In the ever-increasing digital world, it is important to consider your digital assets when preparing your estate plan. Your digital assets can hold tremendous economic and sentimental value to you and your loved ones, making it crucial to properly document and safeguard these assets as part of your estate plan.
Without proper planning, your digital assets could be lost forever. While the law surrounding digital assets evolves quickly in response to ongoing advances in technology, there are some general guidelines to help ensure your digital assets are distributed promptly and in accordance with your wishes.
Types of Digital Assets
Nearly everyone today maintains some form of digital assets, such as e-mail accounts, cloud storage, subscription services, non-fungible tokens (NFTs), social media accounts, etc. Some digital assets are treated as your personal property and are transferable under your Will, such as blogs, which are protected under federal copyright law, while other accounts such as PayPal, Amazon, Twitter, iCloud, and Venmo are often only licenses to use a particular service, meaning you cannot transfer them under a traditional estate plan because you do not own them.
This distinction can have very real consequences. For instance, if your PayPal or Venmo account is terminated upon your death without transferring the funds remaining in the account, those assets can be lost forever. Similarly, if your Apple ID is terminated, you could lose all data stored in iCloud because you only possess a license to use the service under Apple’s current terms. As such, it is important to familiarize yourself with the terms and conditions of each of your digital asset accounts.
Fiduciary Access
As both Federal and New York privacy laws prohibit unauthorized disclosure of a user’s digital assets to third parties, maintaining an up-to-date inventory of all your digital assets is critical to ensuring they are not lost. This inventory should include a list of all your digital assets and accounts, where to find them, and how to access them.
Your fiduciary (i.e. your Executor, Trustee, and/or agent under a Power of Attorney) should also be provided with all information needed to access these digital assets, such as usernames and passwords for all accounts. Additionally, if your chosen fiduciary is not “digitally savvy,” a step-by-step guide to access and administer your digital assets may be advisable. This information should be stored in a safe place, and you should always let your fiduciary know where it is located. However, this information should not be stored in your Will because that document becomes public record when the Will is probated.
Moreover, your online accounts are often most easily accessed through your personal electronic devices (i.e. cell phone, computer, tablet, etc.). Thus, it is important to include access to these devices in your estate plan. Make sure to account for external devices as well, such as external hard drives and flash drives.
Succession
Under New York law, a distinction is made between the “catalog” and the “content” of your digital assets. The catalog of your digital assets includes identifiable information used to access certain content, such as the “to” and “from” lines of an email. The content, however, can include substantial and private information about the digital asset itself. For example, the content of an email includes the text and any attachments within the email.
Disclosure of catalog information is relatively easy for your fiduciary to obtain. While access to the content of your digital assets often requires your express consent to any disclosure, even to your named fiduciary. Without your express consent, disclosure of your digital assets will be subject to the terms and conditions of the service provider, which you agree to when opening the account.
Additionally, many online accounts now provide tools allowing you to direct the disclosure (or nondisclosure) of your digital assets through the account itself. In those instances, your directions will override any contrary provisions in your Will, Trust, or Power of Attorney. Therefore, it is important you keep these tools updated in accordance with your other estate planning documents. However, if you do not use such a tool (or no such tool is available), you can still allow or prohibit disclosure of your digital assets through your Will, Trust, or Power of Attorney.
Digital Asset Authorization
Estate planners now routinely offer to create a “digital asset authorization” that specifically provides for access by an agent under power of attorney and/or an estate fiduciary to access digital records and assets registered to you. If you do not have this tool with your other planning documents yet, ask about it. This is a document created by attorneys, not an off-the-shelf form provided by non-attorney financial services professionals.
Tax Considerations
Another important consideration to keep in mind is how the disposition of your digital assets will be treated for taxation purposes. For example, the Internal Revenue Service (IRS) considers cryptocurrency as a capital asset, not currency. This distinction can have important implications on the way these digital assets are taxed when acquired, sold, or transferred to another person and can impact the way you want to distribute them.
Your estate plan should always take tax implications into consideration and plan for any gift, estate, and/or generation-skipping transfer tax that may be imposed, if necessary. You should discuss this with a qualified estate planning attorney to understand the tax implications of this classification.
