Digital assets are more prevalent than ever before, and the volume and types of digital assets will only expand as technology advances. The majority of people have digital assets. However, most people neither recognize the extent of digital assets they have nor know how to begin identifying them.
The average American is estimated to have dozens of online items, assets, and accounts stored across multiple devices, clouds, and websites – and this number will only continue to increase as technology further intertwines with more parts of our world.
Cybercrimes are becoming more prevalent and identity theft is increasing at an alarming rate. Estate planners and advisors must address planning for digital assets with clients in order to help protect, manage, and plan for their digital assets and digital identities.
What are digital assets?
There are different definitions of digital assets depending on what authoritative source is being consulted. Under the Uniform Law Commission’s model legislation, the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), digital assets are defined as “an electronic record in which an individual has a right or an interest.”
Digital assets are not computers, smart phones, tablets, devices, or memory sticks. Digital assets are the pieces of information stored on these devices, or in accounts stored, maintained, or accessible online or in a cloud.
Currently, there are five generally accepted categories of digital assets:
- Electronic Documents: Any type of data, document, or record stored on a digital device, in the cloud or in another software sharing platform, or in an electronic communication, such as emails, instant messages, and text messages.
- Social Media Accounts: Personal and professional social media accounts, such as Facebook, Twitter, LinkedIn, Instagram, Snapchat, Shutterfly, and YouTube accounts, etc.
- Financial Assets: Financial information stored on a digital device, or an account maintained or managed online, and any type of account or asset associated with a monetary value. Commonly used platforms like PayPal, Amazon, or Venmo are all examples of financial assets. Cryptocurrency and all digital tokens also fall into this category, as well as other rights or interests in a blockchain or smart contract.
- Business Assets: Customer information, databases, PowerPoint presentations, websites, trademarks or trade secrets along with employee information, internal emails, and calendars are all examples of digital assets for a business. Some businesses operate entirely online making almost everything connected to the business a digital asset.
- Miscellaneous Category: Online gaming accounts, digital works of art, music, iTunes, Pandora, Spotify, Kindle purchases, loyalty programs and rewards, pictures stored in a device, online or in a software sharing platform, and even airline miles and gaming rewards are all forms of digital assets.
Planning for digital assets
Planning for digital assets ensures a person’s digital assets will be protected, preserved, and transferred to the intended recipients. In addition, planning helps protect against identify theft and other cybercrimes during life and at death.
Many digital assets are able to be transferred if they are properly inventoried and the right authorizations are provided. However, it is important to note that not all digital assets are capable of being transferred. Some digital assets are subject to Terms of Service Agreements (TOSAs) that prohibit the transfer of these assets during life or at death. For instance, iTunes purchases are not capable of being transferred to another user as the purchaser only has a lifetime license in the account.
Some digital assets hold a monetary value, which could translate into an economic loss if the asset is unknown, while others have priceless, sentimental and emotional value. Pictures, videos, and messages from a loved one could be forever lost if the platform storing these items is not properly disclosed or the requisite authorizations are not provided. Planning greatly assists loved ones and fiduciaries to expedite the process of identifying, finding, accessing, and transferring digital assets at death that are able to be transferred.
In my next post, I will address how to begin accounting for digital assets in your estate plan.
You can also follow my journey in exploring all things digital in estate and business planning by tuning into the Digital Planning Podcast, a series I recently launched with two other estates and trusts attorneys, Justin Brown, of Pepper Hamilton LLP, and Ross Bruch, of Estate Genie. Episodes are available on Kleinbard’s website, Apple Podcasts, Stitcher, and Google Play.