Digital assets and estate planning in 2017

How to capitalize on tech tools without creating legal headaches

Most problems regarding digital assets could be avoided with some thoughtful planning and good instructions to a family member or friend. (Photo: iStock) Most problems regarding digital assets could be avoided with some thoughtful planning and good instructions to a family member or friend. (Photo: iStock)

Digital assets, or an individual’s online personal and financial records, are now essential to comprehensive estate planning.

Financial advisors, insurance agents and estate attorneys today must ensure that steps are in place to access such assets if a client no longer can.

Related: What (and why) you need to know about digital estate planning

Estate planning professionals tend to agree that the main legal documents needed to implement a careful estate plan include, at least:

          • A basic will;
          • General durable power of attorney;
          • Health care proxy (or health care power of attorney);
          • A HIPAA release form, to access to medical records.

Delaware was the first state to pass a law permitting fiduciaries to access cyberspace on behalf of clients. Then 20 states, including New York, enacted similar laws in 2016.

There also is a need to continually update such plans as laws change regularly.

“Estate plans should be updated to include such powers to access, modify, transfer, archive, control and delete digital assets, particularly when content from an online provider is sought,” says Kirsten Waldrip, a professor of estate planning and taxation at the College of Financial Planning who has written a white paper entitled “Accessing Digital Assets in an Estate: What Fiduciaries Need to Know.”

“As technology continues to develop and our daily activities increasingly rely on digital accounts,” Waldrip says, “the need for legislation and laws to address the administration of these accounts will become more prevalent.”

Brian K. Janowsky, an estate planning attorney with Schiff Hardin LLP in New York, agrees. “These issues will become more important as our population continues to rely on electronic storage and communication, and especially as the concept of digital currency becomes more prevalent,” he says.

“With this universal dependence on the online world, it’s more important than ever that people make plans for what happens if they die or become incapacitated,” says Larry Luxenberg, principal of Lexington Avenue Capital Management in New City, New York. “Situations often arise unexpectedly, so planning about digital assets needs to be included in estate planning.”

Related: Why the insurance industry needs digital marketing

All problems regarding digital assets could be avoided with some thoughtful planning and good instructions to a family member or friend, advisors say.

Luxenberg says that he has been involved in several cases in which, following surgery, patients weren’t able to handle their financial affairs for a few months or more.

“Had they been expecting this, it would have been a simple matter to prepare,” he says. “As it was, they had no designated representative, and friends and family had to scramble to put the pieces together.”

Digital assets are now essential to comprehensive estate planning. (Photo: iStock)Digital assets are now essential to comprehensive estate planning. (Photo: iStock)

One attorney’s approach

Janowsky’s practice encompasses tax planning, estate and trust administration, and estate litigation. He has a regular procedure he adopts with clients eligible for digital estate planning.

Related: An insurance executive's guide to navigating industry shifts

First, he first alerts them to any issues regarding digital property that has monetary or sentimental value. He also addresses digital property that may pertain to privacy concerns such as email and other online services. Next, Janowsky tries to get down to specifics. He often poses the following question to clients: What would you lose if your computer was lost or stolen?

This query helps focus and refine a client’s digital estate planning.

The discussion then advances to the client’s desires for handling digital assets or property upon their death, and online tools that by law override any direction the user provides in their will about the disposal of digital property. Under the New York law, for instance, if a service provider such as Google offers an online tool for a user to determine how their email account should be dealt with at the time of death, that selection cannot be overridden by a will.

“It’s important for a client doing their estate plan to consider whether they have already completed an online tool which may need to be changed,” Janowsky explains.

More frequently decedents, especially those who are younger, do not have much in the way of paper statements, Janowsky says, and it has been necessary to gain access to an email account “to ensure we had located and marshalled all the individual’s assets.”

With the majority of accounts and assets being managed electronically, it is increasingly more difficult for executors to locate and access a deceased person’s assets.

“Many people think that they can simply leave a list of usernames and passwords for their executors, not knowing that the executor will technically be committing a crime by accessing the accounts later on,” Waldrip says. “This is why it’s so important for a will and general durable power of attorney to authorize the agent/executor to access digital accounts. With proper authorization, the executor will be able to access the accounts and continue administering the estate much more efficiently.” 

Also, she adds: “The more quickly a digital account can be accessed, administered, and closed, the less likely it is that the deceased person’s personal information will be stolen from an unmanaged account.”

Complications can arise, however, if a client becomes incapacitated without making plans for digital assets.

“You can become ensnared in a lot of red tape if you haven’t documented all your assets,” says Sean Lee, founder and president of Elevated Financial Group, Murray, Utah. “Many companies will only talk directly to the customer, unless a representative has the proper documentation.”

Lee cites one case in which a client’s husband died. The client’s widow subsequently contacted him. Fortunately, he says, her papers, including information about her digital assets, were in order and her beneficiary information was already on file, so the process of validation went quickly.

Related: Your AUM increase using social media: a cool $8 million-plus

Lee says he collects all clients’ pertinent information such as date of birth, financial account information, including digital assets, Social Security, beneficiary information, trusts and other documents. For security reasons, all of this information is scanned, encrypted and password- protected on a dedicated server, he notes.

These days, decedents, especially those who are younger, do not have much in the way of paper statements or estate-planning records. (Photo: iStock)These days, decedents, especially those who are younger, do not have much in the way of paper statements or estate-planning records. (Photo: iStock)

New York estate planning attorney Marianne Jensen at Maurice Kassimir & Associates says the firm keeps all such documents in house, almost never returning them to clients. 

“We retain all the original hard copies,” says Jensen. “We almost never give them to the client so nothing is lost and it’s always available as soon as needed… We also keep scanned files of all documents on our firm network stored under the client’s number. We store scanned files on something called ‘Go File Room,’ which we use for documents and gift, income and estate tax returns.

“In case one storage facility ‘fails’ or is unreachable for some electronic reason, we have plenty of backups we can go to,” says Jensen.  “That’s been our solution and it has worked out very well.”

Related: Who owns your social-media accounts?

A game-changing issue

Professor Waldrip says that digital asset planning have basically changed the way fiduciaries approach end-of-life planning.

“Executors have a much more difficult time locating assets when people receive paperless statements,” she says. “There is legislation aimed at solving this problem, the Revised Uniform Fiduciary Access to Digital Access Act, which is being adopted by some states. (Advisors and estate planning attorneys) should check whether their state has adopted this act, as it can provide many benefits to authorizing agents to access digital accounts.”

Additionally, Waldrip recommends that advisors and their clients update their estate plan and digital asset list at least annually, “to ensure it includes all their assets and conforms to any new laws that may have been adopted in their state.”

Luxenberg concludes that a little bit of planning around digital assets can save a lot of grief and frustration later on.

“The times when you need estate planning documents can be very stressful and emotional. Having the proper documents in place can make these normally difficult times a lot easier,” he says. “After a loss, no one wants to be battling an online company over access or trying to locate and gain control of web-based accounts. And a simple, well-crafted document could make all the difference.”

Bruce W. Fraser is a New York financial writer who has contributed to many publications.

See also:

Preparing your clients for the digital afterlife

Mobile-friendly websites: More than just looks

The secret to hitting a home run with digital marketing

We’re on Facebook, are you?

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