person accumulates more digital assets, designating these assets as trust property may be as simple as adding the word “trustee” after the owner’s last name.
Start today
Do you recognize yourself here? Do your loved ones know how to access your accounts in case of an emergency? If not, this might be a good time to make that information available and share it with your estate planning attorney as well.
Are you satisfied with the state of your estate plan? Please come to see us. We’d be pleased to share our insights in this regard.
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Some information provided in the Knowledge Center may be obtained from outside sources believed to be reliable, but no representation is made as to its accuracy or completeness. This information is intended for discussion purposes only and should not be considered a recommendation. The information contained herein does not constitute legal, tax or investment advice by Country Club Trust Company. For legal, tax or investment advice, the services of a competent professional person or professional organization should be sought. Trust services and investments are not FDIC insured, are not guaranteed by the Trust Company or any Trust Company affiliate, and may lose value. Past performance is no guarantee of future results.