Why—and How—to Add Digital Assets to your Estate Plan

Erin J. Cooper

Erin J. Cooper

July 26, 2018

Wealth Planning

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In today’s increasingly digital world, our lives revolve around technology. Many of our personal possessions and important documents have become integrated into online databases and cloud technology for easy access and convenience. That’s why when creating your estate plan, it’s important to consider not only your traditional assets, but also your digital assets. 

Here’s a quick look at:

  • The definition of digital assets.
  • The laws regarding ownership and access to those assets. 
  • What you can do now to protect your digital assets after you die.


What are digital assets? 

Simply put, a digital asset is an electronic record. It is electronic content that exists outside the physical world and has personal value to someone. Digital content includes individual files and some online accounts. A few types of digital assets are:

  • Personal items such as photos, videos, and email accounts. 
  • Social media and productivity tools such as Facebook, Twitter, Instagram, Pinterest, LinkedIn, Tumblr, and Evernote.
  • Financial accounts such as mutual fund accounts, retirement accounts, and online bill payment services that exist in the digital and paper world. 
  • Digital-only accounts such as PayPal, Bitcoin, eCommerce sites, and credit card loyalty programs.
  • Business tools such as a domain name, blogs through WordPress, SquareSpace, YouTube, and personal websites, as well as e-commerce sites such as eBay, Amazon, Alibaba, VRBO, and Etsy. 


Purchased media and hardware are NOT digital assets

Examples of Items that are not typically considered to be digital assets are music, movies, eBooks, and audio books purchased from Apple iTunes or Amazon because the Terms of Service (TOS) agree­ments that govern these types of assets make them nontransferable. You do not own this digital content. You only pay for a license to listen, watch, or read it during your lifetime. You cannot transfer the ownership of eBooks or music to your heirs.
 
Digital hardware, such as laptops or PCs, portable hard drives and flash drives, smartphones, tablets, and digital cameras are also not considered to be digital assets. Instead, these devices are “tangible assets,” covered by your traditional estate plan, most likely in your will or trust. However, because access to these devices is essential to preserving your digital assets, giving your heirs required passwords for each device is imperative for data recovery and collection.


Your service agreements govern digital asset access

It’s important to understand the Terms of Service (TOS) agreements for all of your digital assets because these agreements govern your ability to transfer these accounts when you die, and the rights your surviving heirs have to access them. Each service, from Facebook to Gmail, Yahoo! to Dropbox, has its own TOS agreement with the intent of protecting the rights of the original owner. Yahoo’s TOS agreement, for example, gives the company full and sole authority to delete an account on the death of the account holder[1]—regardless of the effect that may have on the estate. 
 
Knowing what the TOS agreements are for the digital assets you own—and preparing accordingly—is vitally important for their deletion, preservation, or smooth and easy transition to your heirs. Without advance preparation, your estate’s legal representative (or executor), who has a duty to protect your assets, may also face significant roadblocks when trying to access the online accounts and information governed by different TOS agreements or policies.
For example, if an online account has a policy that does not allow transferability and you agree to this policy when creating or updating your account, your legal representative or executor will not have the authority to overstep these restrictions. To gain access, he or she may have to go through a complicated, time consuming, and costly court process. 

Because technology has far outpaced the legal considerations, most states are now actively pursuing national legislation to deal with the issue of fiduciary access to the digital assets and accounts of someone who has died. But, in the interim, each state has its own laws governing the rights of an estate representative, a guardian, or a trust. Please consult with your advisor to ensure that your wishes about your digital assets coincide with your state’s laws.


Planning for your digital assets

Besides familiarizing yourself with what your digital assets are—and how TOS agreements and your state’s laws may affect future access to them—there are some relatively simple steps you can take today to protect these assets and make sure they are handled according to your wishes after your death. 
 

1. First, take an inventory of all of your digital assets

This can become a highly useful guide for your heirs as well as a helpful living document throughout your lifetime.
 

2. Next, name a digital executor and work with him or her as early in the process as possible. 

While not a legally binding role, naming someone who is responsible for managing your digital assets is a prudent step. If possible, choose someone you trust, who is comfortable with technology, highly organized, and patient. He or she should be aware of where your digital hardware is located, what accounts you have, and any pertinent information on accessing those accounts. 
 

3. Gather and keep the passwords for your various online accounts up to date and stored in a safe and secure place

Like the digital asset inventory, this is an easy and effective way to transfer this knowledge to your executor. Consider using a password manager with inheritance features, which will share passwords with heirs electronically or even by registered letter to ensure this information is not stolen or lost. 
 

4. Finally, consider adding language to your estate plan that authorizes access to your digital accounts.

There are a number of online services that can assist you in planning for your digital assets, including Digital Estate Planning, Digital Locker, Postmortem Messaging, and Digital Assets Locator. Independent consulting services are also available to help you create a plan for organizing and digitizing your assets. 

 

[1]Yahoo Terms of Service, https://policies.yahoo.com/us/en/yahoo/terms/utos/ 

Although it may take some time to plan now for the transfer of your digital assets in the future, taking action today will mean a smoother process later. Be sure to keep your inventory and password manager up to date, with regular reminders to edit pertinent information as technology changes and you add new platforms and services to your digital asset collection. Consult with your trust officer or estate planner to be sure that your estate and trust documents reflect your current wishes about how your digital assets will be managed for and by your heirs.

This article is for informational purposes only and should not be construed as investment or legal advice.  
Special thanks to Steve Milt, Certified Information Systems Auditor (CISA)S