By Paul Hyl, Esq.
Studies have shown that in 2012, for the first time ever, one-half of all adults age 65 and over use the internet or e-mail, with seventy percent of them using the internet daily and one-third of them using a social networking site. As a result, a client’s potential estate has grown to include assets of the digital kind. Photo albums, diaries, and letters are rapidly being replaced by their electronic counterparts; interpersonal connections are being made through social networking websites; even banking is done online, from statements to phone camera check deposits. However, whereas photo albums, diaries, letters and address books are physical property passed on by the deceased to be cherished and enjoyed by their heirs, their electronic counterparts are often times not so easily identified or transferred. In addition, electronically stored information may be put beyond reach without usernames and passwords. Because clients may not consider these issues when profiling their overall estate, a diligent attorney must proactively draw the client’s attention to these modern complexities and to his or her digital estate. This article is intended to identify and categorize digital assets and to provide some steps for developing a digital estate plan.
IDENTIFYING VIRTUAL ASSETS
Digital assets, also known as virtual assets, are electronic resources that can be owned or controlled and are electronically stored or maintained on computers and related technology. It is important to keep in mind that although the term “digital assets” is the more commonly used term with regard to this topic, the term “virtual assets” may be more appropriate, as many of these assets are not truly assets but rather licenses to use certain goods and services. These assets may be broken into four main categories, including: personal assets, social media assets, financial assets, and business assets. Although most clients’ digital assets may only include the personal or social media kind, which generally have little or no monetary value, they play an increasingly important role in clients’ lives, serving as the foundation for memories and valuable familial relationships.
Digital Personal Assets
Digital personal assets are typically electronically shared text and media files, such as records, photos, videos, diaries and journals. They have the same emotional value as their physical counterparts. Personal property like photos and journals can tell a person’s life story, and passing that story on to loved ones is a significant component of estate planning. These assets may be priceless and have profound sentimental value. However, unlike in the past when such personal assets were in physical form, digital personal assets are more likely to go unaccounted for in their digital form, unknown to family and friends. They may be stored on a client’s home computer, a flash drive, an external hard drive, an online photo sharing website or a cloud storage server. Even if their existence is known, access may be difficult to obtain without taking steps to pass on usernames and passwords.
Alternatively, for some clients, digital personal assets may consist of intimate and clandestine files that a client wants to keep secret. Once again, without proper planning, these files may fall into the hands of those who were never meant to see them.
Moreover, it is also important to consider the transferability of certain digital assets, such as media purchased through iTunes, Amazon and other services. Today, people spend thousands of dollars purchasing music, movies, television shows and books online. However, when such items are purchased on-line, it is really the right to use the item that has been purchased, without the physical manifestation of the property that would exist if the item was purchased in tangible form. These rights are governed by the contract between the user and the company, often in the form of a “terms of service” agreement that restricts downloads to prevent file sharing. So, unlike a CD or record, which could be easily passed on and used in any CD or record player, downloaded music and similar files will generally remain stuck to the account that originally purchased them or the device on which they originally were purchased.
Social Media Assets
Social media assets are accounts used for connecting with other people, such as e-mail, Facebook, Twitter and Instagram. There are two distinct aspects to such accounts: the first is the account itself, that is, the e-mail address, user name or Twitter handle; the second is the contents of such accounts, the virtual correspondence, the e-mails, posts, tweets or photos themselves. Common sense might indicate that an individual owns their username and the products of his or her virtual correspondence, but many online accounts are not actually property. Instead, these accounts are often just licenses governed by seldom read “Terms of Service.” As a result, licenses that expire with the life of the holder may effectively preclude an account from being continued or transferred after death, and restrictive terms of service may prevent access to the virtual correspondence after death.
Social media assets must be considered with care. E-mail accounts may hold untold secrets into one’s life and social networking sites are becoming a significant component of a person’s reputation, not to mention a large part of one’s digital legacy. These online services have various policies dealing with access after a user’s death, generally with a focus on privacy that is not misplaced. For example, after an account holder’s death, Facebook allows for a Facebook page to be memorialized, deleted, or continue to exist as is. Some websites may also allow family members to obtain the contents of the account with proof of death and relationship. Policies vary widely from website to website. However, even if a company’s policy is extremely restrictive, that is not always the end of the road. A court order may trump the contract between the user and the company. Consider the case of Justin Ellsworth. Justin was a Marine who was killed in Iraq. After Justin’s death, his family wanted access to his Yahoo e-mail account, however the company refused based on its terms of service, which provides that accounts are nontransferable and terminate at death. Justin’s family took Yahoo to court and an Oakland County probate judge eventually ordered Yahoo to turn the contents of the e-mail account over to Justin’s family. Access to the actual account or the ability to continue using the e-mail address was never granted. Similarly, a court order from a local court in Wisconsin recently directed Facebook to give a family access to their deceased 21-year old son’s account. While these are certainly victories for the families, it is surely not difficult to imagine that most families do not want to spend resources, both financial and emotional, on similar court battles.
Digital Financial Assets
Accounts like Paypal, online gambling websites, massively multiplayer online games (“MMOs”), online bank accounts and bill-paying services are included in the financial assets category. Taking into account online services is a critical aspect of digital estate planning. First, access to online services may aid an executor in identifying traditional assets. For example, banking and brokerage statements may only be accessed online if the client has opted to go paperless. Additionally, nondigital assets such as reward and incentive programs, may require online access for management and transfer. Thus, an executor can not rely on checking a decedent’s file cabinet or snail mail for account statements. Besides having difficulty identifying assets, the fiduciary of a paperless decedent’s estate who lacks access to a decedent’s online services, may find that bills received online are going into default, or that online subscription services are continuing to unnecessarily charge the decedent’s account.
In addition, resources held in online accounts like PayPal or gambling sites may go unmarshalled. In some instances, MMOs allow players to accumulate assets in the virtual online game that have actual real world value. Take the case of David Storey, a graduate student in Sydney, Australia who paid $26,500 in real money to purchase a virtual island in the MMO Entropia. Even more staggering than the price he paid for the island, is that it brings him in over $100,000 a year in real money, by allowing other Entropia players to use the island. One can easily see how such an asset could go unmarshaled by an Executor unaware of it existence or value.
Digital Business Assets
Digital business assets includes blogs and websites that are potentially valuable, or the goodwill associated with an Ebay or Etsy store. Website domain names are transferable assets registered to each owner. Website and blog content belongs to the writer under copyright law. Copyright law protects “original works of authorship” from the moment the work “is created and fixed in a tangible form that it is perceptible either directly or with the aid of a machine or device.” Works subject to copyright and the corresponding rights are transferable during life or upon death. Thus, a website subject to a copyright can be transferred at death via Will, trust, or by operation of law. Consequently, where such a website, or an Ebay or Esty store, is owned by an individual, as opposed to an undying business entity, there should be a plan to carryout the owner’s post-mortem desires with respect to the store or website.
Some clients may wish to have their websites or blogs continued after their death by another person, while other clients may wish it to be stopped. Popular blogs can be extremely profitable as a result of advertising revenue, and should be continued or sold. Depending on the generality of a website address, it may have value separate from the Decedent’s underlying business.
Digital Estate Planning Methods
Regardless of which category a particular digital asset falls into, all of them could be come virtually inaccessible without proper planning. While usernames and passwords protect individuals’ online presence, problems may arise when an account holder passes away or becomes incapacitated, leaving no one else with access to his or her online accounts. Moreover, account ownership and the ability for a decedent’s representative to access online accounts after death varies by service provider. Thus, the surest way to for a decedent’s representative to gain access to online accounts is to have the usernames and passwords. This not only prevents problems with access, but may also guard against the increased potential for online identity theft that occurs when a person in unable to monitor online accounts by reason of death or incapacity. As a result, digital assets and information should be accounted for when developing a comprehensive estate plan.
The main problem with digital estate planning is the dearth of legal precedent that exists with respect to digital assets. Currently, only five states deal with digital assets in their estate laws: Connecticut, Rhode Island, Indiana, Oklahoma and Idaho. Connecticut and Rhode Island’s statutes are limited to providing estate fiduciaries with access to a decedent’s e-mails. Indiana’s statute is a bit more comprehensive, covering electronically stored documents. Oklahoma and Idaho’s statutes are the most comprehensive, providing that executors or administrators may take over digital assets such as social networking and e-mail accounts. However, these statutes are limited to their respective states, leaving the legal landscape with respect to digital assets largely unclear. That said, there are several steps that can be taken to deal with a client’s digital estate.
The first step is to for the client to take inventory of his or her digital assets. This list should include a list of all digital assets with their name, location (i.e. website address), username, password and other login information, such as the answers to user confirmation questions. The digital assets inventory should also include whether any money is involved with the digital asset, such as an existing account balance. In addition, the policy or terms of service for each digital asset should also be reviewed to determine existing transferability and access rights. It is also critical to determine what authorizations will be necessary for dealing with each digital asset after death and to include this information in the digital assets inventory.
The purpose of the digital assets inventory is to ensure that the appropriate person will have access to the digital assets in the event of death or incapacity. So, the digital assets inventory should be compiled in one convenient location. This could be accomplished by storing the digital assets inventory on a flash drive or other means of storage. When choosing the means of storage, keep in mind that the digital assets inventory should be updated regularly. While this may make an electronically stored document or spreadsheet seem preferable, the document itself should not be password protected. There are several online companies such as Legacy Locker and SecureSafe, which offer to maintain such information for you. These websites, touted as online safe deposit boxes, are not intended as a substitute to including provisions in your Will regarding who is it inherit your digital assets.
The second step is to provide compressive instructions to accompany the digital assets inventory. These instructions should not only include how to access each digital asset, but what should happen to the digital assets in the event of death or incapacity. That is not to suggest that theses instructions can effectively “gift” digital assets to specified beneficiaries, but they serve as guidance on whether the asset should be memorialized, carried on, sold or deactivated. It is important to consider privacy concerns when drafting these instructions. For example, if a client would like for certain e-mails to remain private and others to be passed on to family members, the instructions should take that desire into account. When completed, the instructions should be included along with the digital assets inventory to provide easy access and ensure the instructions are carried out. Both the digital assets inventory and related instructions should be kept in a safe place, such as with the client’s other estate planning documents. It would also be wise for the estate planning attorney to be given an updated copy of the digital assets inventory.
The third step involves choosing the appropriate person to act as the “digital administrator.” This person may be a fiduciary appointed by a Power of Attorney in the event of a client’s incapacity or an executor appointed by the client’s Will when the client dies. As with any fiduciary appointment, the person chosen to execute the digital estate plan must be trustworthy and available, but they must also be capable of dealing with the digital assets. While this could be the person the client has chosen as Executor or attorney-in-fact, it may not be, and a separate appointment may be necessary. In either event, the appointing instrument should include a reference to the Stored Communications Act, 18 U.S.C. § 2702(b) & (c), authorizing service providers to release covered communications to such appointee. If the person chosen as the digital administrator is not the Executor under the client’s Will, it is important to include language in the Will clearly spelling out their authority and directing the Executor to provide the digital administrator with a copy of the death certificate, which may be necessary to handle certain digital assets.
The fourth step is to choose the means for carrying out the digital estate plan. The client’s testamentary instruments should reference the digital assets, the person chosen to execute the plan and the client’s testamentary intent regarding their digital assets. Although it is important to express intent regarding the disposition of your digital assets in your testamentary instruments, passwords and usernames should not be included in a Will. Not only would this cause the usernames and passwords to become public after death, but it could also make it more difficult to update the information as it changes.
It may also be prudent to consider a trust for a client’s digital assets. The trust would have the normal estate planning advantages, such as avoiding probate. In addition, since the trust does not necessarily become public after death, it could potentially include more details about the client’s digital assets. Furthermore, the account information for certain digital assets could be changed to the trust, which may alleviate some postmortem transferability issues.
The fifth and final step is to implement the plan, most of which may not occur until the client dies. However, preliminary steps such as notifying the person nominated as the digital administrator may be taken at any time. Implementing the plan may include probating a Will and drafting and executing any documents required by relevant online companies.
These steps may seem like a daunting task to the estate planning attorney, as the breadth of digital assets is wide; however, they are becoming as important as taking inventory of a client’s traditional assets. By including appropriately worded language on the estate planning questionnaire sent to a client in advance of your meeting, much of the legwork can be done by the client.
Paul Hyl is a partner at estate planning firm Cona Elder Law. Adam Kahn, a law clerk at the firm, assisted in the preparation of this article.