Estate Planning in a Digital World: The Importance of Including your Digital Assets in your Estate Plan
Pretty much everything has gone online over the past decade or so, and the pandemic has accelerated this movement to ‘digital’ with dramatic speed. So what does this mean for you, when it comes to your own financial planning?
What is my “digital estate” and why do I need to think about this?
The way society interacts on a daily basis has changed forever due to the COVID-19 pandemic. Gone are the days of meeting rooms filled with both staff and clients, or stores filled with people shoulder to shoulder waiting for the changing room. The coronavirus pandemic has altered nearly every part of our lives. But what about our estates?
Your estate is everything you own, both tangible and intangible
Everyone has an estate. Your estate is comprised of everything you own—your house, car, real estate, investments, business shares, and all your personal possessions. When you die, you want control of how your assets are distributed to the people or organizations you care for the most.
Estate Planning is the process of deciding what happens to your assets when you die
First, it is essential to clarify what we mean by ‘estate planning.’ Estate planning is deciding what you want to happen to your assets when you die, and more importantly, making sure things are set up so that it happens that way. To ensure your wishes are carried out, you need to provide proper instructions stating who is receiving what asset, and when they are set to be received. This is typically outlined in a Will, usually prepared by a lawyer. A proper estate plan considers all factors---personal debt repayment, taxes owed, and continued income for spouse/family.
Your ’digital assets’ can be expansive and valuable
But what about your digital life? Like it or not, the COVID-19 pandemic has forced everyone online. The speed at which society adopted the new online way of life was swift-- more cloud storage used, passwords created, and new online apps downloaded to help you work, shop and provide a sense of normalcy during this time. But, who gets your cloud-based files when you die? Your digital photos? What happens to your email? Who gets your travel points? In today’s digital age and with the advent of the internet, cloud-based assets have created a new and complex area of estate planning.
Digital assets vs. digital accounts
Your digital assets are files for which you claim ownership. It takes many forms: spreadsheets, word documents, tweets and photos. Your digital accounts are used to access those assets. Essentially, your digital account is to a digital asset, what your email account is to your emails. We note three kinds of digital accounts:
- Accounts with currency information—PayPal, loyalty programs or cash back credit cards.
- Accounts with personal or commercial interests, such as email or social media.
- Accounts containing virtual property, like your kindle or iTunes.
It is crucial to understand the difference between digital assets and digital accounts, as being locked out of the accounts will prevent you from accessing the digital assets.
Our digital assets will continue to increase in value
For the average Canadian household, digital assets are becoming increasingly important. According to a report by Deloitte, the average Canadian households’ digital assets will be worth $10,000 by the end of 2020. This number sounds quite conservative to us, but it was an estimate made pre-pandemic!
Surprisingly, digital assets are rarely planned for in Wills or estates. As people begin to own more digital property, it becomes ever crucial that individuals recognize this property in their estate planning. For example, if a business owner uses his/her personal email account for commercial purposes, upon death the day-to-day business operations will be affected. Thus, it becomes imperative to address the ownership of that email account.
Further, digital assets like photos, emails and messages are replacing their physical counterparts. iCloud photos are replacing photo albums, iTunes is the modern-day record collection and Instagram is one’s personal diary. Without an understanding of the legal necessities required to transition these accounts to beneficiaries, the Executor or estate trustee will see tremendous challenges.
Without specific instructions left in a Will, digital asset may be left unclaimed—lost forever, or prone to hacking. The potential negative impact of hacking should not be underestimated both from a financial perspective (i.e. identify theft), and for reasons related to controlling the online presence and reputation of the deceased account holder.
The legal speed bumps
Digital estate planning is relatively new, and there are incomplete or limited laws and regulations surrounding these issues. Legislation for these digital accounts was originally established with regard to privacy concerns and Canadian privacy laws. Yet, as technology evolves, and individuals start keeping more online, things are not evolving accordingly on the estate-planning side. Because legislation is unset, digital estates are constrained to the terms and services of the digital account provider. These technology companies, without proper instruction, assume the deceased has no plans of transferring or sharing the data—allowing them to lock that data.
In the United States, some state legislation has provisions that grant representatives access to emails, blogs, and other social media accounts. However, privacy laws often limit what your representative can do; for example they may be able to close an account or get a copy of files, but not actually access the account, and user agreements may specify that services or purchases are non-transferable and terminate upon death of the accountholder.
So, what should you do?
Because of the sparse legislation to assist a trustee of an estate, it is crucial to take inventory of all digital assets, appoint a specific trustee to manage all digital accounts—making your password list available to them, and leave detailed instructions of how the assets will be distributed or used. To prevent these from being lost, an area of exploration is to create a separate digital estate plan (though you don’t always need to), one that is addressed in your will and refers to a separate document that lists your accounts and password information, as well as any specific provisions you wish to put forward.
This will not only make your Executor aware of these accounts but also help them access and distribute them as needed. It is important to realize that privacy legislation is governed by provincial law as well and rules will differ, so ensure that provincial law is considered when the digital estate plan is drafted.
To get started, take inventory of all your digital assets
While current estate legislation accounts for executor access to bank, investment, and insurance accounts and many of these allow you to name a beneficiary, other assets may not offer the same ease of transfer upon death. Digital assets may include:
- Online financial accounts (credit card, brokerage, retirement plan, insurance)
- Online retail accounts and apps
- Digital wallets and prepaid apps
- Social media accounts (Facebook, Twitter, Pinterest, Snapchat, Instagram)
- Blogs and websites
- Email accounts and text messages
- Software, music, movie, and television show collections (Netflix, iTunes, HBO)
- Photo and video-sharing sites (Flickr, YouTube, Vimeo)
Some of these assets may have significant value, such as the travel points that were collected over a lifetime, which may be worth thousands of dollars in flights. It may surprise you to hear that PayPal and Starbucks hold more consumer cash than some financial institutions. The Starbucks mobile app alone, as of Q2 2020 holds nearly $3 billion of consumer cash!
Your digital property is still your property
Your internet accounts are your property and should be treated as such. As technology evolves, our digital lives will store tremendous amounts of value, if they don’t already. Thus, they require the same amount of protection you give to your other tangible assets—houses, cars, stocks. Our best advice? Be aware, track what you have, and broach this subject the next time you discuss your will and estate planning with your advisor.
With this evolving area of estate planning, we are watching as rules and regulations are developed. As with estate planning in general, it is important that you speak with experts who can help you navigate as you prepare your digital estate plan. If you would like to discuss this in more detail, please reach out to us.