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Digital Assets in Estate and Trust Planning

Digital Assets in Estate and Trust Planning

Have you ever wondered what would happen to your Capital 360 online bank account, your music library purchased from Apple and stored on the cloud, or your social media accounts - including Facebook - after your death?

What rights does your family, spouse, executor or trustee have to access and marshal these assets? More and more frequently this has become a sticking point for those entrusted to care for your property after your death. How do you ensure that a loved one’s wishes are honored, property is transferred and any necessary payments made or for that matter terminated when digital assets are involved? This is certainly a dynamic area that anyone involved in estate planning and fiduciary services needs to consider now and in the future.

What are digital assets?

Since our technological world is evolving at such a rapid pace, it should come as no surprise that there is no universal definition of digital assets. Generally speaking, digital assets include text, images, multimedia information or personal property stored in a digital format. It would include email accounts, social media accounts, financial accounts, and other digital files such as music, photo, video and/or movie collections. Some definitions make a distinction between digital assets (files) and digital accounts (access to files). This distinction can make a difference as to how access is governed. Terms of service agreements; those usually unread notices at the initial use of an online custodian’s server, that we all flip through and agree to at the bottom, may actually prevent a family member, spouse or representative from viewing, or altering our online footprint. Read them carefully! It can be considered a violation of the Computer Fraud and Abuse Act to exceed the authorized access granted as outlined and agreed upon in those terms of service agreements. So too, is the most favorite method of gaining access to an online server by just sharing passwords with your spouse or other family members. In United States v. Nosal, decided in July 2016, it was determined that sharing passwords can be illegal under the Act.

How do we best handle these issues?

It appears that legislators have begun to recognize the problems that arise surrounding digital assets after death. The Revised Uniform Fiduciary Access to Digital Assets Act of 2015 (RUFADAA), gives individuals the ability to plan for the management and disposition of their digital assets just as they would for their tangible property. As stated in the Act drafted by the National Conference of Commissioners on Uniform State Laws, “The general goal of the act is to facilitate fiduciary access and custodian disclosure while respecting the privacy and intent of the user.” It includes a three tiered system of priorities in which digital assets may be legally marshaled:

  1. Through a custodian provided online tool that allows the user to specifically name another authorized user
  2. Through legally enforceable directions from the user in a written record such as a will, trust, or power of attorney
  3. Through the terms of service for the user’s account, if not already disclosed via option one or two as listed.

Custodians of digital assets are held immune from any liability if presented with both a request from the fiduciary to access a person’s digital assets along with a document outlining their fiduciary authority (court order, certification of trust or letter of appointment as personal representative or executor etc.). Should the estate documents include language to grant access to electronic communications such as email or text messages, then the Act will also allow access in these formats.

Thus far, the Revised Uniform Fiduciary Access to Digital Assets Act has been enacted in 20 states including New York and Florida. It has also been introduced in another 12 states as of this writing.

What else can be done?

Since the legislation (RUFADAA) has not as yet been enacted uniformly throughout the U.S., how should advisors ensure that digital assets are able to be accessed after death? It is incumbent upon the estate planner/fiduciary to include digital assets in the estate plan. Together, an inventory of digital assets should be developed that includes how and where the asset is held, all user names, passwords, and the answers to any prompts. This inventory itself should not be included in the will, as passwords may continue to change and you would never want the inventory to be made public. However, a reference to its existence in a separate instruction letter should be noted and specific language should be included in the will that provides the fiduciary with lawful consent to access, modify, control, archive, transfer and/or delete specified digital assets. By granting your executor/fiduciary clear authority over your digital assets in the will, you empower your executor to take the actions necessary to successfully respect your intentions and settle your online presence. You need not exist into eternity with an everlasting online footprint.

To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

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