Today, almost everyone owns some sort of digital asset – and some of these assets can be quite valuable. But if your estate plan doesn’t account for digital assets property, your heirs may not be able to access them. So, factoring these intangibles into your estate plan is essential.
What Are Digital Assets?
Financial transactions are routinely conducted online. So it’s common for people to store financial records on their smartphones, on their computer hard drives, or in the cloud. These and other digital assets can include:
- Cryptocurrencies, such as Bitcoin, Dogecoin, Ethereum, or Tether,
- Non-fungible tokens (NFTs), such as digital art or music, that are blockchain-protected and assigned values,
- Website domain names,
- Social media accounts,
- Digital photographs and videos,
- Digital rights to musical, literary, motion picture, or theatrical works,
- Online gambling accounts,
- Blog content, and
- Monetized video channels that generate advertising revenue.
A digital asset is typically anything created and stored digitally that 1) is identifiable and discoverable, and 2) holds or offers value. To be considered an asset, it must have the potential to create value for the owner. As a result, you can transfer ownership through a purchase, a gift, or other ways of transferring rights along with its value.
What Are the Hurdles to Digital Access?
Legally, digital property is handled like other types of property when it can be passed on to specific people or entities through estate plans. But the laws regarding digital assets are still evolving. As a result, gaining access to digital assets and digitally encoded financial data can be challenging for anyone other than the original owner.
Family members generally face several hurdles when attempting to access a deceased family member’s digital assets and important personal data, including:
Passwords. If heirs don’t know your passwords, decryption keys, or other access credentials, they may be unable to access digital assets, information, or property. When passwords are stored on a laptop or tablet, technology experts typically can bypass the passwords, But some accounts, such as iPhones, may be difficult or almost impossible to access without the passwords. Cryptocurrencies and NFTs are typically stored in a “crypto wallet.” If the password and private key to a crypto or digital wallet are lost, access may be lost forever because those platforms have no administrator.
Data Encryption. Digital data is often encrypted. While this offers another layer of protection, it can make it almost completely inaccessible without the password or encryption key.
Criminal laws. State and federal laws ban unauthorized access to computer systems and private personal data. Designed to protect consumers from fraud and identity theft, they can present challenges for people attempting to gain access to a deceased family member’s digital information. Although this is an area that’s evolving as technology evolves, it remains complex.
Data privacy laws. Federal data privacy laws typically prohibit digital service providers from disclosing the contents of electronic communications to anyone except the owner without the owner’s legal consent. Potentially, social media sites or other internet providers could lock the content unless you provide express permission for people to access it. Working through the courts for such access can be expensive.
How to Handle Digital Assets in Your Estate Plan
Fortunately, it’s relatively easy to address the hurdles around digital assets in your estate plan. Here are four tips for arranging full access to your digital assets, minimizing administrative costs, and guaranteeing no significant or valuable digital property is lost.
1. Make a list. A record of digital assets can help your heirs know which assets you own and where they’re located. Include all important passwords, online accounts (such as email and social media), and digital property (such as domain names, cryptocurrency, and money transfer applications). Keep the list in a safe location (for example, with your estate planner) and make sure family members or relevant heirs understand how to access it.
Non-cryptocurrency digital assets are generally safe with inexpensive password management apps. In terms of keys and passwords for cryptocurrencies and NFTs, avoid storing them digitally. Legally, if hackers break into a bank or brokerage account, the institution usually has insurance or protection. If hackers break into a crypto wallet, you’re out of luck. Be particularly cautious about where you store your cryptocurrency passwords and keys.
2. Identify what you own. In some cases, you might have thought you acquired a digital asset, but you only purchased a nontransferable license to use it. This often applies to software, music, and videos. Understand the terms of the agreement for music files or other digital assets to determine if you own – or have only licenses – them.
3. Back up cloud-based data. Cloud providers often have backups. But what if the cloud service goes down or goes out of business? Providers, such as FidSafe, offer services that act as online digital safe deposit boxes to store digital backups of electronically scanned documents. Examples include bank and investment account statements, birth certificates, passwords, tax records, and wills. Of course, if you have digital assets stored in the cloud, you should back them up to a local computer or backup memory device regularly.
4. Provide consent in legal documents. Your estate planning attorney can help you update your wills, powers of attorney, and revocable living trusts. In addition, these documents should include language providing lawful consent for providers to turn over the consent of their digital communications to the proper individuals. Think through which information you want to be made available. You might not want all your digital assets accessible to your heirs.
Increasingly, people live a technology-enabled life, with email and text communications, photographs stored in the cloud, and financial records that only exist as digital files. If you have significant digital assets, appointing a special executor who has experience dealing with these assets can be a smart way to help ensure the assets are handled properly. Contact your financial and legal advisors to update your estate plan for the 21st century.