We live in a digital world where traditional assets like photo albums, businesses, marketing materials and financial assets are moving online. Just look around – the most valuable companies in the world are technology companies that do most of their business online.
Even money has been digitized through cryptocurrency developments. This digitalization of the world is challenging traditional estate planning techniques, and laws and best practices often lag behind technological advances.
Digital assets create a few unique challenges traditional physical assets do not have.
- digital assets can be difficult to find online as there is an endless amount of information available.
- accessing the assets can be challenging because most assets stored online are protected by a username and password.
- ownership rights of online assets are less clearly defined than traditional assets.
So perhaps the first questions to ask is this: What are digital assets and are they important?
Digital assets are not the physical devices we use to access and store information like computers and iPhones. They are the valuable information stored on those digital devices. Your e-mail account, website, software program, cryptocurrency, credit card reward points, blog posts, Facebook and online photos are all examples of digital assets. For my ten step planning checklist for digital assets click here.
Digital assets are important for three main reasons.
- There is real monetary value in digital assets. A study by McAfee showed that the average person worldwide had over $35,000 of digital assets and Americans had value of over $55,000 back in 2013.
- Many digital assets present sentimental or lifestyle benefits. Emails between family members or online photos might not have substantial financial value but do have a lot of sentimental value to heirs who would want access to the assets.
- Digital assets left alone after death also represent a huge risk due to post-mortem online theft or abuse. Over 70 percent of online users are concerned about identity theft or fraud when online.
I know of one family in which the husband unexpectedly died. He handled all of the couple’s finances, emails, online accounts, bill pays and even accounts with online retailers.
Once he passed away, his wife didn’t know where to go online, how to access their emails or pay bills, or how to close down any of the sites that contained contact information, bank accounts, credit cards and other personal information. In the end, services were disrupted, and bills were overdue because the couple had gone paperless and notices were only going to the email of the deceased husband.
Later on, someone hacked one of the websites and stole the couple’s information. The surviving spouse never knew until multiple new credit cards were set up in her deceased spouse’s name and bills started coming in months later.
This is a real story, and it is not an isolated incident – it’s happening to thousands of people each year because of a lack of awareness about the importance of digital asset planning and digital asset management.
So if someone says they have an estate plan in place to cover all their assets, you can rest easy knowing their digital assets are covered, right? Unfortunately, traditional estate planning techniques are inadequate to cover digital estate plans today.
First, you need to specifically track where your digital assets are online and keep track of login information. It is not as easy as just sorting through a person’s attic, drawers, garage, basement and safety deposit box to find their online accounts. One step is purely tracking and managing existing assets.
Next, you need to understand ownership rights of the digital assets. For instance, most of the ownership rights in digital assets are set when the individual agrees to the Terms of Service Agreement (TOSA) with the online service provider – you know, the agreement you scroll all the way to the bottom of and hit “I Agree” without reading anything. Unfortunately, no one reads these documents.
What does a TOSA say? Mostly, these agreements state that your online accounts cannot be transferred to anyone else upon your death, leaving these assets in a state of eternal limbo, and instead creating a non-transferable lifetime lease in the online account and service.
Another challenge for digital asset planning is that traditional wills struggle to keep track of digital assets. Because passwords change regularly and new accounts are constantly set up, in addition to the will becoming public through probate, the will is not a good place to list assets, passwords and locations of important documents and other items.
Instead, you will have to be much broader in your approach inside the will. However, there are federal laws under the Computer Fraud and Abuse Act and the Electronic Privacy Act that can make sharing passwords, if against the TOSA, a federal violation. So just keeping track of your accounts and passwords without checking and seeing if you have the legal authority to share them, could also be problematic.
Furthermore, laws in this area have just started to develop. Almost every state has now passed a version of the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), which provides some guidance in planning for digital assets in the event of incapacity or death.
Essentially, RUFADAA provides a clearer framework for how access to digital assets will be handled. First, if the service provider allows for a beneficiary-like transfer system, that will take priority. Next, traditional legal documents would have authority, but only if they are correctly drawn up. Next, if neither of the other two are in place, you would look to the TOSA. In the event that no direction is given by anyone, it is likely you would then revert to traditional state common law and estate practices.
However, it is also important to remember that RUFADAA cannot change ownership of assets as set by the TOSAs. If you agree this is a non-transferable lifetime lease when you set up the online account, it remains a non-transferable lifetime lease. This can lead to improper ownership of assets in many cases and create serious challenges for small businesses.
Instead, RUFADAA aims at allowing access to digital assets to certain fiduciaries laid forth in legal documents or through another process. This allows fiduciaries to have access to the online accounts to manage them or close them in the event of death, disability or incompetency, but only if the owner affirmatively gave the fiduciary this management control in the applicable trust agreement, will or power of attorney document.
Essentially, fiduciary access to digital assets will be treated as a “hot power,” meaning that you must specifically grant the fiduciary access to “digital assets.” Just saying your fiduciary has access to all your assets won’t work! This also means most existing wills, trusts, and powers of attorney are out of date and you should update them immediately to include current digital asset language.
While almost every existing estate planning document needs to be updated, just updating documents is not enough either. Digital asset planning also requires planning as to which accounts you want memorialized, continued, or deleted and what information you want preserved or removed. In some cases, new accounts will need to be set up or assets moved from one spouse to another or from an individual to a company. True digital asset planning will be part risk management and part ownership review.
Attorneys also need to discuss digital asset management and planning with clients. With small businesses, even a brief delay in access to their online accounts could be devastating. You also want to ensure that the client has a process for tracking their online accounts, keeping usernames and passwords safe, and, if desired, provide insight into how they want their accounts managed in the event of incapacity or death. The client might want some accounts destroyed or deleted and other accounts passed on to someone else.
Digital assets are growing in value and need to be part of your practice. Find out how your state is handling these assets, update your documents and discuss these digital assets with clients, especially those clients with small businesses.