What is a Digital Asset?
A digital asset is any non-tangible asset that exists online or through technology. Many content, data, or electronic records may be considered digital assets and are identifiable and describable through metadata. Common examples of digital assets include:
- Audiobooks
- Online bank accounts
- Rewards points and loyalty program benefits
- Cryptocurrency and NFTs
- Manuscripts
- Illustrations and animations
- Emails
- Social media accounts
- Digital photos and videos
- Business and personal websites
- Intellectual property
What Laws Apply to Digital Assets?
With advancements in technology and the prevalence of digital assets, the law has struggled to keep up. Almost every state has accepted or amended the Revised Uniform Fiduciary Access to Digital Assets Act, which governs access to a person’s online accounts upon the death or incapacitation of the owner.
The State of Ohio’s revision allows estate executors and trustees to exercise all rights granted over tangible property to that of digital assets. However, these laws do not override privacy laws and other digital privacy policies that forbid service providers from disclosing passwords or providing access to accounts to non-account holders.
What Hurdles Exist When Trying to Access Another’s Digital Assets?
If your loved one has unattainable digital assets or funds that were not accounted for during estate planning, then those funds may be lost forever or may be gained with incredible difficulty.
Common obstacles encountered when attempting to access other people’s digital assets may include:
- Passwords: Passwords may be difficult or impossible to bypass.
- Data encryption: The scrambling of data into a format that only a person with the proper passcode can unscramble can limit access to everyone besides the account owner.
- Criminal laws: Trying to access another individual’s digital accounts is often considered a criminal offense.
- Data privacy laws: Federal data privacy laws prohibit service providers from releasing the contents of electronic communications to anyone except the owner without the owner’s consent.
How Can Digital Assets be Incorporated Into an Estate Plan?
Digital estate planning organizes and distributes digital assets as part of an estate plan. It is a crucial part of modern estate planning and ensures that digital legacies are preserved and transferred according to the owner’s wishes.
Managing digital assets in an estate plan requires careful planning, organization, and legal documentation within a last will and testament.
Key steps to manage digital assets in an estate plan are:
- Inventory all digital assets:
– List all digital assets.
– Digital Asset Management (DAM): Consider a DAM system to simplify processes such as organizing, categorizing, searching, retrieving, and archiving digital assets.
- Secure access protocols:
– Use a password manager to store all account passwords.
– Utilize security questions and provide answers to the executor.
– Activate inactive account managers that grant access to digital assets after a set period of inactivity.
- Consider the value and significance of each asset:
– Determine the financial value by identifying which assets have monetary value.
– Recognize assets with personal or sentimental significance.
- Understand legal constraints:
– Review terms of service agreements that may limit the ability to transfer access or ownership.
– Consult legal advice from an attorney from Lawrence Law Office who is knowledgeable in digital assets laws and estate planning.
- Designate a digital executor:
– Choose someone trustworthy to manage the digital assets. This person should be tech-savvy and understand the wishes of the original owner.
– Legally empower the digital executor to manage the digital assets.
- Provide clear instructions:
– Outline wishes for each asset, such as deletion, transfer of ownership, archiving, or continued operation.
– Specify who can access personal information and how the digital legacy should be handled.
- Secure inventory and instructions:
– Keep information secure by storing estate planning documents, asset inventory, and instructions in a safe location.
– Make them accessible by ensuring the executor or estate attorney can access the documents as needed.
- Regularly update the digital estate plan:
– Review and update regularly as digital assets are lost or acquired or as passwords and access information change.
– Update the digital estate plan according to major life changes, such as marriage, divorce, or the birth of a child.
- Integrate with the overall estate plan:
– Ensure consistency through integration with the general estate plan. Legally document the digital asset plan within the will and ensure all involved parties are aware of the plan.
What are Tax Implications for Digital Assets?
The tax implications for digital assets in estate planning can be complicated. General considerations include:
- Estate taxes: Many jurisdictions include digital assets in the gross estate for estate tax purposes, including assets with financial value, such as cryptocurrency and revenue-generating websites. Proper valuation of these assets is essential.
- Income taxes: Digital assets that generate income after the owner’s death may be subject to income tax. Capital gains tax may also apply.
- Cryptocurrency taxation: Cryptocurrencies used for transactions may be treated as property for tax purposes. The transfer of cryptocurrencies in an estate plan may have capital gains tax implications.
- Digital business assets: A digital business may be subject to ongoing tax liabilities related to its operation, such as income tax, sales tax, or other business-related taxes. Transferring ownership of a digital business may trigger tax consequences.
- State and local taxes: The tax implications for digital assets may vary by state or may depend on the residency and domicile of the deceased.
- International considerations: Digital assets held in multiple countries are subject to international tax laws and treaties.
- Planning and documentation: It is important to consult with a tax professional to understand and plan for the tax implications of digital asset management.
Do I Need an Attorney?
Estate planning is notoriously complicated. Incorporating digital asset management into your estate plan is a headache you should not take on alone. Call the lawyers of Lawrence Law Office today at 614-362-9396 or fill out a contact form to schedule a consultation.
