Digital assets and estate planning in 2017

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)

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.

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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.”