Law Office of John S. Palmer Attorney at Law

Estate Planning for Digital Assets

Posted Friday, September 20, 2013 by John S. Palmer

The advent of the digital age has created some specific issues that should be taken into consideration both when creating an estate plan, and implementing it due to the death or incapacity of the principal who created the plan.

For example, an estate plan should permit any fiduciary appointed by the principal to access, manage, and protect websites, domain names, online advertising or sales accounts, and any other digital assets. This authority should be granted to any attorney-in-fact designated in a durable power of attorney as well as the executor, personal representative or trustee named in a will or trust.

Depending on the type of asset involved and the asset provider’s terms of service, it might make sense to transfer the asset to a corporation, LLC, partnership or trust, to make access to the asset easier for a fiduciary than if the asset was held in the name of one or more individuals. If the digital asset is related to an existing business entity, such as a website for a brick-and-mortar company, it most likely should be held in the name of that company, so that it stays with the business if it is taken over by someone else, whether that be a buyer who purchases it, or heirs who inherit it.

A good estate plan should also ensure a fiduciary has access to important personal and financial information stored online or on a digital device, especially if paper records are not kept for this information.

There are two primary ways to catalogue passwords, user IDs, and other information for online financial accounts and other digital assets. One is to maintain a “digital safe deposit box” with an online service such as legacylocker.com or securesafe.com where you can save passwords for all digital assets as well as scanned copies of important documents. The password to this account should be a strong one, and kept where a fiduciary could find it, such as in a physical safe deposit box with original hardcopy estate planning documents, and the information stored in the “digital safe deposit box” should be updated whenever a new digital asset is acquired or the user ID/password for an existing one is changed.

Another way to catalogue digital assets is to download password manager software onto a computer, smartphone or other digital device; products such as Keepass, Secubox and Web Confidential will encrypt the data for maximum protection. As with the “digital safe deposit box” option, the password to access the password manager should be complex, to prevent hacking; kept in a safe place where a fiduciary can find it; and the information stored in the program needs to be kept up to date.

Any fiduciary assuming responsibility for the management and control of digital assets should act quickly to get a handle on the nature and extent of the assets. Timely action may be required to ensure funds are available to cover an automatic bill payment, stop automatic payments for a product or service that is no longer needed, or to collect income and fulfill obligations owed to buyers through an online sales account.

Even if the principal established a “digital safe deposit box” or catalogued digital assets and passwords, the email of a deceased or incapacitated principal should be monitored, if possible, for evidence of any unknown assets or liabilities, digital or otherwise; this is really just a modern twist on looking through the principal’s regular mail for bills, account statements and other documentation of assets and liabilities.

However, it is important to review the terms of service for each digital asset to verify that access is permitted. For example, the right to access a Yahoo email account terminates upon the account holder’s death, though in some cases an executor has been able to obtain a copy of an email account’s contents by court order. Moreover, data security laws intended to prevent hacking or data theft may prohibit access to an asset by anyone other than the actual owner, though there is a trend developing to exempt a duly appointed fiduciary from these laws. At least six states (California, Connecticut, Idaho, Indiana, Oklahoma and Rhode Island) have passed laws authorizing a personal representative or executor to access certain digital assets, and at least 4 other states are considering similar legislation.

If an incapacitated principal did not include language in his or her power of attorney sufficient to give the attorney-in-fact the authority to access digital assets, it might be possible to obtain such authority by modifying the power of attorney through a court petition filed pursuant to RCW 11.94.090.

However, if sufficient care is taken during the planning process, the job of any fiduciary assuming control of assets due to the death or incapacity of the principal will be much easier.

If you have any questions or would like to schedule an appointment, please call us at (425) 455-5513, toll free at (877) 455-5513, or info@palmerlegal.com.