Advances in technology have created a new form of property ownership in digital assets. Digital assets are now an integral part of most estates, but most people still overlook them when it comes to estate planning. While classic planning methods can alleviate most estate planning issues, digital assets present some unique complexities.
Broadly, digital assets are anything that an individual owns or has the right to use that is stored (or will be stored) electronically.
Some of the more common types of digital assets include:
Email accounts
Online banking or other financial accounts
Digital currency
Social media accounts
Photography, logos, illustrations, and other image files
Word documents, spreadsheets, presentations, and other text files
Music, movies and books
Personal or business blogs or websites
Payment services (e.g., PayPal)
Digital asset planning, within the context of estate planning in general, is at its "pioneer" stage, meaning there is a lot of uncertainty surrounding the issue. As this area of law develops, litigation is certain to arise, which will add guidance and possibly inspire more legislation on the matter.
In 2014, the Uniform Law Commission released the Uniform Fiduciary Access to Digital Assets Act (UFADAA) to set a federal standard for dealing with the problem of "media neutrality":
Fiduciaries are defined as personal representatives of an estate, guardians or conservators of a protected person's estate, agents granted power of attorney, and trustees.
If a fiduciary would be granted legal access to a tangible asset, the fiduciary would have access to a similar type of digital asset.
The account holder may, instead, instruct that a fiduciary have different access to a digital asset than a tangible asset.
The fiduciary will have the same duty to comply with the testator's instructions as they would with a tangible asset.
Privacy choices surrounding digital assets are deferred to the terms of the estate planning document, or online by an affirmative act separate from terms of service agreements. This allows testators to keep certain digital assets completely private if so desired.
It is important to remember that the UFADAA, like all ULC-approved acts, is not official law. However, once the commission adopts an act, state legislatures often follow suit. To date, 31 state legislatures have introduced UFADAA and 11 states have enacted it. Other states have enacted their own legislation to address this issue.
While the issues surrounding digital asset planning may not be completely settled, they are nevertheless a crucial part of any comprehensive estate plan. One reason is protection. Estate owners who do not provide executors with access to digital assets leave themselves vulnerable to identity theft. Executors with access can monitor and protect digital assets, as well as the identity of the account holder.
Service providers differ in their standards of granting access to executors. Some require letters testamentary while others grant access to anyone with the correct username and password. When account holders make careful inventory of their digital assets along with usernames and passwords, they should also take note of whether the information they have provided will give their personal representative access to their online accounts.
When a personal representative administers bank accounts, heirloom jewelry, or other tangible assets, the process is fairly straightforward. Digital assets (such as frequent flyer miles, automatic bill payment, and online subscriptions) require a bit more work. Account holders can streamline this process by leaving behind detailed instructions for accessing these accounts.
Whether the value of digital assets is sentimental or monetary, estate owners should carefully consider all of the items comprising their digital estate by:
Identifying digital assets owned and where they are stored.
Listing usernames and passwords for each account and keeping the list in a safe location with other estate planning documents.
Reviewing the list periodically—for most people, the number of digital assets grows over time and passwords change on a regular basis.
When an estate is opened in probate court, a judge issues letters testamentary, which grant the executor access to estate assets. For some digital assets, this same process may suffice to give the executor access. However, some internet service providers have more stringent requirements. Estate owners should be aware of each service provider’s policy for granting fiduciary access to digital assets at the account holder’s death or incapacity.
Estate owners should also consider the fact that some digital assets may require their fiduciary to have a certain level of familiarity with technology and the internet. This could affect their choice of executor.
Because of the special issues involved with digital assets, a will may not be the appropriate estate planning vehicle for their distribution. For example, some online services providers, as part of their terms of service agreement, prohibit a user to share their account username and password. If an executor breaches these agreements on behalf of an estate, legal problems can ensue. In these cases, one option may be to create a Digital Asset Protection Trust (DAP Trust).
Often, account holders do not have exclusive ownership of digital assets. The account holder may have a license to use the online account (which would expire at the death of the account holder), but the account itself may be owned by the service provider. Since testators cannot bequeath property that does not belong to them, DAP Trusts are revocable trusts that can hold the licenses themselves. While the beneficiaries still cannot control the license, they can enjoy the financial benefits of the license—ad revenue from a personal blog, for example.
It’s important to note that there have not yet been any legal cases involving DAP Trusts. Clients wishing to establish a DAP Trust should work with an attorney.
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