Estate planning for a client’s digital assets

Digital assets are becoming increasingly important to Canadians, who have, on average, digital assets worth $1,000 to $2,000, reveals a Deloitte report. By 2020, the average Canadian will accumulate, over a lifetime, digital assets valued at more than $10,000. Yet, digital assets are rarely addressed in wills. Of Canadians aged 45 and older who say digital assets are important, 57% don’t have provisions for digital assets in their estate plans, finds BMO Wealth Institute.

Digital assets and accounts defined

In a report on digital assets, Kimberly Whaley, principal at Whaley Estate Litigation, defines a digital asset as a file over which a person claims ownership. It can take many forms, including a photo, spreadsheet, Word document, tweet, or blog post.

A digital account is used to access a digital asset. Essentially, a digital account is to a digital asset what an email account is to an email. Whaley notes there are three types of digital accounts:

• accounts with currency information that translates to real money, such as PayPal, loyalty program accounts and credit card accounts with cash back;
• accounts containing information of personal or commercial interest, such as email and social media accounts; and
• accounts containing virtual property, such as Kindle and iTunes accounts, wherein users have a licence to use digital assets like a song or book but don’t own them.

It’s important to distinguish between a digital asset and a digital account because a digital account may prevent access to a digital asset as per its provider’s terms of service. More on that in a bit.

Read: Protect clients’ digital estates

Don’t dismiss digital assets

With more people owning more digital property, it’s vital clients account for such property in their estate plans to avoid losing monetary and sentimental value.

For example, personal blogs and websites can generate income, and many online games create rewards that can be traded for real money. Bitcoin, an application used to electronically generate and transfer money, is a perfect example of a digital asset that contains monetary value. Bitcoin’s monetary base is currently more than US$40 billion. Without explicit instructions in a will, digital assets might be left unclaimed and become vulnerable to hacking.

Even a more mundane asset, like an email address, is important to deal with. Often, a small business owner’s personal email account is used for commercial transactions or to communicate with suppliers. The owner’s death can thus affect day-to-day business operations, so it’s imperative the will address ownership of the email account.

When it comes to sentimental value, digital assets such as emails, photos and messages are replacing physical property. For example, tweets are the 21st century’s version of a personal journal or diary, an iTunes library is the modern-day record collection, and Facebook pictures are a virtual photo album.

Further, without a plan in place, the estate trustee might experience unnecessary legal headaches when administering the deceased’s digital assets and accounts.

Read: Why you should tackle digital estate planning

Legal obstacles

Due to lack of legislation for digital assets, the estate trustee might be constrained by service terms outlined by digital account providers. A terms of service agreement is a contract between an account holder and account provider. Without explicit instructions in a will, companies assume the deceased had no intention of transferring or sharing digital information.

Different providers apply different rules. Gmail, for example, provides user content if the fiduciary sends a copy of the death certificate, a copy of the email that authorizes the fiduciary, and a court order. Facebook, however, won’t transfer accounts to a fiduciary, but a Facebook account can be deleted with written request from the deceased’s next of kin.

Consider a case from Wisconsin, Stassen v Facebook. In 2012, the Stassens’ 21-year-old son committed suicide. The devastated parents wanted access to their child’s Facebook and Gmail accounts to try to understand why he killed himself. Facebook, concerned with breaching the client’s ownership rights, refused to release information. Even after the parents obtained a court order claiming they were heirs to their son’s estate, Facebook refused to disclose the son’s personal account information.

Often, digital accounts reserve the right to restrict access to non-account holders out of fear of breaching Canadian privacy laws, which are designed to protect a person’s right to privacy both before and after death.

Read: 3 digital estate questions to ask

How to plan for digital assets in a will

There’s little legislation to assist an estate trustee with digital assets, so the best way to protect your client’s digital assets is to provide the following items in the estate plan:

• an inventory of all digital assets;
• an appointed trustee specifically authorized to manage the client’s digital accounts (this can be the client’s executor or a separate trustee who’s solely responsible for managing the client’s digital assets);
• a password-protected list of digital assets is accessible by the trustee (some frequently used services for storing passwords are AssetLock, PasswordBox and SecureSafe); and
• detailed instructions in the estate plan of how the client wants assets to be distributed among heirs.

Lastly, ensure any provincial legislation is considered when the estate plan is drafted. Digital assets are governed by provincial law, and the rules may differ in each province.

Keith Masterman, LLB, TEP is vice-president, Tax, Retirement and Estate Planning at CI Investments. He can be reached at kmasterm@ci.com. Asha Sivarajah is a summer student for the Tax, Retirement and Estate Planning team at CI Investments.