Why you should keep track of your most critical digital assets

Why you should keep track of your most critical digital assets

Online assets reflect on a person’s wealth, estates, tax status and reputational value, being on top of them all is crucial in the digital age, writes Helen Cox

Blogs, vlogs, emails, domain names, cryptocurrencies, digital documents, digital photographs… the list goes on. Although we may not think of them as ‘assets’, over the past decade most of us have built up a significant collection of digital assets. For many, the value of these assets is simply sentimental – they host the modern day equivalent of diaries, journals and personal correspondence. But for high-profile individuals, these sentimental assets may also carry significant financial and reputational value. For others, their digital assets are income generating and essential to the success of a personal online business.

These digital assets need the same level of attention and management as any physical assets, particularly when it comes to estate planning.

When considering how to manage, protect or pass on your digital assets, you need to establish what digital assets you actually own. If you hold accounts through online providers, whether you ‘own’ or have the power to pass on those accounts will depend on the provider’s terms and conditions. For example, music accounts or eBooks are not commonly “owned” in the usual sense; instead the provider grants the user a licence for their lifelong use which expires on death.

Being cyber aware is key to safeguarding your digital assets during your lifetime. Ensuring that two factor authentication is switched on for your accounts will help to prevent hackers from accessing your data and assets. Further, more obvious points around being careful with online accounts when in an unsecured wifi hotspot and ensuring that your personal wireless router is not using out of date encryption software will also help to protect your digital assets.

If you hold digital assets personally which are crucial to your business, transferring them to a personal company may be a sensible option from a tax and succession planning perspective.

If your digital assets are a form of intellectual property, they may have automatic protection under copyright law, but you may also need to consider applying for protection (for example, registering names and logos as trade marks).

Unless guided to do so by their lawyers, most people are unlikely to consider including their digital assets in their will. However, if they are not specifically listed they will form part of the residue of your estate and will pass to whoever inherits the residue. This may be unintended and could cause potential problems if more than one person is entitled to the same digital asset.

In contrast, any digital assets held by your company will remain assets of the company post-death. Whoever inherits your shares will therefore inherit control of – or a stake in – the digital assets held by the company.

You should also ensure that the recipient can access any assets transferred to them. Consider creating a ‘digital assets log’, where you record and maintain a list of all digital assets held personally along with their account numbers and logins. Any such log should be kept in a safe, secure place away from your computer.

Whatever the value of your digital assets, these steps are easy to take and should help to protect both your digital assets during your lifetime and your digital legacy.

Helen Cox is a managing associate at Mishcon de Reya

Is Your Digital Life Ready for Your Death?

Article: Digital Estate Planning

Below is an abstract of Kathleen Farro’s recent article entitled, “The ‘Digital First Sale Doctrine:’ A Necessary Piece of the Digital Estate Planning Puzzle:”

As technology advances, the aspects of our lives that are played out in the digital realm, both personal and professional, are ever-increasing. We conduct our banking online, we communicate with friends, family and business associates via email and social networks, and we create original, creative works on internet-based applications. Our creative work, professional work, and practical communications that were once limited to oral communication and paper records are now captured, conveyed, and stored digitally. Trading tangible media for the digital realm has become commonplace. Some changes are as simple as the box of photographs stored in the closet that are being replaced by expansive online libraries of digital photographs. On a grander economic scale, for example, is the marketability of a celebrity persona that was once measured by his or her ability to promote products in a newspaper print ad or on a television commercial. Now, the number of people accessing that celebrity’s life, opinions and preferences in the digital realm can have an equal or greater financial effect.

While this evolution can have many advantages in our every day lives – making thinking, doing, communicating, and working – easier, quicker, more efficient, and less expensive, it can also jeopardize things that we may take for granted in our purely “tangible” life. The digital age may decrease our actual, human interactions and compromise our privacy. It may reduce what may be considered “our property” in the tangible world to something owned and controlled by others when carried out in the digital realm. Within the conversion to a digital world, our property rights, and thus our ability to convey and devise those to others, may, quite literally, get lost in translation.

The property rights we most frequently give up to carry on life in the digital realm are those that are carried out and promulgated within a framework of copyright-protected material. For example: email, Facebook, Twitter, and various “gaming” activities are copyright-protected.

For estate planners, these facts present hurdles to carrying out the wishes of those who desire to transfer some of their digital “property” to their loved ones, friends, or others either by devise or within an inter vivos trust. For example, a man may spend years building an iTunes library of music. At $0.99 to $1.29 a song, and likely more in the future, he may invest thousands of dollars over the years in this collection. Upon his death or disability, he may wish to transfer this library to his children. The current law does not allow this; the point at which he himself is unable to use the library, there is no way in which any party can lawfully utilize that song library.

This paper will examine the property rights individuals generally hold in copyrighted material and digital copyrighted material. It provides a thorough explanation of the First Sale Doctrine as applied to tangible media and the limitations on its applicability in the digital realm. It then goes on to explain Congress’s first attempt at incorporating digital media into the First Sale Doctrine in 1998 – what conclusions it drew and why Congress declined to update the doctrine. Between technological advancements, court cases in the U.S. and overseas, and various other legal principles and practices, there are now substantial policy bases for revisiting a “digital” First Sale Doctrine. The implementation of a digital First Sale Doctrine would have far-reaching effects; however, for our purposes, this doctrine would at least provide individuals with assurance that their digital property can be preserved to pass along to others.

 

Click here to view original web page at Article: Digital Estate Planning

Digital Files After Death, What Happens to Your Digital Legacy?

Dealing with Digital Assets in an Estate

The term “digital assets” is used in different ways by different people. In a broad sense, digital assets include all of the electronic “possessions” an individual may have, including emails, digital photos, videos, tweets, texts, songs and e-books, as well as online account information for websites or programs.

Digital assets have three distinct elements: a digital file or record, the right to use and a method of access. As part of the estate planning process, these elements should be addressed by the client and his or her lawyer to ensure that the executor will have all required information to access and administer the digital assets. Ideally, the client should prepare a memorandum of digital assets to catalogue all digital assets and services. This provides access to such information in a centralized location for the executor. The memorandum should express wishes with respect to how the assets should be handled after death. It is important to maintain tight security over such a list, but also to ensure that it is kept up-to-date and that the executor knows its location.

Executors often have questions on how to administer digital assets, which we address below.

Can access rights be passed on?

The difference between property rights which survive death and contractual rights which often do not survive death can result in a personal representative having a legal right to the files and information stored with a service provider, but having no enforceable right to access that information. Several U.S. states have passed laws providing executors or estate lawyers with powers to access digital assets but no similar laws have been enacted or proposed in Canada.

Access concerns highlight the value in taking appropriate planning steps to pass on access to one’s digital assets to executors or heirs.

When is an asset not an asset?

Some services provide the user with a limited licence to access the content in particular ways. For example, Apple’s iTunes service allows a user to use downloaded content on up to five authorized devices at a time, and allows each device to store content from up to five different accounts. Such licences are personal rights that expire when the user dies and therefore do not form part of the Estate.

While access to content may continue due to storage on a physical device or continued account access via password, there is no further legal right to the use of such content. In many cases, the licensor will have the ability to delete the account and content if it learns of the death of the user.

What is the “Unauthorized Use of Computer” offence?

Executors administering digital assets must also be aware of the Criminal Code offence relating to unauthorized and fraudulent computer use. Specifically, the Code provides that obtaining “any computer service” “fraudulently and without colour of right” is a criminal offence. “Computer service” includes data processing and the storage or retrieval of data. A Quebec court recently interpreted this offence to mean intentionally obtaining a computer service, while knowing that you are not authorized to do so.

It is unlikely that the Crown would pursue charges against a personal representative for accessing a deceased’s online account for bona fide estate purposes, even if such access was technically in violation of the terms of service. In particular, a personal representative who was left passwords and specific instructions from the deceased would have a defensible “colour of right” that should exclude the application of this provision. However, this provision has not been tested in the estate context and a personal representative uncertain about his or her rights to access a particular service is encouraged to seek specific legal advice before doing so.

How does Privacy Legislation apply?

Personal representatives should be aware of their rights to personal information of the deceased under privacy legislation, since privacy legislation may be raised by computer service providers to deny a personal representative access to the account of a deceased. Under the Personal Information Protection Act (British Columbia), the executor is specifically authorized to request personal information about the deceased, and information on how the deceased’s personal information has been used.

I am the executor faced with digital assets. How do I start?

  1. Identify. Ascertain and list all digital assets of the deceased. If there is a memorandum, this should be your starting point.
  2. Gain access to digital devices. Secure any devices and restrict access. Because the physical property and all the rights to it vest in you as the executor, you are within your rights to circumvent passwords and security measures if necessary in order to gain access.
  3. Gain access to digital assets. Where the deceased has left passwords for his or her online accounts, ensure that you can gain access. Where you do not have a username/password, there may be another way to request the information.
  4. Backup. Where possible and appropriate, make local backups of digital assets that may have financial or sentimental value.
  5. Inventory. List all digital assets for the purpose of accounting to beneficiaries.
  6. Digital assets having determinable value. Digital assets having realizable present or future financial value should be secured and their value ascertained for probate and accounting purposes. Determine whether the asset is to be transferred in kind to a beneficiary or if it should be prepared for sale.
  7. Personal and sentimental items. For personal and sentimental digital assets without determinable value, arrange for their transfer to the beneficiaries in accordance with the will or law. If these assets are of a personal nature, they may fall within the Will’s “articles” provisions.
  8. Personal information. Subject to instructions or wishes for dealing with personal information, the executor should protect the privacy of the deceased to the greatest degree possible.
  9. Liabilities. Determine any liabilities relating to digital accounts and pay them together with other estate liabilities.
  10. Close accounts. Attend to the orderly closing of accounts where all useful assets have been recovered and the account is of no further use.

We expect that the administration of digital assets as part of the Estate will continue to evolve as the methods of access, type of information, and value of the assets change over time. It is important that testators and executors ensure their planning and administration keep pace with the evolution.