Most of us have a will as part of our estate plan that specifies how our personal property is distributed after we are gone. Think bank accounts, real estate, jewelry, household furnishings and other physical possessions. Your will can even bequeath that hideous burnt-orange sofa in the den to the niece who never calls but always cashes the birthday check.
But what about the ever-growing trove of possessions that are not physical but exist somewhere in the ether? You may have thousands of photographs in the cloud, copies of electronic tax documents or correspondence like emails. What happens to your social media accounts, your Kindle books and your Apple music when you leave this realm?
The answer is complicated and depends upon the type of property, and the odds are high that your will or trust documents do not adequately address them. Creating a plan for your digital assets in advance can help ensure that your wishes are carried out and greatly reduce the stress and burden on the person responsible for handling the details upon your demise.
What are digital assets? A general definition of a digital asset is any electronic record that represents an individual’s right or interest in an intangible commodity. Within that broad classification, virtual assets break down into two subclasses that are treated very differently at death depending on whether the asset was truly owned or was a simply a contract that granted the holder limited permission to use a service.
Assets that transfer at death. Where true ownership is evidenced by an electronic record, a digital asset like a bank or brokerage account passes to the heirs as designated either in a will or trust, or by designation of named beneficiaries as in IRA or Transfer on Death (TOA) accounts. Even if the executor or trustee of the estate does not have the login credentials and cannot access the electronic records, custodians will grant access upon satisfactory evidence produced by the executor.
A stickier situation arises for other intangible assets like cryptocurrency. Bitcoin, Ethereum and the other 22,000 different crypto coins are transferrable at death, but there is a catch: They are stored in virtual wallets or vaults that can only be accessed with a private key code that is not known to the custodian. If that key is not shared with a trusted contact, there is no way to recover the asset even under a court order. Their entire stash of Dogecoin may as well be blasted into orbit on a SpaceX rocket.
Business assets like website domains, copyrighted materials including manuscripts and musical scores, software code, and intellectual property like designs and photographs are also transferrable, provided that the owner left instructions and passwords for the person handling the digital estate.
Assets that are not transferrable. Some of the things we think we own are not truly possessions but limited usage licenses that terminate at death. They include music in your iCloud or Amazon account, e-reader books on Kindle, and games on Xbox or PlayStation. They are typically license agreements that grant lifetime access but vanish upon the death of the original license holder. Same with streaming services and in-game purchases for online games. If you bought a tractor in your Farmville account, it dies with you. Probably OK given the cost of diesel anyway.
How to address digital assets in estate planning. According to Forbes, over 85% of estate plans fail to address digital assets, and that only applies to the 50% of Americans that even have a will. In fact, most people have given the matter little thought. Careful planning and a detailed specification for the handling of your online life should be incorporated into your estate plan today.
Most states, including Tennessee, have adopted a standardized legal framework called the Revised Uniform Fiduciary Access to Digital Assets Acts (RUFADAA, for fans of arcane and unpronounceable acronyms). The act recognizes the privacy of the original owner over electronic communications like emails and private text messages and therefore requires specific prior consent from the owner to share that content with an executor or fiduciary. Consent may be granted in a will, power of attorney or trust document.
The act also establishes an order of priority for different types of digital assets like social media accounts. If the user has employed a social media provider’s online tool to name who may access or delete the account, that direction controls. Most platforms like Facebook, Google and Apple offer the ability to specify how an account should be handled upon the death of the owner. These instructions typically supersede a will.
If no will or advanced directives exist, the various platform providers’ individual terms of service apply. Because terms of service frequently restrict access, a person who does nothing leaves the outcome to the company’s particular policies. To obtain access, a fiduciary typically must submit a written request with a certified death certificate and letters of administration, along with other documentation the provider may require. Even then, some platforms grant limited or no access.
Steps to take now. Create an inventory of accounts, platforms and devices, with usernames and the location of credentials, to give to the person designated to handle your digital assets upon your death.
This need not necessarily be the executor of your estate. The inventory should be stored securely, whether in a reputable password manager with an emergency access feature, a locked physical record or a safe deposit box. The will can simply identify where it is kept and who may retrieve it.
Consult an estate planning attorney or financial advisor to help you clarify these important considerations, especially if you have not updated (or created) a will in recent years. The proliferation of digital assets has created an entirely new planning imperative which many of us have not even considered. A little action now will relieve your heirs of a major headache.
Christopher A. Hopkins, CFA, is a cofounder of Apogee Wealth Partners in Chattanooga.