In previous estate planning articles, I covered the basics of estate planning, how trusts can reduce estate taxes, how to incorporate charitable giving into an estate plan, and the importance of writing a letter of instruction.
Here I will describe the digital estate plan. You will learn the meaning of “digital assets”, how a digital estate plan fits into your broader estate plan, and what steps to take to put your plan into practice.
Digital assets and the laws governing them are something of a new frontier in estate planning. It’s possible that by the time you read this article laws will have changed, definitions will have expanded or both. Think about this as the first step in an ongoing process between you and your advisors.
What are digital assets and why is planning important?
As the world has become more digitized, so have our assets. Not too long ago, families recorded memories with photo albums. Today, most photographs exist on a computer hard drive or in the cloud. Our consumption of music has also changed dramatically. A trip to the mall to buy your favorite artist’s new album is now a click of the mouse. Providers like iTunes and Spotify are now the dominant means by which we consume music. The ways in which we communicate with others, access important information and even file our taxes have all radically changed because of the digitization of society.
We must first begin with a definition of “digital assets.” I will borrow from The Revised Uniform Fiduciary Access to Digital Assets Act (“RUFADAA”), which defines digital assets as “an electronic record in which an individual has a right or interest.” Here is a list of potential digital assets (what qualifies as a digital asset depends on your state – more on that later).
Digital assets
- Email accounts
- Social media profiles
- Digital media (photos, videos, music, etc.)
- Cryptocurrency
- Subscriptions and memberships (iTunes, Spotify, newsletters, periodicals)
- Personal documents and files stored in electronic format
- Electronic financial information such as online bank and investment accounts (NOTE – the online access to bank and investments accounts is a digital asset, but the underlying financial assets are not).
- Rewards programs/Frequent flyer miles
Some digital assets will have monetary value, such as cryptocurrencies. Others will primarily have sentimental value, such as photos and social media accounts. Suffice to say that everyone today owns digital assets and planning for these assets in the event of death or disability is important.
What are the risks of not planning?
- Financial loss. Assets with monetary value, such as cryptocurrency or nonfungible tokens, could be lost forever if your executor or trustee cannot access them. Failure to plan for digital assets can lead to other types of losses. If your trusted advisor is unaware of an expensive membership or subscription and fails to cancel it in a timely manner, your estate will continue to pay for them.
- Lost memories. If loved ones cannot access digital photos and videos stored in the cloud or on a personal device, those memories could be lost forever. This is the digital equivalent of your family photo albums being destroyed in a fire.
- Legal issues. If you do not plan for your digital assets, you may create legal problems for your heirs. Unaccounted for assets may require a lengthy and potentially expensive probate process.
Everyone owns digital assets and failing to plan for them carries significant risks. As a result, you should strongly consider a digital estate plan.
I already have an estate plan. What is a digital estate plan?
In my previous basics of estate planning article, I described the standard set of documents that goes into an estate plan. Where does the digital estate plan fit in?
If we take an expansive definition of “property” to include digital assets, then a digital estate plan is simply:
A set of instructions for accessing and managing a person’s digital assets after they are deceased or unable to manage their own affairs.
A digital estate plan is not separate from but part of a holistic estate plan. The instructions you leave will govern the disposition of your digital assets after you pass away. If you fail to leave instructions, state law or a company’s terms of service will make those important decisions for you.
How do I get started with creating a digital estate plan?
Start by speaking with your estate attorney. Ideally, they have a process to collect your information and preferences and incorporate them into your existing plan. State law differs substantially among jurisdictions, and your attorney can provide useful advice on how best to meet your goals. If you do not have an attorney or want to start before meeting with them, consider the following.
Step 1. Create a digital asset inventory.
If you do not know what you own, how can your executor or trustee? Accounting for your digital assets is similar to making an inventory of your assets and liabilities in a letter of instruction. Create a list of your digital assets and for each one record the information your trusted contact needs to gain access. This list should include websites, usernames and passwords.
Creating and maintaining this list is perhaps the most difficult step in the planning process. We add new digital assets over time, and we change the ways we access those assets, in the form of updated passwords, dual factor authentication, etc. Consider one of the following approaches.
- Maintain a master list. You may already have a physical notepad or an online document which lists your various services and their respective usernames and passwords. If properly secured and regularly updated, this can be an invaluable resource for your trusted advisor in the future.
- Choose a prebuilt template. An online search for “digital assets inventory” yields many results. Find a template that matches your needs. The Society of Trust and Estate Practitioners has a detailed worksheet on their website here.
- Use a password manager. With a professional password manager, you save your most important credentials to a secure, encrypted vault. Some popular providers include 1Password, LastPass, NordPass, and RoboForm. When used properly, users are more likely to keep their digital asset inventory and access information up to date. Some programs allow users to share access with trusted persons. Others allow access in an emergency, such as death or disability.
No approach is without risks. The goal is to choose the approach that works best for you, balancing the need to protect valuable information with sharing that information when necessary.
Step 2. Decide how you would like your assets managed in the future.
For each of your assets, decide how you would like them to be treated when you are gone. Some decisions will be simple, like cancelling a subscription after you are gone. Others require more planning.
Social media accounts can be hugely valuable. If you were an early adopter of Facebook or Gmail, you would have twenty years of your data online. Some companies make it easy for users to choose what to do with their data after death. For example:
- Facebook’s “Memorialization” feature lets you choose what happens to your Facebook account after you die. You can choose to delete your account or to memorialize it. With memorialized accounts, the word “Remembering” will show up next to your profile picture. All prior content will continue to be shared, e.g. photos, posts, and, depending on your privacy settings, friends can continue to share memories on your memorialized timeline. Memorialized accounts cannot be changed unless you’ve designated a “legacy contact”. More information here.
- Google’s “Inactive Account Manager” gives users the option to choose who to share information with in the event of death. You can choose up to ten people and what type of information to share, e.g. email, calendar, contacts, photos. More information here.
Other providers are more restrictive. For example, Yahoo’s Terms of Service state that accounts are non-transferrable, even when an account owner dies. Your survivors could request Yahoo closes your account – they’ll need a copy of a death certificate – but there is no way to transfer your data to a loved one unless you give them access to your account.
It will take some time to figure out the various ways your current providers support (or prohibit) transferring or deleting data. But if you do not figure it out beforehand, your heirs may be left at the mercy of state law or restrictive Terms of Service. A good attorney will be able to help you understand your options.
Step 3 – Designate a digital executor or trustee.
Identify a trusted friend or family member to manage your digital assets if you are unable to do so. This person should possess the technical know-how to carry out your wishes.
Make sure your designee understands and accepts their role. You should give this person access (either now or in the future) to your digital assets inventory so they know where to find your property and what to do with it in the future
Step 4 – Formalize your digital estate plan.
After you have organized your digital estate and put together your team, it is time to formalize your plan. It is imperative to work with a professional to make sure your digital estate plan works as intended.
Every will, trust and power of attorney should include rules about access to digital assets. Most states have enacted some form of the Revised Uniform Fiduciary Access to Digital Assets Act, which I mentioned earlier. “Uniform”, in this case, does not mean standardized. State legislatures can pick and choose which sections to implement. A good attorney can help you implement a plan that meets your goals and satisfies your state’s requirements.
As it is with your estate plan, starting early is imperative. Hopefully some of the recommendations here can help you take the first step.
Photo by Markus Spiske on Unsplash