Digital Assets May Create Complications for Estate Planning
Historically, estate planning has been concerned with tangible assets, such as real estate and personal property, and intangible assets, such as securities and other investment assets. In the digital age, estate planning should also encompass another category of assets — digital assets.
Digital estate planning to-dos:
✔ Make a list of your digital assets and passwords so others know where to find them.
✔ Back up data stored in the cloud to a local computer or storage device.
✔ Work with an attorney to provide consent in legal documents.
It has become the norm to store financial records in smartphones, computers, or the cloud, and to conduct financial transactions electronically. Most people also own a trove of digital assets, which can include anything from domain names to electronically stored photos and videos to email and social media accounts.
The biggest challenge may be finding them after a death. If your family or named fiduciary isn’t aware that you have a Dropbox account, for example, then no one may ever look for it.
And even if someone knows you have a Facebook or an email account, it’s not accessible without knowing the user name and password. Leaving this information in a format that can be accessed easily after death will allow your survivors to at least begin to access those assets.
Unfortunately, that is only the first step. There are currently federal and state laws that may make it a criminal offense for anyone other than the account owner to access an account. This is true even if the owner gives another person permission to do so. There have only been a few notable cases addressing the issue of accessing a protected computer “without authorization” under the Computer Fraud and Abuse Act. The issue at stake in these cases is whether it is a crime for fiduciaries and family members to access a deceased or incapacitated person’s online accounts (essentially violating the web site’s Terms of Service contract or use policies).
The current laws were intended to penalize hackers and identity thieves, but they also catch others who have no criminal intent when accessing another’s account.
Moreover, the laws in general give the service providers the right to not give out information to anyone other than the account owner. These laws have made it difficult for fiduciaries to access these assets after a death.
Both service providers and the law are slowly catching up, however, with the rapid pace of our expanding digital footprint. By the end of 2017, it is expected that almost every state will have enacted some form of the Revised Uniform Fiduciary Access to Digital Assets Act.
The overall goal of RUFADAA is to allow for current account owners to request a service provider to give a chose fiduciary access either by (1) “opting in” through an online permission tool furnished by the service provider or (2) through one’s estate planning documents.
Any on-line permission tool will apply only on a provider-by-provider (account-by-account) basis, so you have to pick and choose which accounts where you want to grant access in advance. It’s also up to a service provider to actually provide the ability to opt-in. Currently, very few providers have these online tools (or have addressed this issue in their Terms of Service Agreements). Facebook’s “Legacy Contact Feature” is a notable and important exception. It’s an “opt-in” feature under Facebook’s Security Settings that allows a family member or friend to manage their Facebook account when they pass away.
For service providers that have incorporated the role of a fiduciary in accessing a user’s account, choosing such an “opt in provision” will override any provision of a power of attorney, will or trust. Absent an election on an online tool, a provision in an estate planning document will allow a fiduciary to “request access”. Without either, a fiduciary only may be able to get very limited access to certain information, if any, related to an electronic account.
Even with RUFADAA, the best that a fiduciary will be able to do is request access. If the service provider refuses to do so, it still may be necessary for the fiduciary to go to court and ask for an order directing the provider to comply with the request.
Given all of the tax law changes in recent years (and ones that may occur in the near future), it is likely that many of us should have our estate plans reviewed to ensure that our legal documents have kept up. For most, federal estate taxes are no longer an issue and older documents may have been drafted with language that no longer applies. Beyond taxes, however, most older estate planning documents (Wills and Powers of Attorney) likely still have not addressed the issue of digital assets and warrant a review on this basis.
ACM Wealth Digital Asset Action Plan
Make a list. You’ll be surprised at how many accounts (digital assets) you already have if you stop and take few minutes to make a list. Your user name/password cheat sheet is a good place to start. Include all your important passwords, online accounts (including email, social media, PayPal, etc.), and digital property (including domain names and virtual currency). Store your list in a secure location and make sure that trusted family members know how to access it.
Tip: Inexpensive password management apps can help simplify this effort.
Understand what you really own. There are instances where you may have thought you purchased a digital asset, but in fact you purchased a nontransferable license to use the asset. That’s the case when you buy music on iTunes®, according to the terms you agree to when you make the purchase. There may also be limitations restricting the number of times you can burn the music to a CD. These assets effectively die with you so there is nothing left for your heirs to access.
Tip: Check the terms of agreement for vendors of music or other digital assets to see whether it sells the asset itself or simply a license to it.
Back up data stored in the cloud. If you store any digital assets in the cloud (photos or videos or music or documents), back them up to a local computer or personal storage device (like a removable hard drive) on a regular basis so that family members and fiduciaries can access them with fewer obstacles. Some companies, like Facebook, make it easy and have a One-Click Download option to download all your data to a computer.
Tip: Don’t just rely on the cloud for backup. Also back up your data to a local computer or personal storage device.
Provide consent in legal documents. Work with an estate planning attorney to update your wills, powers of attorney, and any revocable living trusts. These should include language giving lawful consent for providers to divulge the contents of your electronic communications to the appropriate people. Consider this carefully as a blanket authorization may not be appropriate. You might not be comfortable making all of your digital assets accessible to all of your fiduciaries.
Tip: In your estate planning documents, specifically allow your fiduciaries to bypass, reset, or recover your passwords.
We will continue to follow this important planning issue and hope that you take some steps to address it yourself. Accounting for digital assets in your estate plan has become essential and the actions steps we recommend are relatively simple. If you have questions or if we can help guide you, then please contact your ACM Wealth Advisor.
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