Many of us spend hours online each day. As we navigate through the online world, we likely create digital assets along the way.
Therefore, as we create estate plans for our non-digital assets, we must also develop a plan for our digital assets.
Unlike non-digital assets, however, planning for digital assets requires special care due to the myriad laws, rules and contracts that must be considered.
What is a Digital Asset?
Many states have adopted some form of the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA). RUFADAA defines a digital asset as “an electronic record in which an individual has a right or interest. The term does not include an underlying asset or liability unless the asset or liability is itself an electronic record.”
A number of things created online are digital assets, including domain names, social media accounts, cryptocurrency, blogs, e-mail accounts, electronic financial information (although, the underlying financial asset is not included in this definition), loyalty program benefits (such as airline miles or hotel points), electronic files stored in the cloud (including your photos and videos), online game personalities and electronic medical records. However, intangible assets registered as copyrights, trademarks, and patents are not considered digital assets.
Assets worth millions of dollars can be created with a few clicks of a mouse. For example, a person paid over $69 million for a non-fungible token (NFT) that unlocks a digital artwork (in jpeg format) by a digital artist known as Beeple. The number and types of digital assets, many of which were unimaginable a decade or so ago, are seemingly endless. Suffice it to say, anything created or accessed electronically could be a digital asset, and some of them can be quite valuable.
Planning for Digital Assets
Although digital property is a relatively new concept, the sheer volume of digital property we create every time we access the Internet is hard to fathom. According to the Pew Research Center, approximately 7-in-10 Americans say they use some kind of social media.
As with any property, you should plan for the use, management, and disposition of your digital assets in the event of your death or incapacity. In addition, you should understand the rights you have in and to your digital assets and the extent to which you can control and transfer them.
Where to Start
First, begin with the basics. Know what digital assets you own. Before thinking about the rules that could apply to your digital assets and how you would like to dispose of them, you should make an inventory of your digital assets.
For each asset, the inventory could include the type of asset, name of asset (if any), the name and contact information of the custodian of the asset, and any arrangements which you have put in place that are permitted by the custodian for the asset’s management should you die or become incapacitated. You may want to include any other information that might be relevant.
As described below, be careful about revealing passwords, as the unauthorized use of a password could put your fiduciaries in legal jeopardy.
Second, after having made an inventory, consider how you would like to transfer or dispose of each digital asset, both during your lifetime and following your death to the extent they are transferrable. For digital assets having financial value (e.g., cryptocurrency, domain names, loyalty program rewards, NFTs) or having sentimental value (e.g., family photos or videos stored in the cloud), determine who should receive those assets following your death.
Third, consider who should manage your digital assets. Does this person have the technological know-how to deal with your digital assets? Do you wish your fiduciaries to have access to all of your digital assets? For example, if your spouse is your executor, should your spouse have access to your entire online life? Are there things that could be embarrassing if your family saw them? Are there some assets that you would want destroyed? Sometimes we don’t want things said or seen online to be public. Which leads to the question, should you appoint different parties to handle different digital assets or direct that no one has authority over certain digital assets?
The law governing access to digital assets is evolving and in many respects is unclear, with many laws overlapping or contradicting each other. The rules regarding access to your digital assets can be found in terms of service agreements, state law and federal law.
Terms of Service Agreements
The starting point for understanding access to your digital assets will be found in the Terms of Service Agreement (TOSA) that you entered into with the service or account provider. The TOSA is a contract between you and the custodian of the digital asset or service provider. It governs the relationship among you, the provider, and your digital assets held by the provider. Most people do not read these agreements. Instead, when creating a digital account, they simply click the box indicating that they accept the TOSA without understanding how it impacts them.
The TOSA may have rules regarding who can access your digital assets. It may (and likely does) prevent the sharing of passwords. It may allow the service provider to delete the account if there is unauthorized access. It may allow (or require) the service provider to delete the account after you have died. Some TOSAs allow you to name a manager with authority to act should you not be able to manage your account or die. Unfortunately, each TOSA stands on its own and each provider will have its own rules. Further, TOSAs are constantly amended by the providers. For example, Google permits the user to name an inactive account manager who may manage the user’s account after a set period of inactivity. Yahoo’s TOSA requires that the account be deleted upon the user’s death.
The United States is a system of dual sovereignty, which means that both the states and the federal government are sovereign and can (unless Congress preempts the states from acting) regulate the same matter. Most states have adopted laws regarding access to digital assets. Many have enacted some version of RUFADAA, which was prepared by the National Conference of Commissioners on Uniform State Laws. The intent and purpose of RUFADAA is explained as follows:
The purpose of the Revised Fiduciary Access to Digital Assets Act (Revised UFADAA) is twofold. First, it gives fiduciaries the legal authority to manage digital assets and electronic communications in the same way they manage tangible assets and financial accounts, to the extent possible. Second, it gives custodians of digital assets and electronic communications legal authority to deal with the fiduciaries of their users, while respecting the user’s reasonable expectation of privacy for personal communications. The general goal of the act is to facilitate fiduciary access and custodian disclosure while respecting the privacy and intent of the user. It adheres to the traditional approach of trusts and estates law, which respects the intent of an account holder and promotes the fiduciary’s ability to administer the account holder’s property in accord with legally-binding fiduciary duties.
Accordingly, RUFADAA is intended to provide a legal framework by which a fiduciary may access a user’s account. For these purposes, a fiduciary can be an agent under a power of attorney, a trustee, a conservator, a guardian of the property or the executor or administrator of an estate. However, RUFADAA does not change any legal rights under a TOSA or any restrictions the TOSA or user may have placed on the fiduciary’s rights. Nevertheless, RUFADAA (or other state laws) can provide a useful framework for granting a fiduciary access to a user’s accounts, in cases where the service provider or custodian of the digital asset does not have specific provisions in the TOSA governing the fiduciary’s access.
Federal law also applies to digital assets, particularly in the area of protecting privacy. It is a federal crime to “intentionally access… without authorization a facility through which an electronic communication service is provided” or to “intentionally exceed… an authorization to access that facility; and thereby obtain…, alter…, or prevent… authorized access to a wire or electronic communication while it is in electronic storage in such system.” It is also a crime for a provider of an electronic communication service or a remote computing service to disclose the content of communications to anyone other than the originator or the recipient of such communications without the lawful consent of the originator, recipient or an agent of the recipient.
Providing your password to your fiduciary and allowing your fiduciary to use it could result in unintended consequences. By using your password, your fiduciary could be violating federal law and face criminal liability. Even if the fiduciary’s conduct does not cause criminal liability, the fiduciary may have violated the TOSA, which could result in your account being deleted. Accordingly, if you do not understand the TOSA governing your digital assets, it could result in the loss of an asset having financial or sentimental value.
Creating a Plan
There are a number of legal and practical steps that you should explore in planning for your digital assets. As laws vary from state to state and TOSAs vary from provider to provider, you should consult an attorney to help you in the planning for your digital assets. Notwithstanding that rules vary from place to place, the following are some general things that you should consider:
- 1. Understand the TOSA for each service provider. If a TOSA allows you to name someone to manage your account if you are not able to do so, consider naming an “agent” or “manager” pursuant to the TOSA..
- 2. When drafting your estate planning documents (your power of attorney, will and/or trust), provide your fiduciaries with specific authority to manage your digital accounts and assets or specify that you do not authorize your fiduciaries to do so. If you want your fiduciaries to have authority to manage your digital assets, be sure to provide that the fiduciary has your consent to access your accounts and that your fiduciary is an authorized user under state and federal law. Also, you may want to be specific on whether you authorize your fiduciary to disclose the content of electronic communication. Of course, an attorney who specializes in estate planning should prepare such documents and include appropriate instructions and consents.
- 3. Be sure your fiduciaries know about your digital assets. Include in your inventory not only your online assets (and accounts) but also information about assets stored on your personal computers.
- 4. For digital assets having monetary value, consider providing a specific disposition of such assets in your will or revocable trust. Also consider that certain digital assets may require special considerations.
a. Cryptocurrency. Cryptocurrency has become an asset more and more individuals invest in. As values can change quickly, be sure you understand who will have access to your account under the TOSA and how the TOSA will complement your will, power of attorney and other estate planning documents. Also, it may be especially important to preserve your “private key” as without it your fiduciary may never be able to access your cryptocurrency. Lastly, it may be possible to move your cryptocurrency to a hard wallet (similar to an encrypted flash drive), which may be easier for your fiduciary to access. Be sure to put safeguards in place to ensure that you do not lose the ability to access the asset.
b. Loyalty Programs. Each loyalty program will have its own rules with regard to transferring “points” or loyalty credits. Some prohibit transfers while others require specific information and, in some cases, a named beneficiary. Name a beneficiary for any programs that require this. Be sure your estate planning documents do not overlook anything necessary to transfer the rights and value that you are entitled to transfer. Also, be sure your digital asset inventory includes all of the loyalty programs to which you belong.
c. Non-Fungible Tokens. If you have purchased an asset that requires an NFT to access it, be sure you understand what it is you own. If you purchased the right to use the asset for your life, your rights in the asset will terminate upon your death. If your NFT provides you with full ownership of the asset, determine how you can pass that asset to your beneficiaries and, as with other valuable digital assets, be sure your fiduciary knows where to locate your personal key.
- 5. For assets that you have created or that have sentimental value stored on your computer or in the cloud (such as family photographs or videos), consider also keeping copies on a personal storage device, such as a magnetic hard drive, separate from your computer. Keep that device in a safe place and be sure your fiduciary knows where to find it. If for any reason your fiduciary cannot access your personal computer or your cloud storage, at least your backup copy may allow those family treasures to be distributed to, or shared with, your family.
- 6. There may be digital assets that you want destroyed. Be sure you designate a person to manage those assets pursuant to any relevant TOSA and provide them with clear instructions or address this directly with the provider if allowed. If those assets are stored on your personal computer, be sure they are in a protected file and that the person you wish to destroy them knows how to access them. If that person is different from your agent under your power of attorney, executor under your will or the trustee of your trust, be sure to clearly identify the delineation of responsibilities among your fiduciaries.
As with any plan pertaining to the management or disposition of property, great care should be taken when naming your fiduciaries. You should choose someone who understands the responsibilities of the role and is willing and able to fulfil them.
When planning for non-digital assets, it is often appropriate to name different fiduciaries to manage different types of assets.
For example, the business owner may name a spouse to manage general assets, but may name an additional or different fiduciary to manage business assets. Similar consideration should be given to the selection of fiduciaries to manage your digital assets. For example, you may not wish family members to view digital assets you wish destroyed. Therefore, you should consider appointing a special fiduciary to manage the digital assets that you desire to be kept secret and destroyed.
Many people name a corporate fiduciary, such as a bank or trust company as executor or trustee. If you own digital assets, be sure to check with the corporate fiduciary to determine if the bank or trust company is willing to administer those assets in your estate or hold them in trust. Some corporate fiduciaries will not hold digital assets, including cryptocurrency. If your corporate fiduciary is unable to administer or hold digital assets, be sure to name a different fiduciary to do so, and specifically delineate the roles and responsibilities of the different fiduciaries.
Digital assets are now a part of everyday life (e.g., a grandparent who keeps a Facebook account to communicate with grandchildren, the frequent traveler with hotel points and airline miles, and the investor who owns cryptocurrency).
Prudent planning dictates that you develop a plan for your digital assets. Notwithstanding that the law with respect to the management of digital assets continues to evolve, as you plan for your non-digital assets, you should use the tools that exist today to ensure that your digital assets receive similar care and attention.
Your PNC advisors are available to assist you as you plan your estate, including the planning for your digital assets.
For more information, please consult your PNC Advisor or contact PNC Private Bank.