Estate Planning Considerations in the Digital Era
We live in an increasingly digital world where the internet governs virtually everything we do. We use it for work, communicating, keeping up with current events, storing private information, creating art, and so much more. So, in a sense, when we talk about estate planning in the digital era, we're talking about intangible assets, including family photos, movies, and other things we hold dear.
Most people manage their finances, taxes, and bills using digital accounts and software. However, no one thinks about what happens to all these digital properties when they pass away.
The state laws regarding digital estate planning are evolving to protect individuals and their online private information. However, a digital estate plan is still necessary for your overall estate plan. Without one, it'll be nearly impossible — if not totally impossible — for your family to access the information they need from your online accounts should you pass away or become mentally incapacitated.
This article will cover everything you need to know about digital estate planning in Huntsville, AL. Keep reading to learn more.
What Exactly Are Digital Assets?
First things first: What exactly is a digital asset? As you can guess, your personal accounts and things like photos and documents are there. Of course, you could say anything on your computer. Even your smartphone is fair game in defining digital assets, but we'll get more specific.
The following, specifically, can be considered digital assets:
Social media accounts
Domains and blog accounts
Email accounts
Cloud storage accounts
Online banking accounts
Subscription service accounts
Utility accounts
Gaming accounts
Personal documents, photos, artwork, etc.
The usual thing to do is create an account for all of the above digital assets, involving a username and password. The companies with a platform for these accounts have policies and agreements you essentially agree to upon opening the account. Some of these agreements and policies only allow the account holder to access the account and its information. In contrast, others will enable you to allow guest profiles, like Netflix and other streaming services. (Yes, Netflix counts as a digital asset).
While the main idea is to prevent unauthorized use of your digital accounts for most companies, it's also something that can keep your family from gaining much-needed access to your digital accounts after you've passed away or have become mentally incapacitated. Suppose your family or digital executor needs to access your accounts for any reason after you've passed. In that case, they likely won't be able to get your login information due to these policies. At some point, the online service providers will also probably deactivate or delete your accounts, causing your family to lose out on important information and digital property.
What Is Digital Estate Planning and Why Is it Important?
By now, you're probably familiar with the concept of estate planning — wills, trusts, medical directives, choosing guardianship for minor children, and so on. Additionally, you probably already know that with estate planning comes appointing an executor for your last will and a trustee for each trust you create, plus appointing a power of attorney (POA) for any directives you draft. Each person you appoint has the unique responsibility of managing specific affairs and specific assets, representing your best interests and your family's best interests in the process.
However, the documents in your estate plan and their representatives don't cover your digital assets. Therefore, digital estate planning is both its own form of estate planning and an essential component of your overall estate planning.
Of course, in today's world, you can't simply have one and not the other, regardless of how much of your life is online. This is because a traditional estate plan covers your home's tangible and intangible assets in your retirement accounts. In contrast, a digital estate plan protects your online assets from certain risks, including identity theft, hacking, and fraud. It also offers your family more peace of mind by allowing them to gain access to any important information you keep online.
Digital Assets vs. Traditional Wills
One of the significant differences between digital and traditional asset planning is a digital and traditional will. When it comes to physical assets, like your home or vacation property, you can only transfer them through a traditional last will and testament or a living trust.
Currently, most online accounts you typically use won't give you any ownership rights to anything. Instead, you get a license for music and movies, software, and other services. This is not the same as ownership, including your social media accounts, email accounts, and any other platform you sign up for. Therefore, you can't transfer them to any beneficiaries — because you don't actually own the rights to them. Once you pass away, the companies that own these platforms and services get complete control over your accounts.
You also have the option to include certain digital assets in your traditional will. This would include your cryptocurrency account or bitcoin account. Despite using them on an online platform, they still count as a liquid asset and can therefore be transferred to an heir through a traditional will. Likewise, your PayPal account is a digital asset considered a liquid asset, meaning it can be transferred conventionally.
What Happens If You Don't Have a Digital Estate Plan?
As mentioned earlier, your online accounts will end up in limbo without a digital estate plan. What's worse, any funds available from certain financial accounts online won't be made available for distribution among your family members without the proper credentials. In addition, these accounts may get deleted or deactivated without access, and the institution behind the accounts may absorb your funds.
Fortunately, lawmakers are in the process of addressing the issue of allowing traditional executors and personal representatives to gain access to digital accounts. The Revised Uniform Fiduciary Access to Digital Assets Act (UFADA) specifically addresses the duties of traditional executors and their ability to access the digital property of the deceased they've agreed to represent. Under the UFADA, any person that has been appointed and granted authority in a will or through the power of attorney to handle the deceased's assets may also be allowed to access certain digital assets — within reason.
The act restricts an executor or POA's access to electronic communication accounts, including email accounts, social media accounts, etc. Thus far, the executor or POA may only get access to the files and accounts that are directly related to settling the deceased's estate.
This means that there's a strong possibility that some of your digital assets may be "saved" when settling your estate. However, when it comes to long-term and end-of-life planning, your best bet is to ensure you have a digital estate plan in place to avoid your family losing out on important assets simply because they're unable to access your accounts.
How to Create a Digital Estate Plan
Creating a digital estate plan isn't as intensive as creating a traditional estate plan. However, there are a few steps you'll need to take to ensure that your family and executor have access to everything they need when the time comes. Of course, even if your spouse or other family members have access to the necessary accounts, it's still necessary to leave instructions behind to ensure your assets are distributed appropriately and that taxes are minimized as much as possible.
Remember that when you leave instructions for your digital assets behind, you'll want to keep them in a document separate from your traditional last will. Why is this important? — because your last will and testament automatically become a matter of public record once submitted to the local probate court. Your digital estate plan should be kept private, as you wouldn't want anyone outside of your family and executor to know how to access your personal accounts.
Now, let's jump into what you need to do to create an effective digital estate plan:
Take an Inventory of All of Your Digital Assets
The first thing you'll want to do is make sure everything you have online is accounted for. Start by making an informative list of all your digital assets — including those that you may think to have no value. Remember, it's important if it's got a name and password.
Once you have a list of digital assets, choose someone to become your digital executor. Remember that this will be the person handling your digital assets, which means they'll have access to your online records and accounts. You'll need to provide them with all of your usernames and passwords, and you'll want to update this information periodically as you change passwords, delete accounts and create new ones.
Choose How You Want Your Digital Assets to be Managed
Depending on which digital assets you actually have, there'll be several things to consider when it comes to how you'd want them to be managed when the time comes. But, of course, with digital assets, it's not just the possibilities you have to think about — you'll also have to think about the service provider's policies and agreements and anything else that may come into play once you've passed away.
Each company will have its policies and terms for administering or transferring the assets in your digital accounts. It's important to review this information and understand it before you leave instructions for how you want your digital assets to be handled.
Keep in mind that some digital assets won't be transferable. Companies like Google, Facebook, and Twitter have what are called Legacy Policies. Legacy policies are implemented to deal with your online accounts after you've passed on. Facebook, for example, gives your families the option to "memorialize" your account so others can continue to leave well wishes and other messages, view photos, and post pictures in your memory.
You'll also want to check the websites you create accounts on for any custodial tools. Custodial tools let you make authorizations, such as giving someone else access to your digital accounts once you've passed away. For example, Google has a tool that allows you to convey your last wishes regarding who can access what on any of your Google accounts once you're gone.
As for the accounts you have that generate income, you'll want to consider whether you'd like someone else to continue running the account or if you'd like it shut down for good. Think about it: If you run a blog and have a significant online presence, would you want that presence to remain after you're gone? Would you want someone to be able to access the account to make a final post for your followers?
Essentially, you'll need to take your list and indicate what you'd like to happen with each individual account you have online and leave thorough instructions.
Appoint Executor
The next step in creating your digital estate plan is choosing your executor. This person will be responsible for handling and potentially managing your digital assets after you've passed. Keep in mind that you'll want to choose someone you can trust to fulfill your last wishes, especially since they'll be getting access to your personal accounts.
It's also possible to name the executor of your traditional will as the executor of your will. However, it may be better to choose two different people to carry out these roles as a conventional executor tends to have a lot more responsibility to manage regarding your non-digital assets.
So, when it comes to choosing a digital executor, here are a few things to keep in mind:
You should be able to trust them with your personal accounts and files online and on your computer.
They should be well-versed in the digital space and understand how to navigate through your digital assets.
They should be willing to manage any accounts you want to keep active until a certain time.
Once you choose an executor, make sure you sit down and have a conversation with them. Make sure they understand their responsibilities regarding your last wishes and are willing to fulfill the role. You'll also want to ensure they know where and how to find the necessary information to get into your accounts.
Lastly, if you do end up choosing two different people to serve your estate and digital estate, it's a good idea to leave instructions for them to work together. As mentioned earlier, there are some digital assets that can be transferred through a traditional last will, which means the digital executor may need to help the traditional executor locate these assets and help distribute them appropriately.
Even if they won't be working together, it's still important to reference your digital will in your traditional will, naming the digital executor just in case. However, you do not need to list the items or reference any accounts from your digital estate in your traditional will. As you'll recall, your last will becomes a matter of public record. However, your digital estate does not.
Keep Your Digital Estate Plan Documents in a Safe Place
Simply put, if your executor cannot find the instructions for your digital estate, they won't be able to carry out your last wishes and distribute any viable assets. So, once you've created your digital estate plan and made it official, you'll need to store your digital documents in a safe place that's also accessible to your digital executor.
It's a good idea to keep a copy of your digital estate plan in the same place as your other estate planning documents and store it on your personal computer. Another option is to leave a copy of your digital estate planning documents with your Huntsville attorney since you'll likely be using them to create your traditional estate place.
Whatever you decide to do about your digital assets, don't wait until it's too late. You can get in touch with us today to set up a consultation with Sarah S. Shepard or another experienced Huntsville attorney to start creating your digital and non-digital estate plans.