Creating a Digital Estate Plan

1 July 2021

Digital estate plans are an increasingly important element of the estate planning process. In this whitepaper, we’ll outline the definitions, considerations, and steps necessary to create a digital estate plan.

Introduction: Defining Digital Assets

Before developing a digital estate plan, it’s critical to have a solid understanding of what digital assets are. Broadly speaking, a digital asset is an electronic record owned by either an individual or enterprise that comes with the right to be used by said owner. According to this definition, digital assets may include the following:

Personal accounts and logins: Your social media and email accounts, as well as your accounts for any medical portals, e-commerce sites, cloud services, online banking and billing accounts, or password management services, qualify as digital assets.
Digital records, documents, and tools: This category includes digitally uploaded or created photos and videos, audio files, PDFs, spreadsheets, blogs, website domain names, and even computer software stored within a physical location (like your home computer or flash drive) or a cloud-based storage system, such as iCloud or Google Drive. These records, documents, and tools are likely to be the broadest, most challenging category of digital assets to collect.
Physical technology: Based on their more obvious, tangible value, your physical technology may be among the first items you want to consider when taking stock of your digital assets. Desktop and laptop computers, tablets and e-readers, cellphones, flash drives, external hard drives, digital cameras, as well as any other devices connected to the Internet of Things (IoT) can be considered digital assets for the sake of digital estate planning.
Financial assets: The most legally complex category of digital assets are those that fall under this category. Digital financial assets may include both traditional fiat currencies and cryptocurrencies, digital wallets, investment accounts, annuities, retirement accounts, and more. Unclear legal definitions and shifting regulations for financial assets in digital markets have created complex issues regarding blockchain technologies and posthumous digital asset management, specifically.

The Necessity of a Digital Estate Plan

Despite the prevalence of digital technology in both the personal and professional spheres, many individuals may not fully understand their digital assets’ value and breadth. Therefore, they may not realize the importance of accounting for the management of these assets after their death. The vast scope of data and devices that can be considered digital assets only contributes to this issue: everything from a blog post to your cryptocurrency holdings is a digital asset, though their levels of importance—both personally and legally—may vary greatly.

However, the rate of global digitization over the past two decades has increased both the ubiquity and value of digital assets in all their forms: the World Economic Forum has estimated that 60% of all global GDP will exist digitally by the year 2022. Further, the growing presence and importance of digital financial assets such as Bitcoin, Litecoin, and Ethereum in the global market indicate an urgent need for legal processes which outline posthumous digital asset management practices for cryptocurrency holders.

In today’s digital world, traditional estate plans alone are not comprehensive enough to encompass the disposition of many digital assets. Unfortunately, however, the creation of a digital estate plan can be tricky. In certain states, a digital estate plan must be added as an amendment to your existing estate plan (such an amendment is known as a codicil), once your plan has already been finalized. However, even filing a codicil may not grant your executor legal access to your digital assets: terms-of-service agreements associated with many online accounts prohibit third-party access to user accounts—even in the case of the account holder’s death.

Additionally, certain federal and state data privacy laws, such as the Stored Communications Act (18 USC §§2701-2712) and the Computer Fraud and Abuse Act (18 USC §1030), both enforce and blur the obstacles pertaining to digital data and death. As of 2021, 45 states and Washington DC have either introduced or enacted the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) to provide fiduciaries with legal pathways to managing the digital assets of the deceased. However, California, Oklahoma, and Louisiana have yet to either introduce or enact similar legislation, making digital estate plans an even more urgent necessity for individuals in these states.

Ultimately, a digital estate plan is necessary to clarify any potential questions, concerns, and legal ambiguities associated with the handling of your digital assets after your passing, especially for individuals with cryptocurrency holdings, online businesses, or other sensitive digital holdings

CPAs and Digital Estate Planning

CPAs are a great resource in developing both traditional and digital estate plans; some critical benefits from consulting with a CPA for the latter include:

When it comes to your digital estate, a CPA can help you understand the tax ramifications of your financial plans, helping you maximize your estate’s amount, which will be passed down to your beneficiaries.
A CPA can help you organize your digital assets into clear categories that 1) make sense in the context of your will, and 2) take into consideration any tax laws, regulations, or contingencies that could impact your digital assets upon your passing.
As an expert financial advisor, your CPA can be an invaluable resource for the executor of your digital estate. They can assist your executor in understanding various tax processes and responsibilities in the execution of your will.

Steps to Creating a Digital Estate Plan

Accounting for digital assets in an estate plan may be fully as time-consuming (and possibly more complex) as developing a traditional estate plan. However, you can take four key steps to organize the digital estate planning process for yourself, your family, and any professional advisors involved in the process.

1. Organize and outline your digital assets

First, identify your various digital assets and sort them into appropriate categories and subcategories, based on their function as well as the type of information each contains. For example, while your social media and bank accounts both have online logins, you’ll want to separate those two account types into different subcategories due to their differing functions.

For each asset, include instructions on where and how to access each account or asset, including usernames, passwords, login links, URLs, portals, security keys, answers to security questions, and any other relevant information.

2. Determine where / how each asset will be distributed or otherwise handled

With respect to your online accounts, you may first want to review the terms of service for each account’s website or company. Many companies, such as Google and Facebook, now have policies regarding handling user accounts upon their death, which may help define the handling of these accounts in your estate plan.

3. Appoint a digital executor

Just as with traditional wills, digital estate plans require an executor – with access to your digital estate – to implement your plan. While the digital executor can be the same individual who executes your primary estate, you may choose to name another trusted person for this position. In either case, a CPA can be an extremely helpful resource for your digital executor—therefore, you will want to provide this individual with contact information for the CPA who assisted you in developing your digital estate plan.

4. Legalize your Digital Estate Plan

It is best to have your digital estate plan outlined separately from your will, which will become public information upon your death. Since the digital estate plan will contain highly private data such as usernames and logins to your digital accounts, share the location of your digital estate plan with your executor and your CPA, by all means, but do not risk your confidential information being made public.