The ABCs of Managing Your Digital Assets

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For decades, a person’s personal property was viewed as either tangible (property you could see or touch) or intangible (nonphysical items such as good will, trademarks, or copyrights). With the rise of the digital world, there is now a new category of personal property known as “digital assets.”

Because the list of digital assets is so vast, countless questions arise as to how to manage or administer those assets if you are unable to do so yourself. For example, if you become incapacitated or die, who will have access to your email and social media accounts? Who owns the rights on material you have posted on blogs or other websites? And how and when will your social media accounts be shut down?

California Probate Code Section 871(h) defines digital assets as “an electronic record in which an individual has a right or interest.” This definition includes not only email and social media accounts but also cryptocurrencies, online financial and brokerage accounts, music and videos sharing sites, photo sharing sites, messaging applications, as well as the other apps on your electronic devices.

Sharing a list of your usernames and passwords with a personal representative or trustee for all of your online accounts may not be enough for that person to manage your digital assets if you were to die or become incapacitated. Heirs or fiduciaries could potentially be accused of “hacking” an account or gaining unauthorized access and be subject to penalties, fines, and even jail time.

What is RUFADAA?

In an effort to address these issues, California adopted the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), which took effect on January 1, 2017.1 RUFADAA provides a system of legal priorities for how a person’s digital assets are to be handled in the event a person acting on another’s behalf needs to gain access from a service provider. Instructions established in online accounts take priority, followed by legal documents and terms of service agreements.

Online Tools: RUFADAA authorizes a person to use an account specific online tool sometimes offered by a digital asset custodian (e.g., Google, Yahoo, Facebook) that allows a user to give directions to the custodian regarding the disclosure of digital assets. Each digital asset custodian has its own rules, regulations, and processes when dealing with someone’s death and these instructions have priority over any and all other instructions regarding access to information under that particular custodian’s control.

Legal Documents: If a person has not used an online tool to give that direction, he or she may give direction regarding the disclosure of digital assets in a will, trust, power of attorney, or other legal document. Given the myriad of custodians of online information a person may use, it would likely be virtually impossible to give directions to each one (or some digital asset custodians may not have procedures). Hence, it is important to include written directions in a legal document.

Terms of Service Agreements: When digital assets are not addressed by an online tool or a legal document, a provider’s terms of service agreement will control legal access to and disclosure of a person’s digital assets or other electronic information. Since such terms of service agreements are rarely an easy read, users may have agreed to terms they were not aware of, which could result in digital asset accounts being closed and information lost forever.

Why Planning for Digital Assets Matters

When a person passes away, the person’s family and heirs will want to take steps to protect the decedent’s digital assets. The digital assets will likely have either financial or sentimental value, and with proper planning, securing and accessing the digital information will help solve the following problems:

1. Make Matters Easier for Executors, Trustees, and Family Members

When individuals are careful with their online lives, they will have many different usernames and passwords for their digital assets. There may also be security questions or two-factor authentication needed in order to access the accounts. Often, fingerprints or facial recognition may be required for access. While these layers of security are necessary to protect information, without proper planning they may act as roadblocks for families and fiduciaries trying to access the account information of the deceased person.

2. Prevent Identity Theft

After someone dies, quick access to online accounts is necessary so that the deceased person’s identity is not stolen. Criminals often search through obituaries and other death databases to locate new victims for identity theft. Until providers are notified of a death, a criminal can use that person’s personal information to open new credit cards or get an ID.

3. Reduce the Likelihood of Financial Losses

Since many bills for loans, utilities, and other services are now only sent by email, the bills may go unnoticed for long periods of time and incur fees or other penalties or may result in a service being discontinued.

4. Avoid Loss of Information/One’s Story

While many digital assets have no monetary value, the information is valuable to family members and friends. In our modern world, people keep pictures and letters stored on computers or in the cloud, much of which is never printed. Without knowledge of where this information is kept and how to access it, the story of the decedent’s life may be lost forever.

5. Secure Secrets

Some digital assets may be confidential and not meant for full disclosure. Electronic material may include rantings, biased information, or adult recreational material. Accessing the information and preventing it from falling into the wrong hands — where it could be embarrassing or used in an appropriate manner — is also an important consideration.

Planning Under RUFADAA

While RUFADAA has been a big step forward in making digital assets accessible to a fiduciary after an individual becomes incapacitated or dies, it is best not to rely on this statute alone. As part of an annual financial review, consider taking the following steps:

1. Keep and Review Annually an Inventory of Digital Assets and Devices

Maintain an inventory of online accounts, automatic payments, usernames, and passwords in a safe and secure location. Prepare instructions for your designated representative, being clear as to your wishes regarding these types of digital properties. The instructions should be kept with your estate planning documents and other important documents. It is equally as important to have an inventory of all the devices used to access your digital assets, including desktop computers, laptops, tablets, smartphones, and so on.

2. Review Online Tools for Frequently Used Websites

For social media or other online sites used most often, review the online options for providing others access and decide whether you wish to use the online tool features. Keep in mind that if you do fill out the online forms and later change your mind as to who you designate as a legacy manager or the authority you would like them to have, you will have to remember to change each online tool form.

3. Provide Legal Instructions Regarding Your Digital Assets

Review your will, revocable trust, and durable power of attorney to ensure these documents have provisions regarding access to your digital assets. You can name a digital attorney in fact (if you become incapacitated) and a digital executor and trustee to handle these assets. You can also include more explicit instructions for managing your digital assets and securing your digital legacy after you die. Without such instructions, your fiduciary may need to obtain court orders to access your digital assets or the information may be forever lost.

Key Takeaways

In our information age where more of our daily lives are conducted online, addressing the issues of your digital assets head-on is the best course of action. The following Benjamin Franklin quote rings true: “If you fail to plan, you are planning to fail!” — and would almost certainly leave a virtual mess for others to decipher.

If you are interested in learning more, please contact your B|O|S wealth management team.

Footnotes:

1 California Legislature, “AB-691 Revised Uniform Fiduciary Access to Digital Assets Act,” https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201520160AB691