Estate Planning For Digital Assets In 5 Steps

Increasingly, our lives are becoming digitized.

As a result, a bigger proportion of our net worth may be in our digital assets. Yet most of us don’t prepare wills (only 44% do) and if we do, we may not fully address these assets in our estate planning documents.

Estate planning for our digital assets follows a similar process as planning for the distribution of our physical assets but there are unique challenges. The legal landscape is still unsettled, outpaced by technological advances that produce a myriad of digital assets.

Take banking, for example. If we are doing our banking online exclusively, there is no paper trail for our loved ones to locate these accounts easily after we die. Getting access requires security questions and passwords that are readily available. Historically, we could find the latest financial statements to guide us to the assets at the bank.

Related Post: Guide to Estate Planning in 6 Steps

Creating A Plan for Digital Assets In 5 Steps

I will guide you through five steps so that your digital assets, those of value, monetary and/or sentimental, can be properly addressed for your loved ones.

The Internet of Things (IoT) is extending our connectivity in our homes, at work, and socially.

We are nearly all online using broadband, mobile and social media.

Take a look at how we use technology:

•  70% of US has  high speed broadband connections, largely in urban and suburban areas;
• 95% have a cellphone, with 77% owning a smartphone; and
• 70% are engaged in social media and social networking.
• We spend 3 hours and 28 minutes a day on our computers, tablets and smartphones but according to Nielsen, that mushrooms to more than 11 hours when we include watching, reading, listening and interacting.
• The typical person has 25 digital accounts, ranging from email to social media. Most (86%) of people commit their online passwords to memory.

As of 2013, a majority of US adults banked online per Pew Research, with 32% using their mobile phones.

In 2017, about half of US adults with bank accounts had used a mobile phone to access an account during the year according to the Federal Reserve Board’s Survey of Household Economic and Decisionmaking (SHED). 

The average person in the US has $55,000 worth of digital assets according to a 2011 McAfee survey.

We are not fully addressing digital assets in our estate planning documents.

Digital assets refers to different forms of content stored in a digital form. A digital estate consists of digital media rights that pay be passed on to our heirs. If we fail to plan, we may thwart our family’s ability to recover important photos, videos, or to pay your bills, after we pass away.

In the past when you died, an executor of your estate, or a personal representative if there wasn’t a will, would sift through your paper records and physical mail recently received by the deceased (known as decedent for legal purposes) to find bank accounts, insurance policies, bills, and such to determine monetary value.

Family members would also go through your assets at home or wherever  to find your physical objects like photos, phone book with your contacts, videos, letters, all in the search for items of sentimental value.

However,  a lot of that information may be in a digital form now. There may be years worth of data and it may be more difficult to find.

Then and Now….Finding Our Legacy Assets

In the days before the Internet, the family and the executor of the estate would likely have been granted access to the mail and the decedent’s home. However, the amount of information we now generate online, which is stored in cyberspace indefinitely has created significant privacy concerns.

If digital monetary and securities account ownership can’t be easily identified those assets may end up in the state treasuries as “unclaimed funds.” Not only can these valuable assets remain hidden, personal debts for the estate may rise as bills go unpaid. Dormant bank accounts are particularly vulnerable to identity theft.

Ajemian v Yahoo! A Major Court Battle

Gateways were erected to stall or prevent access to all types of online accounts by loved ones and their legal representatives.  Access to online accounts have become more restrictive due to legislation, leading to a lot of lawsuits. One major court case, Ajemian v Yahoo! reveals the difficulties families face when requesting access to emails.

John Ajemian had tragically died in 2006. He left a Yahoo! email account but no will or instructions for his account. Using privacy concerns, Yahoo refused the family access to their brother’s personal email. His siblings wanted to find information to invite friends to their brother’s memorial. Later, they sought access as a means to finding their brother’s assets.

A lengthy court battle was decided by the Supreme Judicial Court of Massachusetts in 2018. It held that personal representatives may provide lawful consent on a decedent’s behalf even in the absence of an express authorization in the decedent’s will.

Several social media companies, such as Facebook, have begun providing ways for account holders to create and provide access to legacy accounts after they die. Loved ones would be able look after the  “memoralized” account or have it deleted from Facebook.

We Spend Our Lives On Social Media But We Don’t Own It

Each online service provider has its own terms of service (TOS), making it very difficult for families to easily find access these accounts which may contain personal content dear to them. The Ajemian decision may promote legal change for streamlining the process. Still, it is better for you to have a plan so your loved ones can secure your digital property after  you die.

Your Estate Plan For Digital Assets

Step 1: Create A Digital Asset Inventory

A list of all digital assets, those with monetary and sentimental values, should be categorized and referenced in a document. If you want to provide passwords associated with the accounts, you may want to store the list in a safe deposit box. This list would need to be updated periodically for new and closed accounts.

You can customize your list in the following categories:

Devices. Computer hardware, such as computers, external hard drives, flash drives, tablets, smartphones, digital music players, e-readers, home security systems, medical devices, smart television, digital cameras, and other digital devices like Nest and Alexa;

Online storage at home and work. Any information or data that is stored electronically whether stored online, in the cloud, or on a physical device. Examples would include your Dropbox accounts;

Any online accounts. Email and communication accounts (eg. iphone, Skype and Facetime), banking and other financial sites (eg. PayPal, Square), bitcoin accounts, social media accounts, shopping accounts, photo and video sharing, video streaming accounts (eg. Netflix, YouTube), video gaming,and esports;

Points, Coupons and Loyalty Rewards programs. Shopping, Travel, hotel, airline, grocery, and shopping  accounts where you are particularly a loyal customer and have monetary value on apps or cards.

Websites and blog accounts that you manage for personal and business;

Domain names that exist and are owned by you personally and by your own business;  and

Intellectual Property, including copyrighted materials, trademarks, patents, and any code you may have written.

Step 2:  Decide how you want to handle some of these accounts.

You may want to divide the list into monetary and non-monetary accounts. The latter may be more personal or sentimental. You may want to provide specific instructions as to whether you have a legacy account for your social media accounts, or if your e-reader or photos are going to someone specific.

Monetary Value

Digital assets with monetary value can pass through your will or a trust (more on that later). For example, websites, blogs and domain names may have significant value as standalone businesses or in combination and should be addressed in your estate documents.

Domain names can be sold for prices in the five digits while the most expensive names have commanded prices in the millions of dollars.

Step 3: Estate Planning Documents: Powers of Attorney, Wills and Trust

Your plans for your digital assets should be formalized in a legally binding document such as a will, codicil (an attachment to your will) or make reference to a letter of instructions in your will. Your will should not contain any passwords. You may want to consider a trust instead.

You should consult with an attorney who could help you decide what document is best and what sample language to use in your powers of attorney, wills or trust.

Step 4: Powers of Attorney (POA)

Each state has their own Statutory Short Form of Attorney where your attorney can include language to limit or supplement authority granted to the agent you have chosen.

You can ask your attorney to spell out the agent’s power to use, manage, terminate, transfer or have full access to digital accounts, name the type of accounts, including email accounts, digital music, video, photos, software licenses, e-commerce accounts and bank/financial accounts.

Does the agent have access including passwords and access controls?

The designated agent should be informed as to whether they will handle the digital property or if there is a specific digital agent with respective powers for those assets.

Step 5: Distribution of Digital Property: Wills or Trusts

Traditionally, there are assets that go through your will to your heirs while other property may be distributed by operation of law or named beneficiary (ies). A life insurance policy is such an example.

Digital assets that have value can be distributed through either wills or trusts.

While these assets can be passed on through wills, the nature of accessing online accounts requires knowing usernames, security questions and passwords. That is information that should not be in a will, especially because it will become part of the public record if the will is  admitted to probate.

Trusts May Be Better Than Wills For Digital Assets

Trusts are more desirable for digital ownership and account information because a trust does not become part of the public record like wills.

Authority is granted to a trustee (similar to executors for a wills) as to how to handle this property. If the digital property in question is of significant value, a Digital Asset Trust can be created. Alternatively, a testamentary trust pertaining only to the digital assets can be folded into a will.

If You Want Digital Assets In Your Will

When creating your will, your attorney can be guided by your digital inventory list and what digital assets can be distributed. When you die, the executor  of your estate has the responsibility of managing and distributing all of your assets to your intended recipients.

You can pass some of your digital assets through your will but many of these assets are not capable of being passed through a will. Typically, digital property that you own and have monetary value will pass on to your heirs via your will.

Examples of digital property that can be distributed are:

• Funds that are in your bank, investment, PayPal accounts.
• Travel reward points and frequent flyer miles.
• Your own photos or videos,that are stored on your hard drive.
•  Business websites, blogs, products that you sell in an online store.

If you don’t own the property or it has sentimental rather than financial value, it isn’t likely to qualify as a testamentary asset which would be passed on through your will.

Examples of what doesn’t get passed on to heirs are:

• Email, apps, and social media accounts generally have terms of service agreements that often ask you to agree that your account is “non-transferable.”  In recent years, the tendency has been to give heirs the ability to terminate these accounts upon a showing of a death certificate.
• Downloaded music from iTunes usually come with a limited set of rights and you don’t own digital music.
• Licensing agreements, such as domain names that are not owned.
• Streaming subscriptions like Netflix are not owned by subscribers.

Consider Naming A Digital Executor

Your attorney can add language to enable the executor (or digital executor) to have authority to manage, handle, access, use, distribute, control and dispose digital property, including and not limited to, all named digital assets. You can assign a separate executor to be named in the will to have authority for all digital assets.

What the digital executor does:

• Transfers money, points, and credits from online accounts to your heirs.
• Closes social media accounts unless you left instructions for a memorial site.
• Archives owned electronic files that contain owned photos and videos.
• Cancels subscriptions to online services.
• Transfers or closes blogs, websites, or any online businesses.

Letter of Instructions

The will should never contain passwords or sensitive information because of the risk of the will becoming part of the public record once the will is admitted to probate. Instead, you should have your attorney consider referencing in your will an external list of digital properties with relevant usernames, access codes, security questions, and passwords maintained in a separate document.

A letter of instructions is the best way to contain sensitive detailed information about accessing  your digital property. It has been used in traditional wills for a long time. This letter can be referred to in the will but is a separate document.

Have A Safe Place To Keep Sensitive Information

You should store information like account and access information in a separate location from your will. Given its sensitivity, you probably want to put your document into a safe deposit box or another secure place.

Review Your Digital Inventory List Periodically

We are often opening, closing or changing our online accounts, along with its access information.

Monitor Income-Generating Accounts

Keep track of  important accounts, particularly those that are income-generating accounts such as fledging small businesses, with customer lists and their websites. That is where most of the monetary value of your digital assets that are reflected in your will or trust exist. If  you are changing your passwords frequently, you will need to record that information.

Keep Track Of Your Assets

Estate planning documents should always be reviewed periodically every few years and when there are life-changing events. If these documents have been completed but are largely silent with respect to digital assets, you should update your plans to include them.

Our digital lives are changing so rapidly with technological advances, that it is not easy to predict what we may store online in the future. Many of the laws predate the explosion of Internet. They have not kept pace with these rapid developments balanced with our need for privacy.

Therefore, we need to be proactive about staying on top of what we own digitally and want to pass on to our heirs. Digitization helps us in so many ways but it is messy for those we leave behind. Do you have an estate plan that addresses your digital property? Do you keep track of your property with an inventory list?

We hope this guide helps you in your estate planning.  We would love to hear from you of different ways you may keep track of your online accounts to save time and effort.