Posted by Lee Sausen
When planning your estate, you probably try to think about what will happen to all of your hard-earned assets when it is time for them to be distributed – things like your house, car, IRA, deposit accounts, and even your dog, Buster. The items you may not have thought to plan for are your assets held in the digital world. Some of these assets may need to have a valuation done one day and potentially be included in your taxable estate via IRS Form 706. Others, you should make a plan for today so that tomorrow, your beneficiaries will not have to jump through hoops to deal with them.
First you must ask – what is a digital asset? There are some obvious examples: word files, photos, music, videos, spreadsheets, e-books, e-mails, and text messages are the ones that most people come in contact with every day. The interesting part is trying to decide whether they are worth anything – from a dollar perspective or from a sentimental perspective. Now most (if not all) of my text messages are undoubtedly worthless but maybe if you are someone like Tom Brady or Donald Trump, this could be a different story.
Most of us now have all of our financial accounts digitized – your bank, brokerage, mortgage, car loan, utilities, etc. are all managed online. You might have business assets like client contact information, patient records, or a book of business. Domain names are digital assets as well – simple addresses like insure.com, toys.com, business.com can be sold for several million dollars. Yet another type of digital asset is an online gaming account. There are “mass multiplayer online” games where players build up their profile or avatar and, in some cases, sell their account to someone else on their network for hundreds of dollars (sometimes thousands).
One of the more important aspects of planning for digital assets is how your beneficiaries will gain access to them. Are they able to login to the various accounts you have set up? A durable power of attorney would help, but it might not always be lawful for them to do so.
Think back to all of those “Terms of Service” agreements that you read through thoroughly before setting up your new social media or bank accounts. Some of them govern what happens to the account at death. Some agreements explicitly prohibit granting others access to the account. Sometimes you might think you own some digital asset via iTunes or Amazon, but really, you paid (or signed up) for a license to use that music, video, or e-book.
Some providers like Google and Facebook now allow users to indicate what happens to their account after death, which makes planning much more straightforward. If that is not an option then it might be possible to add a name to your account. If you accepted an agreement that prohibits use by others, providing login information to someone else, like your beneficiary, would technically be violating federal law.
Several states have taken this into consideration and have developed state laws to help fiduciaries access and distribute digital assets. One group at the forefront of this topic is the Uniform Law Commission. The ULC developed what is known as the Uniform Fiduciary Access to Digital Assets act. The act applies to agents, guardians, trustees, and personal representatives. It basically treats digital assets like all other assets in a will. It removes the barriers to a fiduciary’s access to electronic records, which in some cases supersedes the provisions of a user agreement. It is for this reason, along with specific privacy concerns, the act has drawn some criticism. According to the Uniform Law Commission, the UFADA act was introduced in 26 states in 2015 and enacted in only one – Delaware.
A few reputable public interest organizations that criticized the UFADA act contributed to the creation of the Privacy Expectation Afterlife and Choices act. This act is more stringent than the former, allowing power to executors only. The PEAC act also demands more detail on the accounts and their contents.
Other states do have laws in existence to help fiduciaries with the handling of digital assets, but we are still far from a universal and comprehensive set of regulations. If you would like to know more about estate planning or how your unique situation may affect your estate, please contact your tax professional for assistance.