Home Management Have You Really Accounted For
All Your Client’s Digital Assets?
Have You Really Accounted For All Your Client’s Digital Assets?

Have You Really Accounted For
All Your Client’s Digital Assets?

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You are helping a client put together an estate plan. In response to your questions, the client has given you a list that includes intangible assets, personal assets and real property. In the past, that list may have contained everything you needed to develop a comprehensive estate plan. Not anymore. You and your client may have overlooked something important: digital assets.

 

What are digital assets?

The Internet has become an integral part of our lives. And its use is growing. The United States has over 286 million Internet users, which is approximately 88.5 percent of our population. This number grows by approximately one percent per year. If this trend continues, in just a couple of years, almost 100 percent of the United State’s population will be using the Internet.[1]

People are not just surfing the web looking for information. As a society we are quickly putting much of our life on the web. On any given day, there are close to two hundred billion emails sent, three billion Google searches, 500 million tweets, 1.6 billion Facebook users, 436 million Google + users, 304 million active Twitter users, and over 217 million photos uploaded to Instagram.[2] When using the web, individuals are storing personal information or creating content. In other words, they are producing or storing digital assets.

No one really agrees on how to define the term “digital asset.” There is not even agreement on what to call them.[3] The term includes Internet accounts, domain names, websites, and emails. Most agree that a digital asset is an electronic record in which you have a right or interest.[4] Note that the term does not include the underlying asset or liability. That is because most individuals acquire their right or interest in a digital asset through a license.[5]

Physical assets are hard enough to track down, i.e. lost will, real estate deeds, life insurance policy, so why must the estate planning community care about digital assets?

One reason: they have value.

 

The value in digital assets

Digital assets have both emotional and extrinsic value. It is true that much of what we put on the Internet—pictures, correspondence, and videos—records our day-to-day life and probably has little value to anyone else. But the loss of those items can be emotional devastating to those left behind.[6] You know those boxes in your attic with all those old photos that you and the family love to sit and go through? Those days will be gone soon and if you don’t have an inventory tool for where the next generation of photos reside they may be gone forever.

Many digital assets also have real world value. Internet businesses have value, but other things, do too. Domain names, virtual property, blogs, partnership programs—all these have real value as well. Domain names have sold for up to 13 million dollars.[7] Criminals have stolen Bitcoins.[8] Virtual property can be worth real money.[9] A recent survey found that one more follower on Twitter correlated with $1.514 US dollars more in salary for NBA players in 2013.[10]

Not having access to digital accounts can also be financially damaging. There have been cases where the death of a partner has left someone unable to access their bank accounts or pay their bills.[11] Consequently, they are dealing not only with the loss of a loved one, but also with real possibility they will be unable to meet their financial obligations.

Whether the digital asset has purely emotional or actual intrinsic value, the documentation of its location, how an agent, executor or trustee gains access to it and then helping ensure control over it is becoming a necessary part of most estate plans.

 

What happens to all this data when someone dies?

Providing for digital assets in estate plan can be complicated for three reasons: they are not automatically inheritable; they are difficult to identify; and they are difficult to access.

Unfortunately, the growth of the Internet and Internet use has outpaced the ability of federal and state governments to enact legislation to control it. Currently there is no certainty as to what will happen to an individual’s digital assets after they die. Everyone agrees that the information that individuals personally create on line for their own use–the content—is their property and, as such, in inheritable. However, the extent to which it is inheritable is at issue. The interaction between the user’s contractual license to create the material and what may be said to the user’s property rights with respect to the content is where much of the difficulty lies in the current law.[12]

Federal and state laws may impede any attempt by a fiduciary to access or manage digital property such that the fiduciary may risk civil or criminal liability.[13] Digital service providers attempt to protect themselves with terms of service and privacy policies that make access for fiduciaries difficult.[14] More important, most people do not make any provisions for their digital assets; they do not leave a list of their accounts or passwords. [15]

Complicating the matter further is that digital assets may come under the purview of many different areas of the law. The federal government has enacted legislation that imposes criminal or civil penalties for unauthorized access to digital assets.[16] In addition, contract law plays an important role as most individuals enter into a contract when they sign up for an online account. The terms of use clauses that license individuals to create digital content often include provisions that governs how and where disputes will be litigated.[17] Probate law must also be considered. When an individual dies, the laws of the state in which he or she is domiciled will be relevant.

 

Proposed legislation concerning digital assets

Several states have proposed statutes to help address the problem of digital assets. Few states have been able to get legislation passed. When they do enact legislation, it rarely contemplates the scope of digital assets. Often it only deals with the inheritability of email and social networking sites.[18] Others provide only for termination of all on-line accounts. [19] None fully address a fiduciary’s access or responsibilities with respect to digital assets.

In 2012 the Uniform Law Commission began working on a draft of legislation to tackle the void in existing law with respect to the role of fiduciaries in obtaining and distributing the digital assets of deceased and incapacitated individuals. They approved a final draft of the Uniform Fiduciary Access to Digital Assets Act (UFADAA) in 2014. The law attempted to give fiduciaries legal access to digital assets while leaving the existing law of contract, copyright, banking, agency, employment, privacy and trusts in place. Although 26 states introduced versions of the final draft act, only one passed a modified version.[20]

In response to intense opposition from the Internet industry as well as an inability to get the first draft enacted in more than one state, the Commission revised the act in 2015.[21] While the 2014 act gave fiduciaries blanket access to digital assets unless an individual opted out prior to death, the revised act changed this, requiring express authorization by an owner of his or her digital assets prior to death. As of this date, the revised act has been introduced in twenty-eight states and enacted in nine.[22]

The digital industry has also proposed an act, the Privacy Expectation Afterlife and Choices Act (PEAC). This act does not define digital assets but applies to content and electronic communication. It is an attempt by the digital industry to protect the privacy interest an individual has in digital assets. As of this date, it has been enacted in a modified form only in Virginia.[23] Unlike the original or modified UFADAA, PEAC grants access to accounts only upon the finding of a probate court.

As of this date, it is too early to know to what extent the revised UFADAA and PEAC will be accepted by the states and how it will impact estate planning.

 

Addressing digital assets in estate planning

The exponential growth of the Internet and the corresponding growth in digital assets and the uncertain state of the law make it more important than ever that estate attorneys and digital asset planners make individuals aware of the importance of providing for their digital assets. Proper preplanning will save the estate money as trying to gain access to online accounts post mortem can be complicated, time consuming and expensive.

Three elements must be considered when incorporating digital assets into estate planning: the location of the digital asset, the accessibility of the asset, and the ability to control the asset.

Location: Advise your client to catalogue digital assets. Some assets may be on personal electronics. Photographs, written communications, letters, these all may be stored on an individual’s personal computer or electronic devices. Others may be stored in the “cloud” on a server accessible only through the Internet.

Access: Create a list of how to access each digital asset. If the material is stored on personal electronics it may not be accessible. Most online accounts have passwords. If you do not have the password, do you have the right to attempt to “break it”? In the event that you cannot, do you have the right to demand the custodian to retrieve either the password or the information and give it to you?

Control: Keep the access list and the location list in more than one place. Urge the client to put complete beneficiary designation for digital assets in wills or trusts. When drafting these provisions remember that the language must establish the scope of authority granted by the individual as well as any privacy concerns or wishes.

Include beneficiary designations for digital assets in wills or trusts. When drafting provisions addressing digital assets, remember that the language must establish the scope of the authority granted by the individual as well as any privacy concerns or wishes.

Sometime in the 2060s or the 2130s Facebook will be a digital graveyard: there will be more dead people on Facebook than living.[24] Like it or not, we are part of a digital age. It is a lawyer’s responsibility to recognize that digital assets are inheritable property and help clients plan for their distribution.

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Richard Martin
Richard Martin
Rich Martin is the Founder of Directives Online and former VP of Business Development for Directive Communication Systems (DCS) which created a digital asset inventory tool for the estate planning market.

Directives Online offers emergency access to advance directives, healthcare Power of Attorney, HIPPA forms etc.. and a secure asset inventory tool so you can list and share critical asset and estate documents.

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