Estate pros must consider digital assets

As estate planning enters the 21st century, digital assets are fast becoming an integral part of the process.

Solicitors, estate planners and executors must acquire specialized skills to keep up with the new frontiers of estate planning, which now includes a client’s digital legacy.

For people older than 65, 20% of their lives are chronicled in digital format. For people aged 15, that percentage rises to 85%, said Jerrard Gaertner, director, Soberman Chartered Accountants LLP, at the STEP Canada 14th National Conference, in Toronto.

Challenges

Increasingly, clients are storing information in both electronic and hard-copy formats, but the two don’t always match. This poses problems for estate administration.

As well, some testators tend to keep multiple digital copies of records, making it harder for trustees and estate administrators to ensure they’re using the latest iteration. To make things even more complex, some jurisdictions don’t recognize digital forms as valid records.

In other cases, executors could be liable if they uncover certain electronic records.

“If you seize a client’s computer and it contains their personal health records, you become a health custodian for that client under a variety of provincial and federal statutes,” Gaertner says.

Digital persona

Quite often, clients’ real-life identities aren’t the same as their digital avatars. Sometimes, they use this anonymity to their advantages.

“It’s quite common for people to have [digital] aliases, pseudonyms and avatars,” says Gaertner. “When we do a computer forensic investigation post-mortem, [we often discover] there’s been an internet business, or a revenue-generating activity, that’s been going on for a while [without] any tax reporting.”

And it’s the executor’s duty to then report this revenue.

Tax considerations aside, administrators must know clients’ digital identities to effectively track, recover and dispose of assets.

“How do you dispose of a domain name if you don’t know the user ID?” asks Gaertner. “You can go through a six-month process of filing affidavits [to gain legal] standing, or you can have [clients’] passwords and user IDs.”

Plus, a computer is a physical asset that often goes to the beneficiary upon the client’s death. The beneficiary may not allow the executor access to the hard drive where the deceased’s digital information is stored.

Read: Don’t lose client data

Digital footprint

Digital property can also be a source of future tax penalties as their value appreciates over time.

“Domain names and websites aren’t trivial assets,” said Gaertner. “When you sit down with the testator to list [the client’s] assets, he may list cottage, cars, bank accounts and businesses, but he’s not going to think of duck.com he registered years ago [which may now] be worth a couple of hundred grand.”

Executors are still obligated to identify these assets.

As laws evolve, digital and other intangible assets have come to be treated like physical ones, and executors are still obliged to identify them. Therefore, they might have to do things like spoofing – gaining unauthorized access to someone’s computer – even if it is deemed as a breach of terms of service, cautions Gaertner.

So, asking clients to include digital assets in their inventories may be the best thing estate executors can do to protect clients’ assets and themselves.