Digital asset planning in your will
Estate planning: A new millennium
The information era has introduced a wide variety of new devices and digital applications. Along with these technological innovations, come new types of assets. As individuals increasingly spend more time on the internet, they create a financial footprint. A recent report done by Deloitte found that the average Canadian has digital assets worth $1,000-$2,000. By 2020, the average Canadian at death will have digital assets valued at over $10,000. Digital assets are becoming increasingly more important to Canadians, yet they are rarely addressed in their wills. The BMO Retirement Institute states that 57% of Canadians do not have any provisions for digital assets in their estate plan.
What are digital assets and digital accounts?
In Kimberly Whaley’s article: Digital Life After Death: The Next Level of Estate Planning and Estate Litigation, she states that a digital asset is a file over which a person claims ownership. It can take on many forms, including a photo, a spreadsheet, a Word document, a tweet, or a blog post.
A digital account is used to access a digital asset. Essentially, a digital account is to a digital asset what an e-mail account is to an e-mail. Whaley notes that there are three types of digital accounts: actual currency information, accounts containing information of personal or commercial interest, and accounts containing virtual property. An actual currency information account contains virtual currency that translates to real money, such as a PayPal account. Loyalty programs such as air miles or cash back on credit cards are also examples of an account containing virtual currency. Accounts containing information of personal or commercial interest include e-mail accounts and social media accounts. Accounts containing virtual property include Kindle and iTunes accounts where the virtual property would be an iTunes song or an eBook. Customers may own a licence to use these digital assets, but they do not own them.
Why is addressing digital assets in an estate plan important?
If digital assets are not addressed as part of an estate plan, assets with sentimental and monetary value may be lost. In addition, the legal representative may experience unnecessary legal headaches in administering the deceased’s digital assets and accounts.
(A) Sentimental value
Digital assets such as e-mails, photos and messages often hold sentimental value. The tweets of a deceased loved one are the 21st century’s version of a personal journal or diary. An iTunes library is the modern-day record collection and Facebook pictures are virtual photo albums. With digital property replacing physical property, it is vital that such property is accounted for in an estate plan.
(B) Monetary and commercial value
In addition, digital assets often hold monetary value. Personal blogs and websites can generate income. Many online games create rewards that can be traded in for real money. Bitcoin is a perfect example of a digital asset that contains monetary value. Bitcoin is an application used to electronically generate and transfer money. According to Whaley’s report, Bitcoin’s monetary base in 2017 was US$40 billion. Without explicit instructions in a will, digital money may be left unclaimed and vulnerable to hacking. Often a small business owner’s personal e-mail account is used for commercial transactions or to communicate with suppliers. The passing of the owner can affect the day-to-day operation of that business and it is imperative their will addresses ownership of that e-mail account.
(C) Legal obstacles
Due to a lack of legislation, an estate representative may be constrained by the terms of service outlined by the digital account providers of a digital asset. A terms of service agreement is a contract between an account holder and an account provider. Without explicit instructions in a will, companies assume that the deceased had no intention of transferring or sharing their digital information. A legal representative will find different rules apply to different providers. Gmail, for example, provides user content if the legal representative sends a copy of the death certificate, a copy of the e-mail that authorizes the legal representative, and a court order. Facebook, however, will not transfer accounts to a legal representative. A Facebook account can be deleted with a written request from the deceased’s next of kin. Often, digital accounts reserve the right to restrict access from non-account holders out of fear of breaching Canadian privacy laws. These laws are designed to protect a person’s right to privacy both before and after their death.
Stassen v. Facebook, a case from Wisconsin is a perfect example:
In 2012, the Stassen’s 21-year-old son committed suicide. The devastated parents wanted access to their child’s Facebook and Gmail accounts to try to understand why he killed himself. Facebook, concerned with breaching their client’s ownership rights, refused to release any information. Even after the parents obtained a court order claiming that they were heirs to their son’s estate, Facebook refused to disclose their son’s personal account information.
To conclude, digital assets are rarely accounted for in a will despite the immense sentimental and monetary value they may hold. It is important to distinguish between a digital asset and a digital account because a digital account may prevent access to a digital asset as per its provider’s terms of service. Therefore, the most strategic way to dodge legal barriers is to write digital assets into a will.
How to plan for digital assets in a will
Currently, there is little legislation to assist a personal representative when dealing with digital assets. The best way to protect your client’s digital assets is to provide instructions in the estate plan. They can:
- Identify: Create an inventory of all digital assets and update it on a regular basis.
- Appoint: Appoint a trustee who is specifically authorized to manage the client’s digital accounts. This can be the executor/liquidator or a separate trustee who is solely responsible for managing the digital assets. Remember, a good estate plan does not only consist of a will, but also includes powers of attorney for personal and financial care, or a protection mandate in Quebec.
- Access: Ensure a password-protected list of digital assets is accessible to the trustee.
- Instruct: Include detailed instructions in their estate plan. These instructions notify trustees as to how the client would like their assets to be distributed amongst heirs.
Although the federal government has pushed for provinces to enact laws pertaining to digital assets, no provinces have enacted such legislation. In the future, a client must consider jurisdiction when drafting digital assets into their will as legislation may differ from province to province.