A “digital asset,” for the purposes of digital estate planning, is any “asset that exists only as a numeric encoding expressed in binary form,” i.e., anything of value stored electronically. Digital assets are created and may exist in both personal and business settings. For instance, an individual’s digital asset estate may consist of videos, text documents, photographs, music, emails, online subscriptions, cell phone applications, video games, online personal social media accounts, and other similar items. In the business setting, the digital estate may contain valuable information such as mailing addresses, customer lists, online storefronts, business bank accounts, payroll systems, computer software, business plans, and other digitized assets. Data about the digital asset, commonly referred to as metadata, is also considered part of the digital asset. Metadata may contain information about when the digital asset was created, by whom it was created, when it was last accessed, and whether it was edited or altered. Additionally, metadata may be used to authenticate and describe the digital asset and enhance retrieval of similarly situated assets. As such, metadata can be invaluable in lawsuits and ownership disputes regarding digital assets. It is important to distinguish items that do not constitute digital assets. Specifically, digital assets do not include the electronic storage units within which they are held—such as computers, servers, video game consoles, cameras, and cell phones. While digital storage units are vital to the maintenance, collection, and distribution of digital assets, they are not the primary focus of digital estate planning.
Transferring property, wealth, assets, and family heirlooms from one generation to another has always been a primary focus of proper estate planning. The electronic and technological innovations of the twentieth century, society’s reliance on the Internet and electronic commerce (“e-commerce”), and the growth of cloud computing have given rise to a new digital world of assets which may be accessible across the world through a variety of mediums. Due to their importance in our everyday life, financial and sentimental value, and continuing growth, digital assets should be considered as a part of any estate plan. Digital assets and online accounts have the potential to continue indefinitely. As with any asset that can exceed the lifespan of the original owner, estate planning for digital assets is a vital part of the preservation of one’s legacy and property disposition. Many individuals unknowingly leave a significant amount of digital assets unaccounted for after death. For example, by the end of 2012, over 30 million Facebook users have died, leaving no directions as to the handling of their accounts. Failure to consider digital assets as part of the estate planning can result in loss of items that contain sentimental and financial value for the deceased relatives. According to a 2011 McAfee study, the average Internet user places a value of $37,438 on their digital assets,3 while a U.S.-based Internet user values their digital assets near $55,000. The growth and development of the digital world has also changed the manner in which businesses operate, store information, market products, and reach consumers. The U.S. e-commerce industry is valued at nearly $225 billion. Today, businesses often rely on a wide range of digital assets to ensure a strong web presence through online storefronts, e-commerce services, and cloud-based products, as many consumers expect businesses to have both brick-and-mortar locations while offering online access. These digitized assets are crucial to the company’s success and functionality and, at the same time, represent the growing digitalization of business assets. The average business insists that up to 20% of its digitally stored information is critical to operations. This percentage is likely to increase over time as companies continue to rely upon electronically stored information. Accordingly, proper estate planning and business succession plans are needed to protect and manage digitized business assets. Digital assets, without a doubt, add a new wrinkle to the already complex legal practice of estate planning. Digital estate planning can be especially problematic because digital assets are often difficult to locate without proper guidance from the decedent. Without a well-designed digital estate plan, locating and disseminating digital assets is akin to searching for buried treasure with neither a treasure map nor a shovel. Further, accessibility and transferability issues can arise as these digital assets are often spread across various social networks, email accounts, online service providers, and digital devices. Providing access and location information regarding digital assets via wills creates security concerns as their location and passwords may become public.
The expansive nature of digital assets and the aforementioned issues surrounding this novel area of law triggers the need for more precise and well-developed asset management systems. This Essay defines the scope of digital assets, discusses unique challenges digital assets provide for traditional estate planning, and concludes with a viable strategy for the creation of a well-developed and manageable digital estate plan
Countless people are dying without proper digital estate plans in place, leaving billions of dollars of assets unaccounted for in the digital world. This is occurring in part because individuals are often unaware that traditional estate planning tools and techniques, such as wills, are ill-equipped to handle the unique challenges of digital estate planning. As a result, the majority of Americans are vastly unprepared for their digital afterlife, unintentionally foregoing digital estate planning altogether and leaving their assets trapped in a digital purgatory. With the ongoing growth in our reliance on technology, interaction via social media, digitization of individual’s property, and further advancement of new Internet technologies, the amount and value of our digital assets are growing exponentially.
In response to this immediate need for digital estate planning and management of digital assets, some businesses began to offer their users the ability to plan for the disposition of their digital assets upon their death. However, due to the novelty of this area of law, the business solutions currently afforded often leave more questions than answers about what happens to the individual’s digital assets, raise concerns about privacy and security, and augment disputes over their overall effectiveness in the estate plan. These pages examines the importance and increasing prevalence of digital assets, discusses the challenges facing traditional estate planning in the growing world of digital assets, and suggests a workable strategy for the creation of a well-developed and manageable digital estate plan.
While proper digital estate planning is crucial to the management of one’s digital assets and enduring legacy, the inability of traditional estate planning techniques and online digital estate planning services to provide satisfactory solutions can leave many people at a loss. However, attorneys can still provide workable solutions to the challenges of digital estate planning. First, attorneys should inform their clients about the importance of proper digital estate planning and hopefully get the clients to consider the goals of their digital assets. Proper management of digital assets is about more than just wealth. Legacy, appearance, and family sentiments should help shape the digital asset plan. Not all of digital estate planning will be the preservation of assets. In some
instances, decisions should be made to destroy, delete, and terminate digital assets. This is especially important due to the potential never-ending nature of digital assets.
Attorneys, wealth managers, and financial planners should then help the client compile, update, and retain a comprehensive record of the client’s digital assets, login information, and the location of digital assets. By passing along electronic storage devices such as a computer, phone, camera, or flash drive, many digital assets can be transferred to the deceased’s beneficiaries in the same manner as a traditional tangible asset. However, when dealing with digital assets not stored on a physical storage unit under the individual’s control, the access information may be stored on a password-protected and encrypted digital storage device—such as a flash drive—that the estate planning attorney provides to the client. This type of digital asset management system can allow for the individual to dispose of the storage device via his or her will, but continue to use the digital assets, make changes to the access information when needed, and safely store this information.
While serious concerns still exist with online digital estate planning services, they should not be discounted entirely. These companies can provide valuable planning strategies and management of one’s digital assets. However, it is crucial to perform a due diligence review of any such service before entrusting the service with access information or details about the digital assets. It is also important to check with digital service providers to see what their policies are with regards to assets. Knowing the ownership rights and transferability of digital assets is a crucial step. This could also lead an individual to switch service providers if one company offers better digital asset rights.
Currently, there is no quick solution for disposition of digital assets. Instead, it must be a well-thought-out and developed plan that is integrated within the overall estate plan. Keeping track of assets, determining goals, and knowing rights are the crucial steps to maintaining, managing, and securely developing an estate plan for the proper disposition of digital assets.
In its current developmental stage, estate planning for digital assets is being done through wills, trusts, and online digital estate planning services. This section explores these three methods of transferring digital assets and discusses their individual shortcomings.
Through the use of traditional wills, individuals may express their intentions and plan for disposition of their assets. However, disposition and transfer of digital assets through wills can be problematic, as briefly mentioned earlier. Given that the average number of specific digital assets per individual is nearly 3,000 files, providing identification and access to all of these assets can be overwhelming. Due to the continuing growth and the changing nature of the digital assets, the will provisions may become quickly outdated. The speed of the digital world seems to outpace these traditional estate planning tools, as passwords and access information can change daily, requiring constant updates to the will. Although the digital property may belong to the decedent, the third-party user agreements and term-and-condition contracts may limit or completely block a beneficiary’s right of access to the decedent’s digital assets. In addition, wills may become a public document upon the decedent’s death; therefore, security and privacy aspects of the transfer of digital assets may be compromised.
Trusts can alleviate some of the above-described concerns. Trusts provide for a more secure transfer of digital assets than wills because trust documents do not become public. Thus, key private information regarding passwords, accounts, and contents remain out of the public eye. Further, the law permits individuals to transfer digital assets into a trust while maintaining control and use of the assets for the remainder of the individual’s life. Sometimes, the trusts are subject to more relaxed formation requirements than wills, allowing for easier creation and modification. As such, trusts can more easily adapt to the changing nature of digital assets. However, very few people actually set up trusts specifically designed for digital estate planning. Although both wills and trusts can transfer digital assets from the decedent to the beneficiaries, they are becoming a tool of the past due to the speed of today’s technology. In response, several online estate planning services have developed in order to facilitate one’s digital asset planning needs. These services are designed to specifically address the digital management, location, and confidentiality of one’s digital assets during an individual’s lifetime.
As such, these digital estate planning services have latched onto the lucrative digital asset management industry—anticipated to be a $1 billion industry in 2013. While these online digital estate planning services offer a degree of efficiency that is unmatched by traditional estate planning techniques—enabling individuals to update, manage, and track their digital assets on demand—serious concerns exist regarding their reliability and sustainability as estate management tools. For example, while digital estate planning services claim to provide exceptional account security, caution is nonetheless warranted because, not unlike a traditional bank vault, these services create a large repository of wealth and property, rendering them prime targets for cybercrime and theft.
Additionally, these digital estate planning services are not regulated and are often not run by attorneys, creating concern as to who is being entrusted with the individual’s passwords, assets, and information.
Finally, there are serious stability concerns as to the continued existence of online digital estate services, as these services are relatively new and turnover in the industry has been significant. However, digital estate planning services such as Eterniam, a Seattle, Washington-based company, are beginning to realize the importance of establishing trust with clients by stressing their commitment to security, privacy, and long-term stability. Estate planning ultimately should not be a short-term solution, but rather should provide lasting peace of mind and planning options to an individual testator.