Will Meets the Web - Estate Planning for Digital Assets

Will Meets the Web – Estate Planning for Digital Assets

Will Meets the Web – Estate Planning for Digital Assets

Federal and State Legislation Trail Real-World Use of Digital Assets, Potentially Increasing the Difficulty of Identifying and Conserving These Assets for Heirs and Beneficiaries

Historically, we all have viewed personal property as falling into two major categories: tangible items (ones you can see or hold), and intangible items (ones that lack a physical presence). Recently, a new sub-division in personal property has emerged that many label as "digital assets." There is no real consensus about the property category in which many digital assets belong, as they can "switch" from one form to another, such as by printing. While most estate planning attorneys have perfected techniques used to transfer types of property that have been around for a long time, they have not yet figured out how to address the disposition of digital assets. It is important to understand digital assets and to incorporate the disposition of them into clients' estate plans.

Compared with traditional types of property, digital assets may have four additional, significant obstacles for fiduciaries and family members to overcome: 1) passwords, 2) data encryption, 3) criminal laws regarding unauthorized access to computers, and 4) data privacy laws. These obstacles can make it practically impossible for fiduciaries and family members to access your digital property if you don't plan ahead.

Types of Digital Assets

The term "digital asset" does not have a well-established definition as the pace of technology is faster than the law can adapt. One of the best definitions is found in a proposed statute in Oregon, which states as follows:

"Digital assets" means text, images, multi-media information or personal property stored in a digital format, whether stored on a server, computer or other electronic device which currently exists or may exist as technology develops, and regardless of the ownership of the physical device upon the digital asset is stored. Digital assets include, without limitation, any words, characters, codes or contractual rights necessary to access the digital assets.

Digital assets can be classified in numerous ways, and the types of property and accounts are constantly changing. (For instance, a decade ago, who could have imagined Facebook and how Facebook works? Who can imagine what might replace Facebook in the next few decades?) People may accumulate different categories of digital assets: personal, social media, financial and business. An individual may also have a license or property ownership interest in the asset. Although there is some overlap, of course, clients may need to make different plans for each.

Importance of Planning for Digital Assets

Planning for digital assets serves a variety of purposes.

First, to make things easier on executors and family members. When individuals are prudent about their online life, they have many different usernames and passwords for their accounts. This is the only way to secure identities, but this devotion to protecting sensitive personal information can wreak havoc on families upon incapacity or death. Furthermore, sorting through a decedent’s online life for the important things can be just as daunting as cleaning out the house of a hoarder.

To make matters worse, the rights of executors, agents, guardians and beneficiaries with regard to digital assets are unclear.

Second, to prevent identity theft. In addition to needing access to online accounts for personal reasons and closing probate, family members need this information quickly so that the decedent’s identity is not stolen. Until authorities update their databases regarding a new death, criminals can open credit cards, apply for jobs and get state identification cards under a dead person's name.

Third, to prevent financial losses to the estate. The reasons for planning include several areas, including bill payment, domain names, encrypted files and virtual property.

Fourth, to avoid losing the decedent’s personal story. Many digital assets are not inherently invaluable, but they are valuable to family members who extract meaning from what the deceased leaves behind. Historically, people kept special pictures, letters and journals in shoe boxes or albums for future heirs. Today, this material is stored on computers or online and is often never printed. Personal blogs and Twitter feeds have replaced physical diaries, and email messages have replaced letters. Without alerting family members that these assets exist and without telling them how to get access to them, the story of the life of the deceased may be lost forever. This is not only a tragedy for family members, but also possibly for future historians who are losing pieces of history in the digital abyss.

Fifth, to prevent unwanted secrets from being discovered. Sometimes, people do not want their loved ones discovering private emails, documents or other electronic material. They may contain hurtful secrets, politically incorrect jokes, and stories or personal rantings. The decedent may have a collection of adult recreational material (i.e., porn) that he or she would not want others to know had been accumulated. Without designating the appropriate people to take care of electronically stored materials, the wrong person may come across this type of information and use it in an inappropriate or embarrassing manner.

Sixth, to prepare for an increasingly information-drenched culture. Although the principal concern today appears to be the disposition of social media and email contents, the importance of planning for digital assets will increase each day. Online information will continue to spread out across a growing array of flash drives, smartphones and tablets, and will be more difficult to locate and accumulate. As people invest more information about their activities, health and collective experiences into digital media, the legacies of digital lives grow increasingly important.

How Should You Plan Ahead

First, make a list of your important passwords, online accounts and digital property, and specify what should be done with each of them on your list if you become incapacitated or after you die. Keep your list up-to-date, store it in a secure location, and let your fiduciaries and family members know how to access it. For your convenience, I have created a digital audit form in my June 29, 2016, Penning Group eNewsletter, that may be downloaded and completed. Click this link to download the forms.

Second, if you store valuable or significant digital property in “the cloud,” back up your data to a local computer or local storage device on a regular basis. Fiduciaries and family members can access a local computer or local storage device without the obstacles that may prevent them from accessing your data stored in online accounts.

Third, work with an estate planning attorney to update your Will, Power of Attorney and Revocable Living Trust to address digital property. Your estate planning documents should: 1) specify your wishes about the distribution or deletion of your digital property; 2) provide your consent to divulge the contents of your electronic communication to your fiduciaries; 3) authorize your fiduciaries to access your computing devices, storage devices, accounts and data; and 4) permit your fiduciaries to bypass, reset or recover your passwords on your computing devices and to decrypt your encrypted data, if desired. But, don't list your passwords in your Will, Power of Attorney or Revocable Living Trust documents – they are not secure. Rather, store your passwords securely and let your fiduciaries and family members know how to access them.