Understanding Digital Estate Planning

Our online lives hold significant value in our increasingly digital world, encompassing precious memories, financial assets, and creative works. However, have you considered what happens to these digital assets after you're gone?

Neglecting digital estate planning can lead to confusion, frustration, and even financial loss for your loved ones. This guide empowers you to take control of your digital afterlife and ensure your legacy lives on.

What Is Digital Estate Planning?

Digital Estate Planning is the process of organizing and distributing digital assets as part of your estate plan after your passing, including online accounts, digital files, and other properties. It's a crucial aspect of modern estate planning, ensuring that digital legacies are preserved and transferred according to your wishes.

Digital Estate Planning is a relatively new but increasingly important aspect of personal estate planning due to the extensive amount of data and assets we store digitally. It requires careful consideration and often guidance from legal professionals who specialize in estate planning and digital law.

What Are Digital Assets?

Digital assets refer to any content, data, or electronic records that you own or have rights to use.¹ These assets exist in digital form and are identifiable and describable through metadata. Common examples of digital assets include:

• Online Accounts: This includes email accounts, social media profiles, trading platforms, and online banking accounts. Each of these holds personal data, communications, and potentially sensitive information.
• Digital Collections: These digital media files can be e-books, digital music, movie collections, or online gaming accounts. They often represent significant personal or monetary value.
• Digital Currency: Cryptocurrencies, also known as virtual currency, like Bitcoin and Ethereum, are prime examples of digital representation that can hold substantial financial value.
• Intellectual Property: This includes digital works such as blogs, digital art, photographs, videos, and other creative works you have created and own the rights to.
• Online Businesses: If you run an e-commerce website, a blog that generates income, or any other online business, this is also considered a digital asset.
• Computer Files and Data: Files stored on personal computers, external hard drives, or cloud storage services, including documents, photos, and videos, are digital assets.
• Domain Names and Websites: Any domain names you own, or websites you have developed are considered digital assets, especially if they generate income or have branding value.

In estate planning, a digital estate plan involves managing digital assets to ensure they are accounted for and handled according to your wishes after death or incapacity. This might include transferring ownership, providing access to specific individuals, or even instructing how they should be managed or disposed of.

Importance of Digital Assets

Digital assets and technology have become an integral part of our daily lives. They are not only used for storing precious memories and connecting with loved ones but also for conducting business, managing finances, and making financial investments.

Here are some key reasons why digital assets are important:

• Personal Significance: They hold sentimental value and preserve memories for future generations.
• Financial Value: They can represent significant investments and intellectual property or even serve as a source of income.
• Accessibility and Convenience: They are readily accessible from anywhere and offer convenience in managing our online lives.
• Global Reach: They transcend physical boundaries and facilitate communication and collaboration worldwide.
• Cultural Heritage: They can document historical events and preserve cultural traditions for future generations.

Effective management and planning for these assets are essential to protect their value, ensure privacy, maintain legacy, and comply with legal requirements. As the digital landscape continues to evolve, the significance of these assets will likely increase, making their management an essential aspect of personal and business planning.

Why is Digital Estate Planning Important?

Your digital legacy is a vital component of your estate, encapsulating the online presence and assets that will continue to exist after you pass away. Digital estate planning is crucial for several reasons, reflecting the growing interplay between our digital and physical lives. Here are the key reasons why it's important:

1. Protecting Financial Interests: Many digital assets have financial value. This includes online bank accounts, investment accounts, digital currencies, and online businesses. Without a plan, these assets can be lost, forgotten, or left unclaimed after death.
2. Access to Important Information: In our digital age, much of our important personal and professional information is stored online or in digital formats. Estate planning ensures that the right people can access this information when needed.
3. Preserving Personal Legacy and Memories: Digital assets such as social media accounts, photos, videos, and blogs often hold sentimental value and form a significant part of one's personal legacy. Planning for these assets ensures they are preserved, archived, or passed on according to your wishes.
4. Avoiding Identity Theft: After death, unmonitored digital assets can become targets for identity theft and fraud. By including digital assets in estate planning, you can help protect against such risks.
5. Legal Compliance and Ease of Administration: Digital estate planning can help ensure your estate is settled in compliance with laws and regulations. It provides clear instructions for executors and heirs, simplifying the administrative process.
6. Providing Instructions for Digital Business Operations: If you own an online business, a digital estate plan can provide essential instructions for the continuity, sale, or closure of the company in your absence.
7. Managing Subscriptions and Recurring Payments: Many of us have ongoing subscriptions or automatic payments linked to our digital accounts. Without a plan, these can continue indefinitely, potentially draining assets from the estate.
8. Emotional Closure for Loved Ones: By providing clear instructions on handling your digital assets, you can offer emotional closure and comfort to family members, ensuring they are not burdened with difficult decisions or extensive digital clean-up tasks.
9. Protecting Privacy: A digital estate plan can specify how to handle sensitive data, like personal emails or files, protecting your privacy even after death.

Digital estate planning is not just about securing your online assets; it's about protecting your digital legacy, safeguarding your loved ones, and ensuring your wishes are fulfilled. In today's increasingly digital world, it's a vital step for anyone who wants to leave a lasting and meaningful impact on the world.

Steps to Managing Digital Assets in Your Estate Plan

Managing digital assets in your estate plan requires careful planning, organization, and legal documentation within your last will and testament. Here are key steps to effectively include and manage digital assets in your estate plan:

1. Inventory Your Digital Assets:

• List all digital assets: This includes social media accounts, online banking and investment accounts, digital currencies, email accounts, digital collections (like photos, music, videos), blogs, digital wallets, online businesses, and other digital property.
• Digital Asset Management (DAM): Consider using a digital asset management system to simplify processes to organize, categorize, search, retrieve, and archive digital assets. A DAM can simplify accessing digital assets.

2. Secure Access Protocols:

• Use a Password Manager: Store all your account passwords in a reputable password manager.² Your digital executor will need only the master password to access the vault, simplifying their task.
• Set Up Security Questions: Provide answers to security questions or a digital account access platform your executor can use. This step prevents them from being locked out during crucial times.
• Activate Inactive Account Managers: Certain services, like Google, have an inactive account manager feature. Set it up to grant access to your digital assets after a set period of inactivity.

3. Assess the Value and Significance of Each Asset:

• Determine financial value: Identify which digital assets have monetary value, such as cryptocurrency, online business interests, or monetized blogs.
• Understand sentimental value: Recognize assets that have personal or sentimental significance, like photos, videos, or personal social media profiles.

4. Understand Legal Constraints:

• Review terms of service agreements: Many digital assets are governed by terms of service that may limit your ability to transfer access or ownership.
• Consult legal advice: Seek guidance from an attorney knowledgeable in digital asset laws and estate planning to ensure your plan complies with legal requirements.

5. Designate a Digital Executor:

• Choose someone trustworthy: Appoint a person to manage your digital assets within your last will and testament. This should be someone who is digitally savvy and understands your wishes. Your digital executor may or may not be the same person as your general executor.
• Legally empower them: Make sure your digital executor is legally authorized to manage your digital assets. This may require specific language in your will or estate plan.

6. Provide Clear Instructions:

• Outline wishes for each asset: Specify what you want done with each digital asset. This could be deletion, transfer of ownership, archiving, or continued operation.
• Consider privacy and legacy: Be clear about who can access personal information and how you want your digital legacy handled.

7. Secure Your Inventory and Instructions:

• Keep information secure: Store your digital estate planning documents and digital asset inventory and instructions in a secure location, such as a safe deposit box, with a trusted attorney, or in a secure digital storage service.
• Make them accessible: Ensure your digital executor and/or estate attorney can access these documents when needed.

8. Regularly Update Your Digital Estate Plan:

• Review and update regularly: As you acquire or lose digital assets, or as passwords and access information change, update your digital estate plan accordingly.
• Reflect changes in life circumstances: Update your digital estate plan in line with major life events, such as marriage, divorce, or the birth of a child.

9. Integrate with Your Overall Estate Plan:

• Ensure consistency: Your digital estate plan should be integrated with your general estate plan. Legally document your digital estate plan within your will. Ensure they are consistent and that your digital executor is aware of and coordinates with your general executor.

By following these steps, you can ensure that your digital assets are well-managed in your estate plan, safeguarding both financial value and personal legacy while ensuring compliance with legal standards.

Legal Considerations for Digital Assets

When incorporating digital assets into your estate plan, you must be aware of several legal considerations to ensure that these assets are handled appropriately and in accordance with the law. Here are key legal considerations to keep in mind:

Terms of Service Agreements: Many digital assets are governed by the terms of service agreements of the platforms on which they exist. These agreements often specify what happens to an account or digital content after a user's death. Some digital assets, particularly online accounts, may not be legally transferable upon death due to these agreements.

Privacy Laws: Privacy laws may restrict access to a deceased person's digital accounts. For example, the Stored Communications Act in the United States limits access to a deceased user's electronic communications. Some states have enacted a version of the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) as a law governing digital assets and the rights of executors or beneficiaries to access them.³

Intellectual Property Rights: Understand which digital assets constitute intellectual property (like blogs, music, photos, or videos) and ensure that your estate plan addresses the transfer of these rights. Be aware of copyright implications in transferring or managing digital assets or important intellectual property.

Access to Digital Assets: While it's crucial to ensure that your digital executor or heirs have the information they need to access your digital assets, be cautious about how you create, store, and share passwords and access codes, keeping privacy and security concerns in mind.

Including Digital Assets in Legal Documents: Clearly include digital assets in your will or trust. Specify what should happen to each asset, who should have access, and who will manage these assets. Legally designate a digital executor and outline their powers and limitations in managing your digital assets.

Digital Currencies and Cryptocurrencies: Understand and comply with any legal and tax implications of digital currencies in your estate. Ensure safe and legal transfer mechanisms are in place for digital currencies, as they often involve unique legal and technical challenges.

Regular Legal Reviews and Updates: Digital asset laws and regulations are evolving. Regularly review and update your digital estate plan to comply with current laws. It's advisable to work with an attorney who specializes in estate planning and is knowledgeable about the legal aspects of digital assets.

By considering these legal aspects, you can help ensure that your digital assets are handled in accordance with your wishes while remaining compliant with applicable laws and regulations. This protects the assets and simplifies the process for your executors and beneficiaries.

Tax Implications for Digital Assets

The tax implications of digital assets in estate planning can be complex and vary depending on the type of digital asset and the jurisdiction in which you reside. Here are some general considerations:

Estate Taxes: In many jurisdictions, digital assets, like any other property, may be included in the gross estate for estate tax purposes. This includes assets with financial value, such as cryptocurrency and revenue-generating websites. Valuing digital assets can be challenging, especially for assets like cryptocurrencies, which can be highly volatile. Proper valuation is essential for accurate tax reporting.

Income Taxes: If digital assets generate income after the owner's death (e.g., from a monetized blog or online business), that income may be subject to income tax. Capital gains tax may apply for assets like cryptocurrencies or any other financial instruments such as digital tokens or stocks. The basis for calculating gain or loss can be complex and might depend on when and how the asset was acquired.

Cryptocurrency Taxation: Cryptocurrencies are subject to specific reporting requirements in many jurisdictions. The tax treatment of transactions involving cryptocurrencies (like Bitcoin) can be complicated and may be treated as property for tax purposes. Transferring cryptocurrencies as part of an estate may have capital gains tax implications, and the rules can vary by country.

Digital Business Assets: If the estate includes a digital business, there may be ongoing tax liabilities related to the business's operation, including income tax, sales tax, or other business-related taxes. Transferring ownership of a digital business may trigger tax consequences, similar to transferring any other type of business asset.

State and Local Taxes: The tax treatment of digital assets can vary significantly by state or country, especially concerning estate and inheritance taxes. The tax implications for digital assets can also depend on the residency and domicile of the deceased.

International Considerations: If digital assets are held in multiple countries, international tax laws and treaties may come into play. Understanding and complying with tax regulations in each country where digital assets are held is essential.

Planning and Documentation: Consult with a tax professional to understand and plan for the tax implications of your digital assets. Maintaining thorough records of transactions and valuations of digital assets is crucial for tax purposes.

Due to the evolving nature of digital asset regulation and taxation, it is recommended to consult knowledgeable tax professionals and estate planners to ensure compliance with current tax laws and optimize the estate structure for tax purposes.

Conclusion

Understanding the importance of your digital assets and taking proactive steps to manage them within your estate plan is crucial in today's digital age. By following the key steps outlined in this guide and seeking guidance from legal and financial professionals, you can protect your digital legacy and fulfill your wishes. Don't leave your digital life to chance - start planning today.

Creating a will is a powerful step towards a secure future for your loved ones. Don't leave their well-being to chance—take control by documenting your wishes. Click to get started with your free will now!⁴

Sources

1. U.S. Internal Revenue Service (IRS) - Digital Assets. https://www.irs.gov/businesses/small-businesses-self-employed/digital-assets.
2. Google - Password Manager. https://passwords.google.com/.
3. Fiduciary Access to Digital Assets Act, Revised. https://www.uniformlaws.org/committees/community-home?communitykey=f7237fc4-74c2-4728-81c6-b39a91ecdf22.
4. Free Will from Fabric by Gerber Life, a member of the Western & Southern Financial Group Family of Companies. https://www.westernsouthern.com/about/family-of-companies.