Ownership of digital assets concern for estate planners

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So much of an individual’s life now appears online, including bills, Facebook accounts and photo-sharing websites. But what happens to those assets when a person dies?

It should be standard practice for lawyers to advise clients to include digital assets in their estate plans, said Gerry Beyer, an estate planning professor at Texas Tech University School of Law who has written on the subject.

“If clients are smart about their online life, they have many different usernames and passwords for their accounts,” Beyer said, which can create a hassle for executors and family members. “Sorting through a deceased’s online life for the important things can be just as daunting as cleaning out the house of a hoarder.”

Alexandria, Va.-based estate planning attorney Deborah Matthews said she became aware of the issue after a client’s husband died unexpectedly.

Although the couple’s assets were jointly owned, the husband handled all of the financial matters and had set up their online checking account so that bills were paid automatically and all of the statements were delivered electronically. The wife didn’t have the password to the account and the financial institution would not provide it or give her access, Matthews explained. “She was completely shut out.”

The wife’s only option was to withdraw all of the assets and close the account, which resulted in bounced payments and delinquent accounts, Matthews said.

The story illustrates the complications digital assets can cause.

“Digital property is often hidden from view and if someone dies or becomes incapacitated, their loved ones have no idea about the extent or the location of that property,” said Matthews.

What they are

Beyer said digital assets include any online accounts, or any files stored on a computer or in the cloud. This includes email accounts, photo sharing accounts, music accounts like iTunes, e-books, social media accounts like Facebook and Twitter, online medical records, brokerage and bank accounts, videos or documents on YouTube or Scribd, websites or blogs, domain names and online auction house or shopping accounts like eBay or Amazon.

“While many of these assets do not have monetary value, many of them may have sentimental value to family members,” Beyer said. That’s why “every category of digital assets needs to be considered when drafting an estate plan.”

Traditionally, an executor or fiduciary would take stock of a decedent’s assets by locating physical objects or looking at bank or account statements, said Michael Walker, an estate planning attorney at Samuels Yoelin Kantor in Portland, Ore. But if statements are being sent to an email account, fiduciaries may not be able to access them.

“The worst-case scenario is that an asset could simply disappear,” Walker said. “If it is an account set to receive paperless statements – even tax forms – via email and the account can only be accessed by password, the asset could just fall through the cracks.”

What to do

As a matter of routine, Matthews says she now discusses the issue of digital assets with all of her clients.

The first step, Walker advised, is to identify the assets and how they are accessed, obtaining all relevant passwords. His firm utilizes a “virtual assets instruction letter,” or VAIL, a tool that guides a client through creating a list of all digital assets and the access information for each. He said that the client may want to designate a fiduciary only for digital assets in the VAIL, selecting someone who may be more tech-savvy than the personal representative for the remainder of the estate.

Matthews suggested that hardware, like laptops and smartphones, be included in the digital assets list because most require passwords.

Beyer advised keeping the list separate from the client’s will, because when the will is probated it becomes public information.

“One option is to give it to a third party; another is to keep it in some kind of restricted place like a safe deposit box,” Matthews said, adding that she will accept such a list only with an accompanying escrow agreement.

Beyer cautioned against giving a list to a family member, because other family members could resent one individual having access to financial accounts, or a dishonest family member could access money undetected.

Once the list is created, it will need to be periodically updated, since most sites mandate password changes at least once a year.

There may also be accounts that a client wishes to have deleted, said Gene H. Hennig, a partner at Gray Plant Mooty in Minneapolis, Minn. If so, the will or VAIL should designate which accounts to delete.

State law gaps

Only five states – Connecticut, Idaho, Indiana, Oklahoma and Rhode Island – have laws addressing digital assets and estate planning.

The lack of existing law leaves executors, agents, guardians and beneficiaries with limited rights, Beyer said. Family members may have to go to court to gain access to accounts, because most service providers – including Facebook and Google – preclude access for third parties or terminate accounts upon the death of the account holder.

Walker helped draft legislation in Oregon that will be introduced in the legislature in January 2013. The proposed law gives fiduciaries explicit powers to send a notice or obtain a court order to gain access to or possession of digital accounts and assets.

The law “provides a means by which … a fiduciary has the ability to find [digital] assets and administer them like you would any other tangible property,” he said.

Beyer said Massachusetts and Nebraska are also currently considering legislation.

Recognizing the increasing importance of the issue, the Uniform Law Commission decided in July to form a drafting committee to produce a uniform act, said Hennig, who is one of Minnesota’s representatives.

The uniform law would grant the personal representative or administrator of an estate access to and management of digital assets.

A uniform law would especially valuable for digital assets, Hennig said, because they are not property that is physically located within the state where the decedent resided.

He said that what law should govern is open to question: should it be the law of the decedent’s home state, the law of the location of the server where the information is stored or the law of the headquarters of the service provider?

Once the drafting committee puts together a proposed act, it will be “heavily vetted” by the full Commission, Hennig said. One complicating factor will be coordinating the law with existing uniform laws on subjects like probate, trust and guardianship.

He estimated that the earliest the law will be promulgated for recommended adoption by the states would be at some point next year.