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Estate Planning for Digital Assets

February 20, 2017

Bits and bytes may not be the first thing that most estate planners think about, but they probably should move up the list. Increasingly, people are keeping important items only in digital form. Just think about how many photos you have on your smart phone compared with how many you have in your wallet or a physical photo album. How much correspondence do you send by e-mail as opposed to USPS?


And while photos and e-mail may not seem like high dollar value items, financial data is increasingly kept and accessed online. When the Fed published its latest report on "Consumers and Mobile Financial Services," it found that 43% of mobile phone users with a bank account had used mobile banking in the previous 12 months. That's up from 22% in 2011. As you'd expect, the numbers are higher with younger generations, but even in the 45-59 age group (you know, old people), over a third use mobile banking.




So why is any of this a problem for estate planners to worry about? Three words: Terms. Of. Service. You know, those literary tomes we all lie and say that we've read and understood so they will hurry up already and let us have our binge watching fix while we're supposed to be writing a blog post . . . . 


OK. I'm back now. Where were we? Right, terms of service. Let's just look at one item from the Yahoo TOS for an example:


You agree that your Yahoo account is non-transferable and any rights to your Yahoo ID or contents within your account terminate upon your death.  


So, when you die, your digital assets (at least at Yahoo) go up in smoke. And forget about putting them in a trust. Other services have pretty similar prohibitions against transferring accounts, sharing your password, or giving anyone else access to your account.




To be fair, some people may not want their survivors to see their e-mails and online photos (you know those photos) after they die. The real point here is that under most services' TOS, the user gets no choice in the matter.


And keep in mind that digital assets cover more than just sentimental items. Consider a person who tries to be paperless and keeps a lot of their important business and financial documents in a cloud service like DropBox. If that person becomes incapacitated (hopefully with a financial power of attorney in place, but we'll tackle that another day), will their fiduciary be able to get access to the information they need to do their jobs? 




Enter the Uniform Fiduciary Access to Digital Assets Act, or UFADAA (pronounced: "You Fah Dah"). UFADAA, which has been adopted in 21 states so far and is pending in 16 (including Mississippi: HB 849), aims to take control of digital assets back from the service providers and let users direct what happens to their digital assets through a will, trust, or power of attorney.


In states that have adopted UFADAA, there is a hierarchy of instruments to govern digital asset planning. First, service providers ("custodians" in UFADAA parlance) can set-up an "online tool" to let users set their fiduciary access preferences for that particular service provider. 


Next, a will, trust, power of attorney, or other similar planning document can contain instructions for how the user wants their digital assets to be handled. An online tool can trump (can I still use "trump" as a verb?) the planning documents, however, assuming that the custodian has provided one (most haven't), the user has taken advantage of it, and it meets the requirements of the statute. 


If the user hasn't made provisions for their digital assets in an online tool or a traditional planning document, then the TOS will still govern the account. Of course, UFADAA does have some default "gap filling" provisions that will apply if they aren't contradicted by the TOS. 


Another interesting detail that the UFADAA drafters included is a distinction between a "catalogue" of electronic communications and the content of those communications. So, for example, you may want to allow a fiduciary to get a list of e-mails, with date, time, sender, and recipient, without necessarily letting that fiduciary read the e-mails. 




In states that have adopted UFADAA, it makes sense to include digital asset planning in your wills, trusts, and powers of attorney. While the online tool option is interesting, my preference would be to avoid them in favor of a more centralized approach. It's confusing enough for most clients to sort out which of their assets will pass under their wills and what will be pass by joint tenancy, POD contract terms, IRA / 401(k) beneficiary designations, etc. The last thing I want is for my clients to have to track down and update a separate online tool for every account they have. 


What to do in states that haven't adopted UFADAA? That's the trickier question. There's probably no downside in including digital asset planning language in your will, etc., but it may or may not be effective over the terms of service. Or, a probate court may have to get involved - assuming the court is willing to get involved - which is going to depend entirely on state law. The only certainty is uncertainty - for the court, the service provider, the lawyer, and ultimately the client. 


Bottom line:  As more of what we value is stored online, these issues are only going to become more important. If you're a client, don't be afraid to bring these issues up with your adviser. For estate planners and financial advisers, it's essential that we get up-to-speed on the changing law and talk to our clients about their digital assets.


DISCLAIMER:  The information in this blog post is provided for educational or general informational purposes only, and may not reflect the current law in your jurisdiction. No attorney-client relationship is created by reading this post or commenting on it, and no attorney-client privilege attaches to any comments made or received. The information in this post is not intended as legal advice and is not a substitute for competent legal counsel from a licensed professional attorney in your state.

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