You likely spend a great deal of time on your computer, tablet and smart phone. But have you considered how increased use of these electronic devices could impact your estate plan?
Estate planning is already complex, but it has become even more complicated in the digital age. You now need to carefully consider the implications of what will happen to your digital assets – cryptocurrency, banking and other financial asset statements, social media accounts, photographs, other information stored in “clouds”, and online rewards programs – when you die. These assets are often maintained on third party servers that are not in your possession. It is vital to understand how these assets can be protected and passed to your loved ones, as well as to plan ahead for who should handle the administration of these assets in your estate.
Minnesota has adopted the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), which allows internet users to plan for the management and disposition of their digital assets. Consent may be granted to fiduciaries in an online tool (such as Facebook Legacy Contact), will, trust, power of attorney, or specific digital property authorization. If there is no direct consent, a custodian’s terms of service will control. If the terms of service do not address fiduciary access to digital assets, the default rules provide that fiduciaries may manage digital property, including computer files and cryptocurrency, but limits access to electronic communications (i.e., text messages, email, and social media accounts), if specific direction has not been given.
Here are some considerations about online assets, as part of comprehensive estate planning:
Cryptocurrency, such as Bitcoin, is digital or virtual currency that uses cryptography for security. This currency has burst into the market and has steadily (albeit irregularly) grown since its inception. Cryptocurrency presents some unique issues, so it is important to take the following actions in estate planning:
- Track information about purchase of or access to cryptocurrency: Unlike most financial assets, you do not need to provide your name or other personal information when purchasing cryptocurrency. Therefore, it is imperative that you document that you own it, where and when you purchased it, and securely protect your digital key that allows you to gain access to it. You can keep track of this information via an electronic wallet or password manager program, or a safe deposit box. Regardless, it is imperative that your fiduciaries know where to locate this information in the event of your death. Otherwise, your cryptocurrency could very likely end up lost forever in cyberspace.
- Declare any capital gains: Upon your death, cryptocurrency is treated for federal estate tax purposes as tangible personal property and its value will be included in your estate and may be subject to estate tax. There is no income tax due on cryptocurrency as a result of your death. However, as a capital asset, if it is converted to cash during the administration of your estate or later sold by your estate beneficiaries, any gain must be declared as income and will be subject to short- or long-term capital gains tax on the amount of gain between the value on your date of death and the value on the date it is sold. If you decide to place your cryptocurrency in a trust long term for your heirs, be sure to include language in your trust document that permits the trustee to hold the asset without violating the prudent investor act, which dictates that a trustee must diversify trust assets.
Other digital assets are more common than cryptocurrency, such as email, social media accounts, travel miles, reward programs, photo storage and sharing, and even gaming profiles. But it is just as important to plan ahead for these assets in your estate plan:
- Maintain an updated inventory of your digital accounts and passwords.
- Plan for how your fiduciaries and heirs can gain access to these accounts when you die: Some social media accounts, such as Facebook, allow you to designate a beneficiary online who can manage your account to some extent in the future.
- Execute a digital property authorization: This grants the individual you name the authority to access these assets in the event of your incapacity, while helping ensure your digital assets are maintained properly.
- Include language about digital assets in your will or trust: You may want to appoint a fiduciary to manage and distribute any of these assets that comprise a portion of your estate.
Who should handle your digital assets? It may or may not be the same person who acts in other fiduciary capacities, such as your personal representative or trustee. You can name a separate electronic estate trustee who has limited authority to manage and administer your digital assets and accounts. This person should be technologically savvy and capable of easily navigating access to your information and assets, as well as transferring these assets to your heirs.
At Henson Efron, our attorneys are committed to assisting you with all aspects of estate planning. If you have questions about your digital assets, or you want to ensure your digital assets are properly protected, please contact Henson Efron.
The purpose of this article is merely to provide general information and may not be construed as legal advice.