Asset transfers between individuals or estates are considered taxable events by the Internal Revenue Service.…
With the Internet of Things (IoT), knowing which digital property you own and managing it has never been more important. From smart home devices to online investments and bank accounts, we’ve gone way beyond using the internet to email family and social media to connect with friends.
Today, understanding which digital information and accounts you can legally leave to heirs is crucial to protecting your asset values. Laws governing these online assets are changing rapidly; however, legally gaining access to digital assets and encoded financial data can present challenges for anyone other than the original owner.
Four main obstacles will hinder access to a family member’s vital personal data and digital assets:
Without knowing your passwords, personal representatives and family members may not be able to access your data and property stored on a computer, smartphone, cloud, and online accounts. While experts can easily bypass some passwords, others can be practically impossible, like cryptocurrency.
Your digitally stored data is often encrypted for an additional layer of protection. Encryption can happen at many levels, from a single file on your device to large amounts of stored information in the cloud. In particular, new smartphone technology may be very difficult to decrypt, so if you have not transferred your data to an external hard drive or USB and shared it with other family members, the digital information may not be accessible.
3. Privacy laws
In general, federal data privacy laws prohibit turning over electronic communications by online account service providers unless you are the owner or have the owner’s legal consent. Therefore, social media sites and digital storage companies may lock down content without legal documentation sharing the circumstances under which trusted friends or family members can access it. Taking a digital service provider to court to retrieve treasured data is generally cost-prohibitive, so lawful consent from the owner is critical.
4. Criminal laws
State and federal laws do not allow unauthorized access to computer systems and private data. These laws protect consumers against identity theft and fraud, but additionally, they create insurmountable obstacles for loved ones to gain access to a decedent’s digital information and assets. If you do not give express permission to your fiduciaries, representatives, or family members in your estate plan, they may never be able to access it.
Ways to Access Digital Assets After a Death
Make a list of your digital assets and include important online accounts (social media, banking, bill pay), passwords, and digital property, including cryptocurrency, money transfer apps, and domain names. Store this list in a secure place and maintain its accuracy. There are free password management apps available to simplify your effort.
Many digital assets you think you own, you may not. For example, we tend to carelessly accept end-user license agreements (EULAs) without understanding that a “purchased” item is a non-transferable license to use but not own the asset.
If you store data in the cloud, it is wise to back it up in another location. Secure online safe deposit boxes or digital vaults tied to your banking institution store identification, legal documents, business contracts, finance, tax, and insurance information. By adding emergency contacts, you allow those individuals to access your documents. After a specific time limit, they will be automatically approved. You may also scan electronic copies of paper records to store on an external hard drive and store in a secure location to keep items updated and permit fiduciary, representative, and family access with fewer obstacles. Relying only on the cloud for backup can create future problems.
Consult with an Estate Planning Attorney
Working with your estate planning attorney, develop legal documents that give consent for online providers to divulge your electronic communication content to legally named individuals. You may want to tailor which people have access to chosen online information rather than a blanket approval.
You may have more digital assets than you think. Aside from social media, banking, and other more common digital assets, remember to include any:
- Digital videos and photos
- Digital rights to theatrical works, motion pictures, musical, and literary compositions
- Blog content
- Income-producing websites and their domain names
- Non-fungible tokens (NFTs)
- Online video channels that monetize content and produce advertising revenue
- Online gaming avatars offering services on goods online that may be worth actual money
It has become essential to account for your digital property in your estate plan as online lives are pervasive. Laws regarding digital properties and their inheritable promise continue to evolve. Your estate planning attorney can help you understand which online assets need to be part of your plan and how to permit fiduciaries, representatives, and family access legally.