Daniel Brockley

Oct 24, 2023

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Estate planning for digital assets: From social media and digital photos to crypto currency

It used to be simple. Well, relatively simple. Physical possessions and properties were documented in trusts and wills, and when someone died, the executor would collect the keys and doll the possessions out. (Okay, I’m skipping probate and a few rather essential steps here, but you get the drift). What happens, though, when there is no physical possession – when there is no key? What happens when the assets in question are non-tangible? When they exist only in the digital world?

Vanilla recently held a partner webinar with Kitces.com, where Jeff Levine outlined some key considerations that advisors and clients need to take into consideration when it comes to digital goods. We’ll do our best to outline the highlights for you here along with a few additional things to keep in mind concerning protecting digital assets. 

What is a digital asset?

The IRS defines digital assets as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology.” But this is really in reference to crypto currency and the like. For the purposes of estate planning – where value is sometimes weighed in emotional as well as monetary worth – digital assets are simply anything identifiable that can be stored digitally (and presumably prescribed ownership).

In addition to cryptocurrencies, which may be the first thing that comes to mind for people when they think of digital assets these days, here are some examples of digital assets you may want to consider as part of digital asset estate planning:

• Photos
• Email accounts
• E-commerce accounts
• Personal data stored on computer or phone
• Other data, such as research
• Documents and manuscripts
• Online accounts
• NFTs
• Cryptocurrencies

Why are digital assets important?

In today’s world, much of our lives are lived online – and many of our most important possessions aren’t things you can touch in the physical world. They exist solely in the realm of ones and zeros. But that doesn’t mean they aren’t important, and often their worth goes far beyond monetary value. Think of photos, for example. Photos are an important part of many people’s legacies, and they’ll want to be sure they are kept safe and given to those they care about. Today, almost everyone has a digital legacy – so it’s important that it’s shaped to your client’s wishes.

Digital assets in trusts and wills

Like tangible goods, digital assets can and should be accounted for in wills and trusts, as long as ownership can be established. It’s not typically necessary to create a separate trust specifically for digital assets, as they can be included in the same trusts that outline disposition of tangible assets. However, it is possible to create a digital asset trust, if needed, using the same trust structures used for physical assets.

Tech moves faster than legislation

One of the challenges with digital goods is that they are relatively new. While the law has had milenia to hone its treatment of physical property, the notion of digital property has only been grappled with in the past couple of decades. So, while there are laws that do indeed pertain to digital goods and their treatment, the law is more ambiguous, or less “settled,” as they say. In other words, tech moves fast. Government does not. This has become a challenge for fiduciaries and executors who need to access a decedent’s digital assets. 

The foundations of digital ownership and privacy

The Fourth Amendment of the U.S. Constitution promises citizens an expectation of privacy, especially within the confines of their own homes. But when it comes to the digital realm, this protective boundary becomes more ambiguous. Although it clearly covers privacy when accessing computer networks within the home, what happens when you access information via networks outside the home – or in the cloud? Our digital activities often transcend our physical locations, making it harder to ascertain where the protection of the Fourth Amendment begins and ends.

To address this concern, in 1986, Congress enacted the Stored Communications Act (SCA). This legislation extended privacy rights to electronic communications and data stored electronically. Under the SCA, companies are largely prohibited from disclosing an individual’s stored digital information to another party unless certain exceptions, such as a court order, apply.

To further define digital privacy rights outlined in the Stored Communications Act, congress enacted the Consumer Fraud and Abuse Act that same year. This Act serves as  complementary legislation to the SCA. It operates as an anti-hacking law, emphasizing that accessing someone else’s digital information without proper authorization is illegal. This seems straight-straight forward on the surface, but when we layer in our current technology landscape, it becomes a bit more complicated – especially when it comes to estate planning.

Not your password? Hacker! Hacker!

More often than not, clients who want a digital asset accounted for in their estate plan, simply leave the executor (or beneficiary) the password to said asset. But hold on. Have you ever read those long service agreements you have to sign off on with every new piece of technology or tech service you sign up for? Well, those terms of service typically state that only the person who signed up for the tech initially has access to the account. If an executor or family member accesses the account using the original user’s password, they’re technically, according to Congress, a hacker. 

But as time has gone on, many tech companies, especially the larger ones, have recognized the challenges that arise upon a user’s death, and are allowing for people to pass permissions on to others upon their death. One example of this is Apple’s Legacy feature, that allows users to grant permission to specific beneficiaries upon their death.

You say UFADAA, I say RUFADAA

To combat the confusion of passing down digital goods, and fiduciary access to important non-tangible items, the Uniformed Commission on Laws, a body that drafts legislation for states to use, created the Uniform Fiduciary Access to Digital Assets Act, which essentially gave fiduciaries who managed tangible assets automatic access to digital assets. However, there was push back on this new law because of privacy concerns. So, the legislation was amended (the Revised Uniform Fiduciary Access to Digital Assets Act) so that this permission would need to be actively opted into (rather than assumed). Currently, 47 states have passed versions of RUFADAA. But it’s important to note that unless it is explicitly called out in a trust or will, the assumption will be that the fiduciary does not have access rights. With RUFADAA, permission needs to be explicit.

The Digital Goods TLDR

In short, it’s essential that digital goods are addressed in estate documents – that it’s established whether or not a fiduciary should have access to digital assets and who the beneficiaries of those assets should be (when applicable). Most online tech platforms don’t allow the direct passing of an account from one person to another (for example, you can’t bequeath a Facebook account) but many do now have online tools where fiduciaries with proper permission can access the accounts to gain necessary information. 

Ongoing estate planning

Technology continues to evolve – and so do people’s lives. In today’s world, it doesn’t make sense to simply create estate planning documents once and file them away in a drawer. Estate planning software like Vanilla enables advisors and clients to establish an ongoing conversation about estate and financial planning that’s an essential part of a comprehensive wealth plan.