Can you hear it? A little-known, trillion-dollar problem is whispering in the background—a new and expanding challenge for trust and estate practitioners: how to handle digital property in the planning process. Today, the average internet user has over 240 online password-protected accounts, and 97 percent of American adults own smartphones, meaning that the “average American” is an internet user. That this is true of the average American adult (not just of young or technologically savvy people) is a big change that has happened over a relatively short period!

Digital property in a trust or estate plan cannot be managed the same as physical property. Fiduciary laws, terms of service agreements (TOSAs), and client privacy all factor in. The changing landscape requires the revamping of policies and procedures within law firms. This article addresses the twenty- first-century problem that trust and estate practitioners face, discusses changes in fiduciary laws, and dives into effective planning strategies your team can utilize going forward.

The technological revolution and evolution have brought about some significant changes, from electric vehicles and artificial intelligence to robots and automation. The underlying component driving all of these innovations is digitization. Unlike the twentieth century, when innovators and practitioners focused on improving physical processes and productivity, the twenty-first century has shifted gears to prioritize backend improvements and new products and services, such as email, mobile financial services, new types of currency, title transfer, digital imaging, and other efficiencies that replace the need for trips to banks, retailers, and government offices. These new products and services have also become the preferred method for maintaining memories, personal collectibles, and documented records.

When you think of digital assets, what comes to mind? One of the most common answers is cryptocurrency. Although crypto currency is the predominant digital asset, it is not the only one that you should consider when helping your clients create estate plans. Tax law and succession planning have historically focused on tangible assets and traditional intangible assets such as financial accounts. Failing to adjust this traditional focus to the new reality can have serious repercussions when a client’s estate plan must address and provide access to digital property. Your planning must reflect the requirements of federal laws, including the Electronic Communications Privacy Act (ECPA), which protects certain wire, oral, and electronic communications from unauthorized interception, access, use, and disclosure; the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), which has been enacted in many states; TOSAs; and the inherent characteristics of online accounts and the management of their contents.

Would you be surprised to know that social media and email accounts are among the most-asked-about assets when clients seek advice about digital assets? You must be able to identify digital property that should be included in the planning process and ensure that you comply with all applicable regulations. Below is a non exhaustive list of digital properties that your clients may have. It is not comprehensive because the types of accounts are boundless and ever-increasing:

When a tech innovator creates a new app, asset, or feature, they are generally not concerned with the users’ succession planning. Innovators focus on developing products that sell well to consumers, entertain account holders, educate users, or facilitate a process, not on the account holder’s death or the people they leave behind. ChatGPT, the Metaverse, nonfungible tokens(NFTs), personal avatars with artificial intelligence (AI), initial coin offerings (ICOs), and crypto wallets are all relevant innovations within the digital property realm. Estate planners must be able to identify these digital assets and develop an effective strategy for their client’s trust and estate plan.

FIDUCIARY LAWS ARE EVOLVING TO ENCOMPASS DIGITAL ASSETS

The pandemic caused the demand for estate planning to skyrocket, evidenced by the fact that Americans are now much more likely to create a will. The interest piqued among younger generations is even more surprising. Historically, older generations and those with serious health conditions have been most likely to engage in trust and estate planning.

Recently, we have seen the distribution even out, with 71 percent of Americans aged 21 to 35 and 81 percent of Americans aged 36 to 42 interested in a trust. These younger age ranges have pulled ahead of the 64 percent of Americans aged 51 and older who are interested in creating a trust. A significant
number of younger people also have digital assets: if those who acquire investments and digital property are considered according to age group, nearly 60 percent of millennial investors hold digital currency.

Many estate planners have not factored in the shift in investments and the prevalence of digital property when they are preparing trusts and other succession planning documents, despite the adaptation of fiduciary laws to address changing conditions. There are now three main definitions of digital assets:

1. Legal: an electronic record in which an individual has a right or interest
2. Financial: commonly cryptocurrencies and NFTs (although there is no formal definition)
3. Internal Revenue Service: any digital representation of value that is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary of the Treasury, including convertible virtual currency and cryptocurrency, stable coins, and NFTs

or similar law logs into an account, may violate TOSAs and privacy laws.

EFFECTIVE VERSUS INEFFECTIVE SUCCESSION PLANNING

Effective succession planning goes well beyond ensuring that all tangible property and financial accounts are included in a will or trust. In fact, memories shared with loved ones (which can take the form of photos stored online and entries in a digital journal, for example) may often be the most important component of an individual’s legacy. Ineffective succession planning fails to address the allocation and assignment of digital property without a monetary value. As a trusted advisor, you should be sure your strategies encompass this vital component.

First, you should take steps to understand how clients want their digital property to be distributed upon their death. Clients want control over their privacy and who can see their digital content. One survey indicated that 43 percent of respondents believed that a client’s digital property should be deleted upon death.12 This includes personal accounts, photos, and videos. Another 30 percent believed that accounts within the estate should only be accessed if the decedent provided prior consent.

These statistics suggest that a large proportion of clients do not want anyone seeing certain account contents. Instead, they want their accounts to be deleted and prohibited from falling into the hands of beneficiaries, executors, or trustees. Clients

The most popular definition is the financial definition, but the legal definition provided by the RUFADAA fully encompasses what digital assets truly are: any form of digital property. Advisors who narrow their view of digital assets to the financial definition miss a key component of trust and estate planning.

The RUFADAA allows individuals to authorize a fiduciary to access some or all of their digital assets in their will, trust, or power of attorney. Prior to its enactment, fiduciaries were often barred from access by a custodian’s TOSA or federal laws governing the unauthorized access of digital assets.

It is important to differentiate between disclosure of account contents and account holder impersonation. Data disclosure occurs when the custodian of an account posts raw data to the cloud so that data disclosure designees can retrieve and evaluate the data to find important matters. In contrast, access to the account means someone is permitted to log in as if they are the account holder and conduct activity as the account holder. Account holder impersonation, which occurs if someone other than a fiduciary or individual authorized under the RUFADAA turn to estate planners for help facilitating these wishes, presenting a perfect opportunity to build trust with your clients. First, you can help them understand that they have options and choices when it comes to their digital accounts. Next, you can assist them in considering which strategies fit best into their trust and estate plan.

An effective succession plan also limits the use of password sharing. Password sharing can be time intensive: With the number of digital accounts on the rise, an individual can have hundreds of different passwords. Unless proper planning has been put in place, it is difficult to access a decedent’s accounts. In addition to locating correct passwords, if the custodian of the account is unable to use the same IP address as the decedent’s device to log in to the decedent’s accounts, it may trigger security protocols to authenticate the account holder. Even with the correct login information, the two-factor authentication protocols may be initiated, which would then send a code to an email or mobile phone that would need to be accessed or require accurate responses to a series of personal security questions. With too many login attempts, the account could be permanently locked, necessitating years of legal proceedings to attempt to gain access, which may not be successful. This time would be better spent grieving, making financial decisions, and handling family matters.

In addition, as mentioned, account holder impersonation is a violation of laws and breaches TOSAs. Such impersonation is unnecessary with proper planning.

However, it is important to understand that sharing passwords is acceptable in some instances. For example, a company that serves as a directive provider is legally allowed to use passwords to access a device without running afoul of anti-impersonation regulations by effectively preparing for digital property and their account-level directives.

Digital property has triggered the need to add provisions and change the ways provisions are written in estate planning documents. AI, including ChatGPT and personal avatars with AI features, adds a layer of complexity to digital property. Language is needed to address the licensing rights of personal images, as images can be altered to promote products and services that clients might have never agreed to while still alive. For example, Tom Hanks warned that his image had been used in an advertisement by a dental plan, although he did not consent to the campaign.14 Clients’ post death wishes regarding the use of digital images must be included in their estate plan.

So, what is an effective process? First, you should promote an understanding of digital property in your firm. What digital property does your client have and how does it impact the trust and estate planning process? Do you need to implement provisions addressing the use of AI and creative licensing? Next, communicate clearly with your clients about how they want their directives to be handled. How should accounts be dispersed? Are there any accounts that should not be passed along?

Digital property has changed the way trust and estate planning is conducted, placing greater emphasis on intangible property. Your firm needs to be able to adapt to these changing demands to remain relevant in trust and estate planning in the twenty-first century.

TOMORROW IS NOT GUARANTEED: TAKE ACTION TODAY

There are steps you can take to effectively advise your clients about the intricacies of trust and estate