In many ways, recent digital technology advancements have made our lives exponentially easier and more convenient. But when it comes to estate planning, digital technology has introduced significant difficulties.
Indeed, if your estate plan does not properly address digital assets, there is a high risk that most of those assets will be permanently lost when you die. Without proper estate planning, finding and gaining access to your digital assets may be a huge hassle — or even impossible — for your loved ones in the event of your incapacity or death. And even if your loved ones have access to your digital assets, doing so may violate privacy laws or the terms of service for your accounts in certain instances. Additionally, you may have digital assets that you do not want your loved ones to inherit, in which case you will need to restrict or limit access to such assets.
There are some specific considerations to keep in mind when incorporating digital assets into your estate plan. We’ll discuss the most common types of digital assets and the applicable regulations, followed by some practical tips for properly accounting for, managing, and passing on your digital property in the case of incapacity or death.
Different Types of Digital Assets
A broad category of digital data and records that you keep in the cloud, on smartphones, mobile devices, or on your PC are included in digital assets.
In estate planning, your digital assets will usually fall into two categories: those with financial value and those with sentimental value, which may mean much more to the people you care about than the monetary value assets.
- Digital assets with financial value – Cryptocurrencies like Bitcoin, Ethereum, and online payments like PayPal, Venmo, and frequent flyer miles are all examples of digital assets having financial value. Other digital assets with financial value include domain names, websites, blogs, and intellectual property like pictures, movies, music, and writing that generate royalties. These assets are financially valuable to your loved ones, not only immediately after your death or incapacity but possibly for years to come.
- Digital assets with sentimental value – It includes email accounts, photos, videos, music, publications, social media profiles, applications, and websites or blogs with no revenue potential. This type of property typically won’t be of any monetary value, but it can offer real sentimental value and comfort for your family following your death and inform future generations in ways you may not have considered. Consider the possibility that future generations may benefit from your digital assets as a direct consequence of how you manage them in your estate plan.
Are You The Owner Or A Licensee Of The Asset?
You may have no idea how much of your digital assets you don’t really own. For example, if you own cryptocurrency or PayPal accounts, you may leave them to your heirs in a will or trust. You don’t really own anything when you buy digital content like Kindle e-books or iTunes music files; you only get the right to use it. In many instances, the license is non-transferable and only good for you and your household. To a large extent, whether or not you’re allowed to transfer this licensed material is determined by the Terms of Service Agreements (TOSA) you agreed to when you opened the account. Some TOSA limit account access to the original account holder exclusively, while others provide heirs or executors limited access under specific circumstances.
Verify your TOSA to determine whether you really own the asset or if you simply have a license to use it. Even if the asset is included in your estate plan and the TOSA says it is licensed rather than owned and provides no means of transferring your license, you will likely have no right to transfer it to anyone else.
If you’ve given loved ones your login and passwords, they may be able to access digital assets you’ve shared with them, but doing so may violate TOSA and/or the law. Your heirs will have to establish their legal right to access these accounts before they can do so lawfully, a procedure that was previously a major legal grey area. The good news is that most states now have legislation in place to make it clear how your digital assets will be handled if you die or become incapacitated.
The Digital Land’s Law
Before, no rules regulated who might access your digital assets if you were incapacitated or died until recently. As a consequence, if you pass away without leaving your usernames and passwords to your loved ones, the digital firms in charge of the platforms where your assets are stored will frequently erase your accounts or leave them in an inaccessible condition online for your family and friends.
As a result of this legal loophole, families attempting to collect the digital history of their departed loved ones have been left heartbroken, and the executors and trustees charged with cleaning up the estate have been left frustrated—leading to the loss of a staggering amount of both tangible and intangible wealth.
After the federal government eventually intervened to find a solution in 2012, the Uniform Law Commission passed the Uniform Fiduciary Access to Digital Access Act in 2014. (UFADAA). RUFADAA, an updated version of this legislation, was passed in 2015 and has been implemented in all but four states as of March 2021. The law lays out specific guidelines under which fiduciaries, such as executors and trustees, can access your digital assets. Using an online tool provided by the service provider or in your estate plan, you may give fiduciary access to your digital accounts if you die or become incapacitated.
The Act offers three tiers for prioritizing access:
- First-tier gives priority to the online service provider’s access-authorization tool when dealing with a decedent’s accounts. Use the “inactive account manager” feature on Google to specify who has access to and manages your account when you die away unexpectedly. A similar feature exists on Facebook, where you may select someone as a “Legacy Contact” who will be in charge of managing your personal page.
- The law’s second-tier gives precedence to directions provided by a decedent in their will, trust, power of attorney, or another document if an online tool is not readily accessible or if the decedent did not use it.
- Third-tier specifies that access shall be governed by the provider’s TOSA if there are no instructions provided.
In most states, if you utilize the provider’s online tool—if one is available—and/or include instructions in your estate plan, your digital assets should be accessible according to your desires under this legislation. However, you must leave detailed instructions for your fiduciary regarding how to access your accounts, including usernames and passwords, because, without this information, your executor or trustee will be unable to access, much less manage, your digital assets in the event of your death.
Create a Digital Asset Management Plan
The best way to make sure your digital assets are managed exactly as you want them to be when you die or become incapacitated is to leave specific instructions. In part two of this series, we’ll discuss the practical steps for properly including your digital assets in your estate plan.
Next week, we’ll continue with part two in this series, discussing the best ways to protect and preserve your digital assets using your estate plan. This article is a service of Greg Gordillo, Family Business Lawyer™. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death for yourself and the people you love. That’s why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love. You can begin by scheduling a Family Wealth Planning Session via our online scheduler and mention this article to find out how to get this $750 session at no charge.