Digital assets and estate planning

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This article appears in the April 2020 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.

Your clients’ digital assets have value — whether they are of a financial or sentimental nature — and should form an essential part of their will and estate planning. Failure to account for digital assets could result in a significant loss to the value of a client’s estate, not to mention headaches and hassles for an executor.

“If you don’t plan for your digital assets while you’re living, they will likely be inaccessible upon death,” says Sharon Hartung, author of Your Digital Undertaker: Exploring Death in the Digital Age in Canada. “If you had a house, a fiduciary could take the probated will, go down to [a] land registry [office] and transfer the asset. You can’t do that with technology.”

Essentially, a digital asset is any kind of record in digital form — including documents, photographs, emails, text messages and social media posts or other files — that can be created, transmitted or stored on a device or online.

Digital assets may have monetary value (e.g., digital currency, intellectual property or loyalty points) or emotional value (e.g., family photographs or recipes).

“There are some people who own avatars on certain [online] games, and they actually have value — they’re an asset to be sold,” says Christine Van Cauwenberghe, vice president, tax and estate planning, with Investors Group Inc. in Winnipeg. “If [the executor] just cancels it, [they’re] actually not maximizing the value of the estate.”

Digital assets unaccounted for in an estate plan may present a challenge for executors. For example, many clients today have accounts online for which there is no physical record to alert executors to their existence.

“In the same way you would never know that a client had a storage box somewhere,” Hartung says, “you might not know what digital assets there are and the value they may have.”

Says Suzana Popovic-Montag, managing partner with Hull & Hull LLP, a trusts and estate law firm in Toronto: “It is possible that these assets will simply never be discovered following death.”

Even if an executor knows that an online account exists and has its current username and password, the terms of service agreement governing that account may not allow an unauthorized individual to access it.

“If [the executor] breaches the terms of service, [he or she] could be liable for breach of contract and subject the estate to loss,” says Matthew Rendely, an associate lawyer with WEL Partners, a trusts and estate law firm in Toronto. “Then, the beneficiaries could come after [the executor] personally.”

Finally, digital accounts left unmaintained and unmonitored after the death of the accountholder present potential privacy and security risks.

“There’s personal data, such as social insurance numbers and addresses, that are out there [in online accounts],” says Keith Masterman, vice president of tax, retirement and estate planning with CI Investments Inc. in Toronto. “If my executor can’t deal with that data, [a security breach] can cause tremendous damage.”

The first step in dealing with a client’s digital assets is to persuade the client of the importance of addressing them in a will or estate plan. That is not always an easy task.

“A lot of people just don’t recognize that it’s going to be a really annoying job for their executors [if the digital estate isn’t addressed],” says Matthew Urback, partner with Shibley Righton LLP who focuses on estate law in Toronto. “I had one person say to me, ‘I don’t care if the accounts are just out there. So what? I’ll be dead, I don’t care’.”

You can play a role by being aware of clients who hold significant digital assets, and acting as a conduit between the clients, their estate professionals and their appointed executors or holders of their power of attorney in a disability plan.

“It’s very important, if possible, to ask the client’s permission to meet with their proposed attorney and executor,” Van Cauwenberghe says. “If no one knows who to contact, and the financial planner has never met the attorney [or] executor, it can make things much more stressful.”

Digital assets should be addressed in a will through the inclusion of a digital assets clause that gives the appointed executor or power of attorney authority to deal with those assets, says Van Cauwenberghe. She says she’s seeing more wills that contain such clauses.

“[Estate] laws haven’t caught up with current-day reality,” Van Cauwenberghe says. “If you contact certain [online] organizations, they may say, ‘We don’t care who you are; we only deal with the individual who has licensed with us.’ It can be very difficult to start acting on someone else’s behalf [as a fiduciary], so you want to make sure you have good documentation in place.”

With little to no direction from estate legislation and with Canadian case law thus far offering conflicting guidance, “it’s tremendously important that people put a direction in their will,” Masterman says.

Ideally, a will should address what a client wants done with his or her digital assets, says Melanie McDonald, vice president and regional director of trust and estate services (Western Canada) for BMO Trust Co. in Calgary. That could mean listing the people to whom digital assets should be distributed and instructions about which accounts to delete or deactivate.

“There could also be health information on a computer. [There] could be love letters [and] disputes with people” that a client might not want anyone to access after they die, McDonald says.

Clients should be encouraged to discuss the details of their estate plans, including digital estates, with their families and appointed executors, says Popovic-Montag: “Otherwise [the executor] would be guessing, and might guess wrong.”

Some estate practitioners suggest naming a digital executor, separate from the regular executor, to deal with the digital estate in a will.

“[Digital assets] kind of require a different expertise,” Urback says. “If you can find someone who checks both boxes [traditional and digital estate], then terrific; but you don’t want to put someone out of their element.”

Hartung says she generally doesn’t favour the idea of naming a digital executor in a will, primarily because doing so may lead to confusion about which executor is responsible for what asset: “Say I bank online with a virtual bank. Is the executor or the digital executor supposed to deal with the asset?” She does say that appointed executors could and should seek out expert advice to deal with digital assets if they aren’t comfortable managing them.

Hartung says that clients should be advised to create a digital accounts inventory — a list of digital assets and where they can be found — for their executor. This process would not be unlike a client creating an inventory of valuable items in their home, she says.

Clients and estate planners should then determine which of those digital accounts are the most important, and plan how they should be managed after death, Hartung says.

“I encourage estate advisors to ask their clients to identify [at least] the top three digital assets that have significant value of some kind, either sentimental or financial, and then build tech management plans to transfer those assets,” Hartung says.

This planning will include examining the terms of service of these accounts, including whether assets held in them are indeed transferable at death.

Hartung suggests the digital accounts inventory should not include passwords: “You don’t want a consolidated list of all of your online access on a piece of paper that could end up in the wrong hands. It’s a security and confidentiality issue.”

Passwords change frequently, Hartung says, and the advent of new account security barriers, including two-factor authentication and biometrics, make listing passwords an ineffective estate planning tool. In addition, many online account terms of service expressly state that the sharing of a password is a violation of those terms.

Instead, Hartung says, the best strategy is for clients to plan for digital assets as part of their estate planning process and give their executors authority to deal with those assets and accounts with a digital assets clause.

Some online service providers — notably, Facebook and Google — offer services that permit naming a third-party person to deal with an account after the accountholder dies, all without that individual requiring a password, Hartung points out. “We sort of have been lulled into this sense that online tech giants are not businesses and they’re hard to deal with, but they’re not. There are ways of dealing with them.”