What electronic media did you use today? Did you log into Facebook? Check your personal e-mail? Post on Instagram? Write a blog? Take an online order for your business? Play a video game? All of these actions involve your digital assets and help create your digital footprint. For a minute think about the different online accounts you use. All of these are digital assets and they could be misused to create serious issues for your family members or heirs after your death.
As our lives become increasingly digitalized, new risks are developing that challenge traditional asset management and estate planning approaches. For instance, someone can now steal your money from a bank without ever stepping into a vault. Online fraud and theft are at an all-time high and are expected to continue to grow at a rapid pace. Additionally, as people spend more of their personal time online and more businesses offer digital services, the management and disposition of digital assets is becoming increasingly complex and important. A decade ago, few business executives were concerned about their digital assets or a digital estate. However, this has changed, digital assets, if not properly managed, can endanger the strategic plans of their employers, the co-workers who depend on the success of the employer for their own wellbeing, and their personal beneficiaries. As such, an executive’s incomplete estate planning can lead to their employer’s financial loss, lawsuits between heirs, and complications due to theft or fraud.
Digital assets are not your computer and cell phone; instead they are all of the information recorded and stored on those devices. For some people, digital assets are primarily sentimental in value. For example, personal photos, social networks, video games, and e-mail correspondences are worth little monetary value on the open market. However, if you are an executive in a large corporation or running a small business, your company’s financial welfare depends on the security your digital assets, from e-mails to the company website. Certain digital assets like Bitcoin and PayPal accounts have clear financial values and should be protected accordingly. Other digital assets vary in value to you as a company leader and as a private individual and also vary in the danger that their misuse could present to your employer or your loved ones if found in the wrong hands. For instance, information recorded by internet carriers, shopping sites like Amazon, online retailers like Home Depot, payment systems like PayPal or credit cards, or banking accounts create opportunities for theft and significant financial harm.
Because you spend a lot of time online, you have a variety of digital assets. However, have you considered how you will leave these assets to your spouse or heirs if you die or become incapacitated? Unfortunately, many people have never thought about their digital estate plan. There are three main concerns with digital asset transfers that need to be considered as part of your estate planning:
1) Can your heirs or the person taking care of you during a period of incapacity find all of your digital assets? Since digital assets are not physical in nature, they often do not leave a distinct paper trail. If the executor or person handling your affairs cannot locate your assets, they will not be able to manage or properly transfer them in accordance with your wishes.
2) How do you access the digital assets? Even if your legal representative is authorized to transfer the assets and can locate them online, it is likely that the assets are held by a third-party service provider that requires a password, username, and other evidence of authorization to access the assets.
3) Do you have the right to transfer the asset? For example, Yahoo accounts are non-transferable. This means you cannot bequest the account to your heirs nor can you transfer ownership to another person or entity while alive. This inability to transfer digital assets can create business succession issues and estate planning challenges.
Dr. Pearce is the VSB Endowed Chair in Strategic Management and Entrepreneurship at Villanova University.
So, how can you protect and see to the proper management and disposition of your digital assets? A multipronged approach works best. First, you need to keep a record of your digital assets. Make sure you have an up-to-date record of the accounts that you have and how to access them. Second, you need to let a trusted representative know where they can find this information in the event of your death or incapacitation. Third, you should determine the services that are offered by your digital asset services (i.e., Google and Facebook) to assist in the transfer of your assets. For example, Facebook allows you to pick a beneficiary of your Facebook account (you can set this up in your general Security setting tab under Legacy Contact). This legacy contact will manage your memorialized Facebook account after you are deceased. You need to make sure that these services are not in conflict with your estate planning documents. For instance, if you set up your last will and testament to state that all of your assets transfer to your spouse but you designated your brother as your Facebook legacy contact, it is possible that your last will and testament will create friction between your spouse and brother to result in a lawsuit over your digital assets.
To minimize the complications involved in the transfer of digital assets, it is helpful to set up a power of attorney and a will that specifically grant someone the ability to manage your digital assets. It is also important to make sure that these documents do not conflict with other estate planning devices such as a trust or beneficiary designations that could control digital assets. Unfortunately, only Delaware has a law that provides your estate fiduciary or power of attorney the right to access to your digital assets once you have passed away. However, this protection will expand if the Fiduciary Access to Digital Assets Act that was created by the Uniform Law Commission is approved in the in the more than 20 states where it has been introduced.
There is great value in protecting your digital assets in the event of your inability to manage them personally. Such protection is available quickly and at low cost but preplanning and arranging key agents in the process is essential. By including details about your digital assets in your legal documents, and by clearly specifying your intentions before any event that limits your ability to act on your own behalf, you can protect the integrity and value of your intellectual property and provide for its disposition according to your wishes.