The popular media and estate planning commentators have raised the profile of “digital assets” as being an emerging area of importance as individuals undertake and review their personal estate planning. This post describes how several existing, commonly utilized estate planning tools are well suited to the particular demands of planning for digital assets.
First, for purposes of this discussion, the definition of “digital assets” is treated as having two general categories, (A) true digital assets, and (B) digital information:
A. Digital assets that include interests in property capable of being divided or distributed, such as digital media in the form of text, photograph, music, and video files, websites and domain names, and to the extent legal ownership can be established, web-based media including e-mail accounts, social media and blogs.
B. Digital Information that is representative of (or enables control over) traditional forms of intangible personal property such as bank and brokerage accounts, stocks, bonds, mutual funds and other intangible investments for which the record-keeping, reporting or management functions are online, either in part or in whole.
A longstanding tool in traditional financial and estate planning is a comprehensive list of assets and liabilities. Such a balance sheet enables an individual or committed couple to maintain an inventory of their important property interests and debts. And the detailed information in such an inventory is useful both for lifetime “bookkeeping” purposes, such as tracing and managing financial performance and goals, and also to serve as a record to inform others in the event of incapacity or death. The rise of the digital age has done nothing to diminish the importance of this valuable financial management tool. Instead, with the introduction of an entirely new category of digital assets for which no physical records may exist, having a central inventory that brings together into a comprehensive list all of the important information about an individual or couple’s financial and digital asset information is likely to be more important than ever.
An inventory usually includes account numbers, balance information, date of acquisition and basis information for non-cash types of property, as well as contact information for relationship managers. Today, for both digital assets and digital information, it is important to maintain records of user name, password and security question responses (i.e. first pet’s name) that may protect access to the assets. For the first category—“tangible-like” digital assets—the inventory should include location of back-up copies of digital media, security passwords and a listing of important digital media types and storage format details. Of course, the ability to effectively inventory digital media depends upon the use of best practices by the owner to organize, save and back-up that media as it is created and curated. As with all types of property, proper lifetime management is essential if there is to be a good opportunity to capture and pass along that media in the event of a death or disability.
An inventory that includes digital asset information should be afforded the same security-related care and treatment traditionally afforded such sensitive information. A physical list should be maintained and placed in a secure location—such as a safe or safe deposit box—that is known to those who would need to access that information in the event of disability or death. The owner should also provide access or a copy to a trusted advisor or loved one.
A common technique in drafting the gift for tangible personal property under a Will is to include a specific provision that enables the person making the Will to write a memoranda addressed to the personal representative of the estate with respect to the disposition of specific items of property. Such provisions provide a practical, nonlegally binding manner of disposition for specific items of property that are more likely to have significant sentimental, rather than economic, value. Many digital assets likely fit this description. A gift providing for the disposition of digital assets could include a clause that might read as follows:
I request that my Personal Representative, or the persons receiving the foregoing personal property, distribute or redistribute such property, in accordance with any letters or other written memoranda I may address to them regarding the same.
This type of clause would not be recommended for the digital assets of a professional content creator such as an author, musician or photographer, but it should serve well the needs of a typical person with digital files of photos, videos and music that can be legally transferred to another person. Such a memorandum might also include specific instructions regarding the preservation or termination of e-mail and social media accounts.
An often-stated concern with respect to digital assets is that those charged with administering estates—such as attorneys-in-fact, executors or trustees—may not possess the technical know-how to handle digital assets or access digital information. This problem can be addressed by a fiduciary exercising his or her authority to delegate tasks related to digital assets to a professional or a trusted family member who is qualified and could act under the direction and supervision of the fiduciary. The authority for this type of delegation is commonly found in existing governing instruments and under state statutory law. For example:
My [attorney-in-fact/personal representative/trustee] is authorized to employ and pay reasonable compensation to agents, accountants, attorneys, consultants, investment counsel and such other representatives as the [attorney-in-fact/personal representative/trustee] may deem appropriate, including the right to employ any family member or a person beneficially interested in my estate to assist in the exercise of any of the powers granted to my [attorney-in-fact/personal representative/trustee] in this instrument.
Estate planning advisors can provide valuable guidance by recommending the use of lifetime inventories that account for the digital assets and digital information important to their clients. Planning advisors can also assist by evaluating the need for, and recommending where appropriate, the authorization of non-binding written memoranda addressed to the personal representative providing guidance with respect to the division and disposition of digital assets. Advisors seeking to solve administrative obstacles can look to existing provisions in powers of attorney, wills and trusts, as well as applicable law, for the authority of the fiduciaries acting under those instruments to engage necessary assistance with respect to digital assets.