Estate Planning for Digital Assets

We moved rapidly from a paper to a digital business and financial world. Digital assets and transactions probably are a bigger part of your life than you realize, even when you think you don’t use much technology. The digital world needs to be in your Estate Planning strategy, otherwise the cost and time involved in settling your estate could increase significantly. Assets could be lost; bills could go unpaid; and your estate and loved ones could incur additional and unnecessary costs.

Digital assets fall into several categories. First, there is the hardware, such as computers, smartphones, and tablet computers. There are personal accounts such as email, text messaging, social media (Facebook, Twitter, Google+), and sites where you might store or post photos, videos, and similar items. You might have subscribed to or registered at other types of web sites.

Investment and bank accounts of course are important to your estate planning. Related to them are automatic payment transactions that you’ve authorized. These could be drafts from one of your accounts or charges to a credit card. Financial accounts and transactions present the most problems for estate executors. Many people no longer receive paper account statements or bills, making it difficult for an executor to know what a person owns and owes. They’re surprised when something appears in regular mail or an email revealing a new financial account or transaction.

You also could own digital assets with value, such as a blog or web site that generates revenue from advertising or other means. You should treat this the same way as any other asset. Include it in your will, decide who will acquire ownership rights to it, and give any specific directions about how it should be managed.

Here’s a surprise to many. You might have purchased books, software, songs, or other items online, through sites such as Amazon.com and iTunes. These sites usually allow you to download the products to different devices for an extended or unlimited period. But under most of the agreements, or terms of service, you don’t own anything. You purchased a license to use the item. But you don’t own assets that you legally can transfer through your will the way you can with a physical book or recording.

The first thing you have to do is make an inventory of your digital life. For many people this will take some time, because there are transactions that occur as seldom as once a year and assets or accounts you use infrequently.

Your inventory should have full information about each item. Include any web site addresses, instructions for how to login or access your account, usernames, passwords, and any security questions and answers. If there’s an account number, include that.

Most important: Once you create the inventory, keep it updated.

Many estate planning specialists recommend first creating the inventory in an electronic file, such as in a word processing or spreadsheet file. Keep the file encrypted. Periodically transfer the file to a flash drive or similar device and keep it in a secure, fireproof safe or a safe deposit box. Alternatives are to post the file online to a service such as DropBox or in a secure part of your own web site, though security isn’t optimum. Some people go old school, recording their digital access information on paper or in a spiral notebook.

Some web sites offer online storage of passwords, such as LastPass.com and KeePass.com. A problem is that these sites could close or change their terms at any time.

After the inventory, turn to your estate planning.

Your will should include a clause that allows your executor to access any online accounts or other assets you have and holds harmless any online service provider who allows or doesn’t prevent the access.

Another step is to create a digital power of attorney. This empowers someone to receive your access information from online account hosts. That’s especially helpful if you overlook a site when compiling your inventory or neglect to note new access information. It isn’t assured that each web site will honor the power of attorney or will, but it helps to have the authorization in place.

Also, leave your executor advice and instructions on how to deal with the various digital assets, accounts, and transactions you have. This would be separate from your will, perhaps as part of a letter of instructions.

Unfortunately, the law is way behind the real world in this area, as are most terms of service agreements. It’s a crime under federal law to gain unauthorized access to an online account. Only seven states have laws permitting executors or other fiduciaries to access online accounts, and some of them are very limited. Under many terms of service agreements, any access by someone other than the original account owner isn’t authorized, even with your written permission. You might not realize that, but you agreed to it when you clicked that you agree with the terms of service.

Google has an option it calls Inactive Account Manager. You direct Google to contact an individual and provide access to your account if you haven’t accessed it for a stated period. You click through about four screens to find it. Twitter says it will work with a person authorized to act for the estate to close or manage the account. Facebook prohibits access to a page once it learns someone is deceased. It will either close or memorialize the account (freezing it but allowing posting of messages).

This summer the Uniform Law Commission is expected to propose a bill that would give fiduciaries, such as executors and trustees, broad powers to deal with digital assets. After the ULC publishes the proposed bill, legislators in many states probably will propose it and perhaps enact it within the next few years. After your state enacts such a law, it will increase the power of your digital inventory, will language, and digital power of attorney.

In the meantime, your executor might be in something of a no man’s land. He or she is obligated to manage your affairs and wind down the estate, but accessing some of the accounts could violate the terms of service agreements or local law. You should make the job as easy as possible.

Most estate planning professionals now have stories of extreme and expensive estate planning steps heirs and executors had to go through to obtain access to email and other accounts. They had to hire computer experts to sift through a computer’s hard drive for access information or hack into an account. Everyone is better off if you create and maintain a list of your digital accounts and transactions, and how to access them.

RW June 2014.