Protecting Your Digital Assets Through Effective Estate Planning

What Are Digital Assets?

At Heban, Murphree & Lewandowski, LLC, we understand the evolving nature of assets in today’s digital age, and we’d like to illuminate a specific term – ‘digital assets.’ So, what exactly are digital assets, and why should they matter to you?

Digital assets are electronic records or files stored on the Internet, mobile devices, or personal computers. In essence, almost any information or content that exists in digital form and comes with the right to use is seen as a digital asset, and such should be included in your digital Estate Plan.

To bring more clarity, a digital asset can be:

1. Email accounts
2. Social media accounts
3. Online banking accounts
4. Subscription-based online accounts
5. E-commerce or marketplace accounts (for example, Amazon, eBay)
6. Photos saved online or in the cloud
7. Online chatroom accounts
8. Mobile phone applications
9. Online gaming or dating accounts
10. Online utility accounts
11. Benefits from loyalty programs (such as frequent flyer miles and credit card rewards)
12. Any other personal data stored on your devices

This list is extensive, but it’s important to note that not all digital records or online possessions qualify as ‘digital assets.’ For instance, while electronic bank statements can be seen as digital assets due to the data they contain, the actual funds in the bank account do not fall under the same category. Similarly, while the platform used to access a cryptocurrency (like Coinbase) is a digital asset, the actual cryptocurrency itself (Bitcoin, Ethereum, and so forth) is part of the traditional estate. Thus it’s subject to a different legal framework.

Creating A Digital Estate Plan in 4 Essential Steps

In the modern world, where technology is an integral part of our daily lives, we often store vital information about ourselves and our loved ones online. The passwords saved on our computers, the photos stored in our smartphones, and the media content on our tablets all contribute to our digital footprints. As security measures increase, with requirements like “passwords must be eight characters, include a capital letter, symbol, and number, ” managing and remembering where all these important details are stored can become complex.

Recognizing this challenge, Heban, Murphree & Lewandowski, LLC presents a solution: a Digital Estate Plan. Follow the four steps below to safeguard your digital assets and ensure their appropriate distribution.

Step 1: Take Inventory of Your Digital Assets

The first step to crafting your Digital Estate Plan is to enumerate all your digital assets. As our lives have become progressively digitized, this checklist must be exhaustive, covering everything from social media accounts to online banking details.

If you are uncertain about where to begin, consider the following:

• Email accounts
• Social media profiles
• Online banking and trading accounts
• Online subscription services
• E-commerce accounts (Amazon, eBay, etc.)
• Digital photos and documents
• Online memberships and forums
• Apps and gaming accounts

For every online account you own, note down the username and password. It would also be prudent to document the answers to commonly asked security questions that your family members might require after your passing.

Step 2: Decide the Fate of Your Digital Assets

Once your inventory is complete, the next step is to decide on the distribution or disposal of these assets. Some assets you might want to preserve, others must be completely erased, and some could be assigned to specific individuals.

For instance, you might want any monetarily valuable digital assets to be inherited by your children while your spouse takes charge of your online photos. On the other hand, if you own an online business or income-generating assets, you might wish to delegate access to a trusted business associate. Reflect on these decisions carefully as you compose your Digital Estate Plan.

Step 3: Appoint a Digital Executor

The next step in this process is to assign a digital executor – a person you trust to execute your wishes concerning your digital assets. This person will manage, distribute, or delete your online accounts per your instructions.

The choice of a digital executor is up to you; it can be a friend, family member, or attorney. Although the role of a digital executor is not universally legally recognized, it is advisable to mention it in your will to provide clear guidance.

Step 4: Make it Legal and Secure

The final step is to legalize and secure your Digital Estate Plan. Since some jurisdictions don’t formally recognize a digital Estate Plan, it’s important to mention it in your Will or add it as an addendum.

Keep your Digital Estate Plan separate from your will for two main reasons: first, your will becomes public upon your death, and it would be inappropriate for it to contain sensitive information like usernames and passwords; second, your Digital Estate Plan might need frequent updates as you add or delete online accounts, which is more cumbersome with a traditional will. The designated digital executor should be aware of the location of your digital Estate Plan to access it when necessary.

We recommend storing your Digital Estate Plan with your attorney in a secure online password manager (like LastPass) or locked file cabinets for maximum security.

Governing Law for Digital Assets: A Brief Overview

The rapidly evolving legal landscape regarding digital assets is complex, with numerous overlapping and contradictory laws. Three laws primarily govern access to your digital assets: Terms of Service Agreements (TOSA), state law, and federal law.

Terms of Service Agreements

A Terms of Service Agreement (TOSA) is a contract between you and the digital service or account provider outlining the relationship between the two parties and the digital assets under the provider’s custody. Unfortunately, most individuals accept these agreements without thoroughly understanding their implications.

In these agreements, you may find provisions regarding:

• Who can access your digital assets?
• Prohibition of password sharing.
• Consequences of unauthorized access, such as account deletion.
• What happens to your account after your demise.

Each TOSA is unique to its provider, and providers frequently revise these agreements. For instance, Google allows users to designate an inactive account manager, while Yahoo’s TOSA necessitates account deletion upon the user’s death.

State Law

In the United States, a system of dual sovereignty allows both the states and the federal government to regulate the same matter unless Congress preempts the states from acting. As a result, most states have enacted laws concerning access to digital assets, with many adopting some version of RUFADAA (Revised Uniform Fiduciary Access to Digital Assets Act), developed by the National Conference of Commissioners on Uniform State Laws.

RUFADAA has two primary purposes:

1. To give fiduciaries the legal authority to manage digital assets and electronic communications akin to tangible assets and financial accounts.
2. To provide legal authority to digital asset custodians to interact with the fiduciaries of their users while respecting user privacy.

Under RUFADAA, a fiduciary can be an agent under a power of attorney, a trustee, a conservator, a guardian of the property, or the executor or administrator of an estate. RUFADAA, however, does not alter any legal rights or restrictions stipulated by the TOSA.

Federal Law

Federal law also regulates digital assets, focusing on privacy protection. For example, unlawfully accessing a digital communication service or exceeding authorized access is considered a federal crime. Similarly, it is illegal for a service provider to disclose communication content to anyone other than the originator or the recipient without lawful consent.

Sharing your password with your fiduciary and enabling them to use it could lead to unintended consequences. Such actions could potentially violate federal law, leading to criminal liability. Moreover, it might infringe on the TOSA, leading to account deletion.

Given the complexity of these laws, understanding the TOSA governing your digital assets is crucial to preventing the loss of financial or sentimental assets.

Here To Help

At Heban, Murphree & Lewandowski, LLC, we understand the importance and complexity of digital assets in estate planning. From defining digital assets to walking you through a four-step process of crafting your Digital Estate Plan, we provide comprehensive support.

As a result, we highly recommend contacting us to safeguard your digital assets and prevent unintended legal and financial consequences.