You may have planned for your loved ones to eventually inherit your house, the Steinway grand piano, your dad’s 88-year-old Swiss watch, or other family heirlooms, but with life increasingly being lived online, you may be overlooking an increasingly important kind of property: digital assets.
If your estate plan doesn’t account for digital assets properly, your heirs may not be able to gain access to them. Family photos and videos could be lost forever, social media accounts could stay online long after you’ve passed, and your heirs may not receive all the money that you’d like to leave them.
It has become the norm to store financial records in smartphones, computers, or the cloud, and to conduct financial transactions electronically. In addition to email and social media accounts, most people also own a trove of digital assets, which can include:
Bitcoin, ether, and other cryptocurrencies
Non-fungible tokens (NFTs)
Domain names for websites
Digital photos and videos
Digital rights to literary, musical composition, motion picture, or theatrical works
Digital accounts in an online betting account
Blog content
Online video channels where the content is monetized and producing an advertising revenue stream for its owner
Online gaming avatars that offer online goods or services that may be worth real-world money
The upshot: Accounting for digital property in your estate plan has become essential. Fortunately, it’s relatively simple to do.
Obstacles to digital access:
From a legal point of view, digital property is like other kinds of property because it can be passed on to designated parties through estate plans. Yet the laws regarding digital property are still evolving, as are the practices of social media sites and online search engines. For these and other reasons, gaining access to digital assets, and to digitally encoded financial information, can present challenges for anyone other than the original owner. In general, there are 4 main obstacles faced by family members of someone who has recently died when trying to access the decedent’s digital assets and vital personal information:
Passwords. If family members don’t know your passwords, keys, or other requisite access credentials, they may not be able to access information or property stored in your smartphone, computer, online accounts, or the cloud. Some passwords, such as the one you enter to log in to your laptop or tablet, may be easy for experts to bypass; others are more difficult to bypass—and some are practically impossible. An example: Crypto or NFTs stored in a crypto wallet. Losing the password and private key to your digital wallet may mean losing access to your crypto forever, as there is no central customer service team.
Data encryption. Digitally stored data may be encrypted, adding another layer of protection. Encryption can scramble data in a particular location—in a single file, on a device, or in the cloud—so thoroughly that it is practically impossible for anyone without the proper passcode to unscramble it.
Criminal laws. Laws on both state and federal levels prohibit unauthorized access to computer systems and private personal data. These laws serve to protect consumers against fraud and identity theft, but they also may create virtually insurmountable obstacles for family members trying to gain access to the digital assets and information of a deceased loved one. The law is evolving to keep up with the rapidly changing online world, but much in this area is still unclear. For that reason, it’s essential to ensure that your estate plan gives your fiduciaries the authorization they need to access any necessary digital data.
Data privacy laws. Generally, federal data privacy laws prohibit online account service providers from turning over the contents of your electronic communications to anyone other than the owner without the owner’s lawful consent. That means social media sites or other companies may lock up your content unless you give express permission for others to access it. That might leave your heirs unable to gain access to photos, email messages, or other information stored in the cloud. Fighting for that access in court probably would be cost prohibitive.
Make your estate plan digital-savvy:
Fortunately, you can avoid these obstacles relatively easily by addressing digital property and information in your estate plan. By planning ahead, you can arrange for full access to your digital property, keep administration costs down, and ensure that no valuable or significant digital property is overlooked. Consider taking the following 3 steps:
Make a list. Start by listing your digital assets so your loved ones know what you have and where they can find it. Include all your important passwords, online accounts (including email and social media accounts) and digital property (including domain names, virtual currency, and money transfer apps). Store your list in a secure location and make sure your family members know how to access it. Avoid storing keys and passwords for crypto and other virtual currencies digitally, as this can help reduce the chances of digital theft. Also note that when hackers hack into a bank account or a brokerage account, the institution may have insurance or protection; but if someone hacks into your crypto wallet, there may be no recourse for getting your money back. Be extra safe where you store your crypto passwords. Tip: For non-crypto assets, inexpensive password management apps such can help. In fact, you may have all your passwords stored on your preferred browser on your computer or phone. Letting someone know the password to your computer and phone provides them with access to all of your online passwords.
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. There may also be limitations restricting the number of times you can burn the music to a CD. Tip: Check the terms of agreement for vendors of music or other digital assets to see whether they sell the asset itself or simply a license to it.
Provide consent in legal documents. At Wood Law, Wills & Trusts, our documents include language giving lawful consent for providers to divulge the contents of your electronic communications to the appropriate people.
Since digital assets are still a relatively new phenomenon, the laws that deal with them are changing rapidly. Some websites like google and facebook allow you to name a successor to your accounts. Apple also recently launched a process to name a “legacy contact” you trust to gain access to your apple devices (we wrote a newsletter about this last year). If you have any questions regarding planning for your digital assets, please don’t hesitate to contact me!
-Adapted from the original article which can be found at https://www.fidelity.com/viewpoints/wealth-management/estate-planning-for-digital-assets