Tag: digital legacy

INSIGHT: Supporting Your Clients’ Digital Legacy

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The proliferation of digital footprints in our online communities raise demand for consumer tools and options for dealing with digital assets upon incapacity and death. Is your business ready? Trust and estate practitioners (TEPs) Jennifer Zegel and Sharon Hartung say retain them while they’re living; make it easy for loved ones when they’re dead.

Since the mainstream adoption of the Internet, most consumers’ online relationships with retailers, financial institutions, and the government has skyrocketed. Many companies and institutions from household utilities to small entrepreneurs are encouraging, if not pushing, their clients to digital interactions enhancing convenience, brand loyalty, and the user experience. Online money management, bill payment, client communications, service or product ordering and fulfillment not only save administrative costs, but for businesses to remain competitive in the digital age, they are table stakes. All the while, consumers are amassing a broad new spectrum of digital assets with financial and sentimental value.

Over this past year, there was an unprecedented number of reports on the growing number of profiles of dead people lingering on social media platforms like Facebook. If you’re in the tech sector, or a business relying on the Internet, the burgeoning interest in consumer rights upon incapacity or death should be on your radar. It might appear as an isolated social media problem, but consumer estate planning questions will hit your business sooner than you realize, if they haven’t already. Despite the ease and convenience online activities offer individuals while they are living, things get complicated upon incapacity and death. Transferring a person’s digital life––assets, accounts, and identity while preserving a digital legacy after death is just not that simple, and the issues raised are relatively novel in uncharted territory.

Digital assets and why consumers should care about service provider engagement?

(Throughout this article we’ll refer to businesses and organizations that provide online services or hold digital assets as “service providers.”)

There are various definitions of digital assets depending on the global source cited. The U.S. definition, under the U.S. Uniform Law Commission’s model legislation (RUFADAA), digital assets are defined as “an electronic record in which an individual has a right or an interest. This term does not include an underlying asset or liability unless the asset or liability is itself an electronic record.” RUFADAA defines electronic, “as relating to technology or having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.” These definitions are intentionally broad to account for future expansion of this asset class. Digital assets are all of the data saved on computers and devices, information accounts, and communications managed online; however, devices, smartphones, and computers are not considered digital assets.

In consumer vernacular, digital photos; loyalty or reward points; access to online banking; unregulated crypto currencies; gaming tokens; cloud repositories; electronic books and music; social media accounts; loyalty programs; websites; trademarks; social media accounts and other digital assets associated with a monetary value that are maintained or managed online or electronically are considered digital assets. As with physical property and property rights, consumers will have wishes and expectations for their digital estates, and will want to define who gets their loyalty points or crypto assets after they are deceased, and whether or not they want their social media lives to carry on into perpetuity.

What is unique for consumers about digital assets upon incapacity and death?

Jurisdictionally there are a number of laws that could impact a user’s digital estate during life and death. Depending on the type of asset and its use will determine what happens to it upon the owner’s death. Fiduciary access laws outline what the executor or attorney is allowed to do with digital assets, and jurisdictional legislation can differ from one country to another. In the U.S., almost all the states have adopted a version of RUFADAA that defines what actions a fiduciary is permitted to take. Many people don’t realize that not all digital assets and accounts can be conveyed without pre-planning in advance of incapacity or death.

Digital assets, accessed or managed by an online provider, are subject to Terms of Service Agreements (TOSAs) that may limit the user’s right to transfer the asset or account. As of this writing, the majority of U.S. states have adopted a version of RUFADAA that provides a hierarchy for fiduciary access to digital assets: online tools (below defined), estate planning documents, and TOSAs. Regardless of jurisdictional laws and TOSAs, the implication for global businesses and online providers is that consumers, once more fully aware, will desire more options to maintain their digital assets and legacies. We further expect consumers will seek and expect the same spectrum of options for their digital assets that are available for traditional estate planning of physical assets.

Digital assets by their nature are virtual and may be difficult to find without a paper trail. There is a misconception that leaving passwords for the fiduciary is the simple solution, but passwords can’t convey important user wishes upon death. Consider what happened the last time you lost a password or got locked out of an account. Was it a time-consuming hassle to reset account access? Probably. However, the inconvenience experienced in regaining access will pale in comparison to the potential access problems likely to be suffered by your fiduciary (executor or agent). Unauthorized access, even with a password, could also be a breach of TOSAs or may be a violation of other laws, such as the U.S.’s Computer Fraud and Abuse Act, and the Stored Communications Act. In general, the lack of ability to share passwords and by implication the contravention of TOSAs is a global problem and major constraint to accessing most online accounts and digital assets after death, even by the decedent’s fiduciary.

As a result of these unique features of digital assets, clients and consumers will expect options and pre-planning tools for their digital assets and digital footprints. Addressing these new requirements can provide companies a competitive edge or brand advantage over the competition. If a consumer is presented the option of using a vendor that forces loyalty points to expire on death, or the provider that allows the selection of a beneficiary for accumulated points upon death—which business would you choose?

The unintended consequences of digital assets upon incapacity and death.

New heights of online convenience and competitive necessity is snowballing into explosive growth of digital assets creating the urgency for digital estate management similar to physical asset management. But, according to the AARP, less than 60% of Americans have a will. This statistic is similar in Canada at 50% and the UK at 54%. It will become common practice that when creating a general estate plan –– financial powers of attorney, wills, and trusts that you will also include provisions for a digital estate plan addressing digital assets, electronic communications, online accounts, and digital identities. Without an integrated estate plan, the estate could be left with the unintended consequence of the inability to close the estate in a timely manner or suffer a loss of assets.

A digital estate plan should contemplate and address access and/or disposition of the following:

• digital assets that have some form of exchange or financial value, such as loyalty points, travel rewards, cryptocurrency, gaming tokens, and the digital assets of a business;
• digital assets having sentimental value such as digitally stored photos and videos, cloud storage, and social media accounts; and
• privacy, cybersecurity, and risk concerns over digitally stored information and content, and the protection of digital identities at incapacity or death.

With heightened awareness of digital estate planning, consumers will demand more choices than what are currently available by service providers to pre-plan or address online access to digital assets and accounts after incapacity or death. For the few that do offer pre-planning, such as Facebook and Google, most consumers are either unaware or have not activated these choices. Facebook and Google offer Legacy Contact and Inactive Manager, respectively, which are online tools provided through their platforms to designate third-party account access or management, such as instructions for account deletion. Under the U.S. RUFADAA, an online tool is an agreement between the user and service provider, separate from the TOSA, that allows the user to authorize or not authorize a third party to access a user’s digital assets.

Options for third-party authorized access isn’t yet an industry priority. However, consumer demand amplified by social media will continue to grow and ultimately reshape the estate planning process and the death care industry. The death positive community (#deathpositive) is a movement spreading across many parts of the world aimed at reshaping the cultural taboo surrounding the discussion of death and death planning. Recently, Twitter announced they would shut down inactive accounts after six months, but after a raging tweet storm, they subsequently retracted their statement and instead will be looking at pre-planning options. According to a study out of Queen Mary School of Law Legal Studies (Beyond the Cloud Research Project), very few cloud providers have addressed in their TOSAs what happens to an account at the holder’s death, never mind addressing incapacity issues and the broader business community considerations in these matters.

Writ large: the tech industry needs to learn more about estate planning; and the estate planning community needs to learn more about tech.

CONCEPTS FOR DESIGN CONSIDERATION

Addressing digital assets as a strategic advantage

It’s likely to evolve to best practice that providers should offer pre-planning options allowing the account holder to direct instructions for their digital assets and online accounts upon incapacity and death.

To seed this discussion, we looked to several sources:

• providers currently offering pre-planning;
• emerging tech entrepreneurs;
• traditional estate planning constructs; and
• future tech and conjecture on their models to address pre-planning.

These ideas must be driven by consumer preferences and industry willingness to provide. But, consumers will have skin in the game: if these concepts are developed and offered, user engagement will be required for set-up; potentially with a price; and effort for integration with other estate planning. Any new concept requires testing and balancing with jurisdictional, legal, fiscal, risk, and other business constraints. Consider the following concepts as a starting point for this emerging requirement:

1. Updating Terms of Service Agreements or Terms of Use Agreements to address incapacity and death

Service providers, and businesses generally, should consider including terms and conditions that specify what will happen upon incapacity or death of the online account holder, or the owner of any digital assets held by the custodian, and if access will be granted to a fiduciary of the account holder in the absence of utilizing an online tool. Service providers should also analyze what happens to digital assets, accounts, and information (especially, personal and private information of an account holder) if the company ceases operations or if the account is inactive for an extended period of time. Further analysis on whether or not updates to TOSAs should also lead to reshaping policies on data privacy and storage of consumer information to comply with other jurisdictional laws, such as the European General Data Protection Regulation, or the California Consumer Privacy Act. Even if businesses may not currently be subject to such laws, as privacy and data protection laws spread to more jurisdictions, compliance will likely be required by more businesses.

2. Pre-planning tools and user selected options for online accounts

More service providers should consider incorporating online tools in their platforms to allow the original account owner more options and choices to pre-select what happens to the account or digital asset and/or who has access in the event of both incapacity and death. Just as you would expect for traditional estate planning, consumers may want to identify alternate individuals to have access to the accounts if the first choice is also deceased and/or incapacitated. Ideally, these options would also consider the specific differences between incapacity and death, and provide realistic timelines for a fiduciary to have access to digital accounts, assets, or information given the immediacy the fiduciary will need to access this information to meet the administration requirements of the fiduciary to manage the account holder’s assets upon incapacity or death.

Currently, some service providers offer a distinction between business and personal user accounts. Business user accounts often have additional functionality such as administrator access, third-party access and other constructs that facilitate business succession planning and multiple user access. Similar options or functions could be potentially extended to personal accounts.

3. Joint account ownership of online accounts

This concept would be similar to joint property ownership rights, where two or more people can sign up for an online account, such that when one of the owners die, the remaining members retain full access and rights to the contents of the account or digital asset. This is akin to owning other forms of property (real estate and bank accounts) as joint tenancy with rights of survivorship. This option, if permissible by service providers, would likely require each joint account holder to be assigned their own unique username and password to avoid issues stemming from sharing of passwords, impersonating a user, and unauthorized access issues. This type of option should also consider how to separate a joint account at a later point if the owners no longer want it to be joint.

4. Beneficiary designation(s) for online accounts

This concept is similar to the construct found with insurance policies, registered/non-registered plans, or pension plans held by clients where the account holder pre-selected a beneficiary as having rights to the digital asset or online account after death. A beneficiary designation is slightly akin to using an online tool to designate what happens to an account with a service provider. However, in the situation where the digital asset is not subject to TOSAs, having the ability to designate a beneficiary that is attached to the digital asset could streamline access and transfer of the asset.

A simple example would be building a beneficiary designation into options under consumer loyalty points or travel reward programs. A more complex example would be incorporating a beneficiary designation into the code of a smart contract. A smart contract is a legal agreement reduced to code using “if this, then that” statements. However, it is important to keep in mind that the rules of code and the rules of the law don’t always align and special care is needed to ensure assets transferred in this manner would still be subject to all the requisite income, estate, and inheritance taxes, or other transfer taxes.

5. Digital trusts

Another concept would be to allow for the creation of a trust relationship that is structured to allow for the transfer and management of online accounts and/or digital assets of an individual(s); or is created to be the recipient of online accounts and/or digital assets of an individual at incapacity or death. This type of structure today would likely be a violation of certain TOSAs, which would need to be analyzed and updated before accounts could be opened or moved into a digital trust. However, for digital assets not subject to TOSAs (or not in violation of them), this could be a great way to pass on digital assets and information to the designated beneficiaries of the trust in a streamlined and efficient manner. There are many ways this type of trust could be structured and an estate planning legal advisor (e.g., attorney) should be consulted in connection with this planning option.

6. A limited liability company to own digital assets and accounts

Using U.S. terminology, this would be similar to creating a trust to hold and manage digital assets, accounts, and information; an entity as opposed to a trust could be established for the same purpose. As mentioned above, some service providers offer business accounts that allow secure multiple users access. By creating such an entity, in theory, there wouldn’t be access issues if an account holder dies or becomes incapacitated since anyone authorized on behalf of the entity can access the account. The entity could be transferred or ownership interests changed without disrupting access to the assets. TOSAs would need to be analyzed and updated to allow for these kinds of accounts.

7. Custodian, commercial, or government recognized third-party services

We have already seen the emergence of tech entrepreneurs offering estate administration platforms. Described in a STEP Journal article called Bolster Your Digital Armoury, they are referred to as “Service Provider Digital Vaults” and “Smart Digital Vaults.” The general idea is these firms provide a pre-planning platform which offers functionality such as identifying digital assets, capturing wishes, documenting directives, all without the general need of account holder passwords. In some cases, they then offer administrative support services upon the incapacity and/or death of the account holder.

To illustrate other innovation we might see in the future, consider for example, the use of single sign-on (e.g., signing onto an account using your credentials to a third-party account). This is a popular method for accessing various online accounts through access authentication by an intermediary single provider. We expect to see similar approaches to consolidation of access and extensions to the digital estate planning space, such as signing up with one provider that manages estate planning options and choices across multiple providers. Similar in concept to outsourcing, these custodians, commercial or government recognized third-party services contemplate that service providers may not want to create their own options and services and would prefer to buy or procure that service. Further the end consumer may wish to set up and procure services in advance with one solution instead of dealing with multiple service providers.

8. Future estate tech

Innovative solutions are emerging but we’ve yet to see radical adaptation such as electronic wills on a blockchain, tokenization of assets, smart contracts, or smart wills that encapsulate probate processes.

BALANCE AND CONSTRAINT

Digital solutions need balance:

Within a business context all new concepts are moderated by less visible but equally important issues such as legal compliance, marketability, budgets, security, and privacy considerations. To complement the concepts offered above, here are some additional thoughts:

1. Jurisdictional laws

TOSAs and other pre-planning options will need to address and clarify which jurisdictional laws apply, and will need to consider highlighting or identifying processes for dealing with cross-jurisdictional issues or conflicts of law that will likely occur. Situations frequently arise where an account owner is in one jurisdiction, and situs of the business (provider or custodian) providing the online access or holding the digital asset is in another. Digital assets by their nature are often borderless and there is no uniformity or consistency in the treatment of digital assets from jurisdiction to jurisdiction in connection with legal access, transfer of property rights, and tax treatment. Privacy laws of varying jurisdictions may also need to be considered in establishing pre-planning options to ensure compliance with those laws which could impact other jurisdictions. Intellectual property rights laws may be involved with physical assets that have digital counterparts or associated digital assets.

2. Appointment conflict with fiduciary

If service providers or businesses include a pre-planning option to allow owners to appoint a third party to access the account or asset of the owner at death or incapacity, service providers should also highlight conflicts and consequences that may arise if the designated third party is different from any legally named fiduciary. In the U.S., information regarding the hierarchy of fiduciary access to digital assets under RUFADAA should also be provided if applicable, and if not, the laws that govern access should be made available. If the online tool offers options to appoint any individual who might not be the fiduciary, the service provider should also be given information about the potential conflict when the third party designated in the online tool is not the fiduciary appointed in a power of attorney, a will, or a beneficiary under the will.

3. Challenges dealing with the volume of online accounts and digital assets

The fact that consumers are accumulating a growing volume of online accounts and digital assets has already spawned tech solutions such as password managers, and in the estate planning space as mentioned above, digital and custodian vaults. Further, there are solution specific options emerging for certain types of digital assets such as unregulated cryptocurrencies. If you consider we’ve already seen account access move to single sign-on through intermediaries, the benefit for the client is the ability to manage a larger volume of unique usernames and passwords for a variety of accounts. Conceptually, we expect that similar solutions and creative options will also need to emerge to address the growing volume and differences among planning for consumer online accounts and digital assets.

4. Solutions and processes to deal with online accounts that provide access to underlying assets

A tricky area, but the best example is financial institutions that provide their clients online access to banking and money transfer services and functions. Fiduciaries should not be accessing these accounts using another person’s username and password and should go to the underlying institution with the proper document to address access. With the fiduciaries’ traditional role now frustrated with the lack of a paper trail and only a digital trail, financial institutions and insurance companies among others with underlying assets will need to consider how to address inquires for information and access. First, we expect that institutions will see a larger volume of fiduciaries on fishing expeditions looking for underlying assets of an incapacitated or deceased person. Secondly, the institution’s interaction with the named fiduciary will most likely require authentication; completion of forms and documentation; all which offer an opportunity for automation to reduce errors and improve processing times. We expect this will drive underlying asset providers to consider offering pre-onboarding processes and tools for named fiduciaries.

5. This is not an estate industry problem

All online and digital asset businesses will eventually need to address these client requirements for clarity upon incapacity and death. Considerations include estate industry cooperation, collaboration, or forums similar to other cross-industry or industry-specific groups established to address common challenges or interoperability. Minimally, what is required is consistency in terminology. Ideally there are industry forums or industry standard organizations that will result in the standardization of options and terms to reduce confusion and improve consumer adoption and compliance. These forums will also address where these solutions and options fit within the context of estate planning, as well as jurisdictional laws and rules. There will be a number of areas to address, such as user names; how does the account owner, and subsequently the fiduciary, prove that the account owner set up or held a specific account that is often identified by the username that may be different than the account owner’s legal name.

Many businesses have not given adequate consideration to how online accounts and digital assets will be handled upon a client’s incapacity and death. Consumers need to be more educated on the need for digital planning, and we have yet to see cases tested on jurisdictional laws that govern digital accounts and assets. There is an opportunity for businesses to lead in defining a new path for this space. In time, addressing these issues will be critical for online service providers as consumers’ digital footprints grow and the population ages. Consumers and their beneficiaries will expect the same spectrum of options they are accustomed to for physical assets and will not be quiet about the inability for their fiduciary to transfer and access their digital assets and accounts upon incapacity and death, and will likely take to social media to express their displeasure with the lack of available options.

The opportunity, in the short term, is for businesses to engage clients in a conversation about what planning options they would like for their digital assets and accounts. Just like other criteria a consumer considers when deciding which company to do business with, the preservation of either financial or sentimental value of their digital assets and accounts will factor into decision making. As we’ve seen in other industries, there is an opening for businesses and organizations to partner and collaborate in defining common terms, developing standards, and optimally the synchronization of options to reduce cost across the entire estate industry. There is also an opportunity to define and differentiate competitive advantage, get engaged, and lead on the topic of digital estate pre-planning before someone else does.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Sharon Hartung, Captain (Ret’d) Royal Canadian Air Force, TEP, is the founder and principal of Your Digital Undertaker and has over 30 years of experience in IT management, project management and consulting. She is the author of the recently published Your Digital Undertaker — Exploring Death in the Digital Age in Canada. Sharon is a Society of Trust and Estate Practitioners (STEP) member and committee member of the STEP Global Digital Assets Special Interest Group. Sharon is reachable at www.yourdigitalundertaker.ca, and Twitter @UndertakerTech.

Jennifer L. Zegel, Esquire, LL.M., is the Practice Leader of Kleinbard LLC’s Trusts and Estates Group. Jennifer maintains a traditional estates and trusts practice but is unique in that she has a special focus in estate and business planning and the estate administration of digital assets, a fast growing and increasingly complex area. Jennifer co-created the Digital Planning Podcast (DPP), which is dedicated to exploring all things digital in connection with estate planning, business planning, and estate administration. Jennifer is a Society of Trust and Estate Practitioners (STEP) member and committee member of the STEP Global Digital Assets Special Interest Group. For more information on Jennifer, The Digital Planning Podcast, and Kleinbard LLC visit the Firm’s website at www.kleinbard.com.

Disclaimer: The intent of information provided in this article is to encourage individuals, businesses and organizations to consider the importance of digital assets in the context of a will, estate planning and estate administration. The authors do not warrant or guarantee the accuracy or currency of the information provided herein. The laws in a jurisdiction change and are potentially different than what was presented here. The authors are not providing advice, and you are encouraged to seek qualified professional advice authorized in your jurisdiction for your sp