Preserving Your Ones and ZerosSubmitted by MD Wendell Wealth Partner on March 31st, 2014
By Mark Wendell
What in the world are digital assets?
Intangible? Certainly. Ubiquitous? Absolutely. Important? Immensely.
Your digital assets are items of computerized-digitized text, programming code, or media in electronic form — ones and zeros stored on a device somewhere — that belong to you and must not be reproduced or accessed without your consent. Such assets might have been rare years ago, but as technology has evolved, a surprising amount of the most significant and precious aspects of our everyday life have become digitized. It makes sense, nowadays, to give as much attention to securing your treasured ‘digitized life’ as we’re accustomed to giving to antiques and heirlooms, real estate, or shares of stocks. We own these digital properties, and therefore we might want to control, add value to, and pass on ownership rights to them, by way of clearly articulated estate-planning instructions.
Some digital assets have value of their own, whether monetary or sentimental: years of accumulated email messages or blog postings, contact lists, photos and videos, purchased music and ebooks, or those drafts of one’s memoirs, unpublished novels, ancestry records and stories, and musical compositions, or inventions— intellectual property of inestimable value. A sub-category of valuable digital assets includes the access keys – IDs, passwords, security challenge-and-responses – to the many “cloud” properties we accumulate: bank, investment, and credit-card accounts, insurance policies, social media accounts and their contents, loyalty-program rewards, documentation of copyrights, patents, trademarks, and domain names. In some cases, the distinction between new digital and traditional intangible assets, as defined for tax and legal purposes, can become blurred, requiring careful documentation for secure and accurate estate planning and after death administration.
Given how much of our lives is quickly slipping into the digital realm, wouldn’t it be wise to apply the same degree of control over your digital valuables as you do over physical property? It’s not too soon to be pro-active in organizing ironclad protections of your digital assets in the event of your incapacity or death, just as you would plan for the preservation and smooth transfer of conventional assets, with solidly established will and trust documents.
Forgot your password? Robotic-roadblock phone calls have become a part of everyone’s experience nowadays. But have you considered what hurdles your executors, holders of powers of attorney (POA), or fiduciaries might be confronted with at the moment they need timely access to your digital assets just to fulfill their duties?
Making things easier for your family in the event of your incapacitation or death is certainly a good reason to include your digital assets in estate planning. In addition, careful planning will help prevent identity theft or fraud that could add costs and headaches to estate administration, or even, in the case of fragmented records, malign your reputation when you’re no longer around to set the record straight or guard a secret. Attentive digital-assets planning will help assure that your privacy remains intact, your history remains accurate, and your family remembers you as you would truly wish to be remembered.
The underlying issue with most digital assets is that they must be accessed via a tangible device, i.e. computer, smart phone or tablet. Access to digital information not stored on your device is usually governed by “terms of service agreements” (TSAs) that specify ownership, license agreements, and privacy policies. TSAs are legally enforceable, but are typically worded to protect the service provider rather than the subscriber and define the relationship between the account-holder and the storage/access service in a take-it-or-leave-it manner. Few TSAs include provisions covering the transfer of rights to a successor; this is where confusion and conflict frequently arises. It’s left to the account-holder to supply clear and definitive instructions for successors, trustees, and fiduciaries via legal documentation. But precedents are still playing catch-up with technology, and even with extensive legalese in TSAs, access to an incapacitated or deceased person’s accounts might not be assured, regardless of urgent need, since subtle legal boundaries can be easily crossed that could inadvertently violate even a seemingly ironclad agreement.
How should you plan for securing your digital assets?
- First of all, audit, inventory, and document your digital assets. A comprehensive list of digital assets will reduce headaches for your family, especially if immediate access is needed to handle outstanding bills or receivables.
- Maintain an inventory of usernames and passwords, including security challenges-and-responses. Of course, it’s very important to keep such a list up-to-date and stored securely, perhaps behind a master high-security password or fireproof safe. Remember that usernames and passwords sometimes expire, potentially exposing anyone other than an accountholder trying to access the account to legal scrutiny. For exceptionally high-security applications, biometric security measures can present insurmountable hurdles for administrators of a deceased account-holder.
- Email accounts in particular can be problematic since there are often issues of overlapping interests among employers, employees and customers. Questions should be posed to ‘owners’ of email systems to gain an understanding of possible what-if scenarios.
- Ensure that your estate-planning documents specifically address digital assets, since rights to them are typically not transferable, even to a fiduciary, trustee or POA. Often, each account must be treated separately by an estate planner to properly cover inconsistencies among even “boilerplate” TSAs.
- Provide for account and/or asset disposition by specifically naming legal or personal representatives in your documentation. Your estate planning documents should include a broad definition of your digital assets, but include specific authorizations for your legal appointees, granting them access to each digital asset. These authorizations should, naturally, be revisited regularly to be consistent with inevitable technology changes in the real world.
The areas of law governing digital assets are still uncertain, quickly evolving, complex, and differing from state to state. An attempt to normalize legal considerations was drafted by the Uniform Law Commission in 2012, but as yet these recommendations have not been widely adopted by individual state legislatures. While there are digital asset-management and digital-estate-planning services already available, they may be of limited use because their actual legal standing has not yet been clearly established. Despite your best efforts to establish authorizations, legal roadblocks might arise that could prevent your estate appointees from effectively carrying out your wishes. And let’s not neglect to consider the IRS, because estate taxes apply to an owner’s grossestate — all property of value owned at the time of death, real or personal, tangible or intangible. Ones and zeros, in the IRS’s eyes, are just another taxable asset.
Despite the uncertain and evolving nature of technology, specific power-of-attorney or fiduciary instructions covering digital assets in your estate planning documents can go a long way in making a difficult time less stressful for your family, and in providing for a happy digital legacy.