An Easy-to-Understand Guide to Digital Assets

Protecting Your Digital Wealth for the Future

In this wild AI-infused world we are now living in, people own more intangible assets than ever before, from online accounts and intellectual property to cryptocurrencies and social media profiles. Despite their increasing importance, digital assets are often neglected in estate planning. Without a proper strategy, these assets can be lost, mismanaged, or remain inaccessible after a person’s passing.

This guide explores how to include digital assets in estate planning and addresses their unique challenges.

What Exactly Are Digital Assets?

Digital assets are intangible, electronically stored properties. They include online accounts such as banking, email, social media, and intellectual property like copyrights and patents. Cryptocurrencies, domain names, digital files stored in the cloud, and password managers are also considered digital assets.

These assets often hold significant financial or sentimental value, making their management critical in estate planning.

Major Challenges in Managing Digital Assets

Digital assets introduce unique challenges in estate planning that require careful consideration. Issues of ownership and access, privacy and security, and compliance with legal and regulatory frameworks must be addressed to ensure proper management and transfer.

Below are the key challenges:

1. Ownership and Access: Many platforms restrict account transfers after death through terms of service agreements. Executors without clear instructions in estate documents may struggle to locate or access accounts, especially those requiring usernames, passwords, or private keys.
2. Privacy and Security: While heirs need access to digital assets, protecting sensitive information and complying with data privacy laws like the General Data Protection Regulation (GDPR) or California Consumer Privacy Act (CCPA) to prevent unauthorized access or identity theft is crucial.
3. Legal and Regulatory Complexities: The Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) offers a framework for managing digital assets, but platform-specific terms and evolving laws can create confusion. Additionally, valuing assets like cryptocurrencies poses challenges due to their volatile market nature and fluctuating worth.

Legal Details for Digital Assets

The Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) is the primary legal guideline for managing digital assets in estate planning. It allows fiduciaries to access digital assets if explicitly authorized in legal documents such as wills or trusts. If no authorization exists, fiduciaries may petition the court for access. However, service provider terms of service may impose additional restrictions.

Fundamental legal tools for digital estate planning include wills, trusts, and powers of attorney. Wills specify who inherits digital assets and how they should be managed, while trusts allow assets like cryptocurrencies to bypass probate and remain private. A power of attorney grants authority to an agent to manage digital assets if the owner becomes incapacitated.

Thinking About The Future

A thorough digital asset inventory is the foundation of effective estate planning. It should include detailed account information, such as usernames, passwords, and private keys for cryptocurrency wallets. To keep this sensitive data secure and accessible, use reliable storage solutions like encrypted files or password managers.

Another essential step is appointing a digital fiduciary, also known as a digital executor. This trusted individual will manage, transfer, or delete digital assets according to your wishes. They should be technically proficient and knowledgeable about digital estate management’s legal and practical aspects.

Providing clear instructions in your estate plan is equally important. Specify how each digital asset should be handled—for example, whether social media profiles should be memorialized or deleted or how to access and manage cryptocurrencies. For intellectual property, such as royalties, include detailed guidelines for ongoing management to ensure proper handling and continuity.

Cryptocurrencies and Digital Assets in Probate

Cryptocurrencies, while treated as property for probate and tax purposes, pose distinct challenges due to their decentralized nature. Unlike traditional assets, they are stored in digital wallets and require private keys for access, making them inaccessible without proper planning. Additionally, their fluctuating market value complicates accurate valuation during probate.

To address these challenges, consider the following strategies:

1. Secure Private Keys: Cryptocurrencies cannot be accessed without private keys. Ensure these keys are securely stored and accessible to authorized individuals.
2. Use a Trust: Placing cryptocurrencies in a trust helps bypass probate, ensures privacy, and provides clear instructions for managing and distributing assets.
3. Appoint a Trustee: A trustee can manage digital wallets, consolidate private keys, and properly handle cryptocurrencies on behalf of beneficiaries.
4. Plan for Valuation: To simplify the probate process, account for the volatile nature of cryptocurrency by including detailed valuation guidelines in the estate plan.

Tax Implications of Digital Assets

Digital assets, like physical property, are part of the taxable estate. Cryptocurrencies must be included in the estate inventory at their value at the time of death. Minimizing tax liabilities may involve creating trusts or gifting assets during one’s lifetime.

Consulting a tax professional ensures compliance and identifies strategies to optimize the transfer of digital assets.

As digital assets become more prevalent, legal and regulatory frameworks are expected to evolve. Broader recognition of digital executors, standardized procedures from service providers, and updated probate laws will likely make managing digital assets easier.

Need Legal Help?

At Heban, Murphree & Lewandowski, digital assets are vital to modern estate planning. You can secure your digital legacy by creating a clear inventory, appointing a trusted digital fiduciary, and leveraging tools like trusts and wills. Proactive planning protects your assets, simplifies the process for your loved ones, and ensures peace of mind for the future.

Let us help you prepare today to safeguard your digital footprint for tomorrow. Contact us for more assistance.