Protecting Your Digital Legacy: Understanding Digital Assets and Their Importance in Your Estate Planning
Years ago, tangible properties and financial assets were all that comprised most estate plans. However, in today’s fast-paced digital-first economy, estate planning and asset management have grown beyond traditional stocks, bonds, and real estate to include the many aspects of our lives that once required physical and tangible exchange but now exist in digitized and intangible forms. Technology has become such a huge part of our everyday lives, that it has rapidly become second nature to store important information and memories digitally or online. From the metaverse to cryptography and smart contracts, several important areas of our lives are being transferred to the digital realm and this has made digital assets an integral part of estate planning.
There are several questions that surrounds the subject of digital assets management as it relates to estate planning such as • what exactly constitutes digital assets?
- are digital assets legally recognized as properties to be included in one’s estate?
- how does one manage and protect digital assets pre and post-mortem?
- are digital assets inheritable?
In this article, we will explore these questions by breaking down the concept of digital asset as well as help you understand the value of building and protecting your digital legacy by managing your digital assets.
Understanding Digital Assets
Definition:
Digital asset is a term used to cover a range of electronic records and files that are stored online, on mobile devices or computers. They refer to any identifiable and discoverable item created and stored digitally and has financial or sentimental value.
By way of example, digital assets include the following: social media accounts. email accounts, online subscription-based accounts, e-commerce or marketplace accounts, photos saved online or in the cloud, online dating and gaming accounts, loyalty program benefits such as credit cards perks, blogs, web domains and hosting, music accounts, utility accounts, crypto assets, non-fungible tokens, tokenized assets etc.
Before an item can be considered a digital asset it must possess the following features:
- It must first have the potential to create value or be used in a manner that generates value.
- Its ownership is transferrable through purchase, gifting, or other means of giving rights to someone else along with the value the item can bring.
- It must be discoverable or stored where it can be found.
Property Rights and Contract Terms
To truly plan your digital estate and protect your digital legacy, it is expedient to understand the recognition of digital assets as well as the rules guiding their pre- and post-mortem access from the stand point of the law. To do so, lets consider two important terms: property rights and contract terms.
From the stand point of the English law, digital assets are yet to be considered properties and by implication, property law cannot be applied to protect digital assets. This is because the English law recognizes personal properties to exist in two categories: Things in Possession and Things in Action. Things in Possession and Things in Action only subsist of physical tangible items and certain legal rights that can be enforced such as copyrights and patents and do not cover intangibles. On one hand, digital assets are not tangible hence cannot be categorized before the law as things in possession and on the other hand they are not legal rights because owners only possess technological control over. Service providers are still the custodians of the assets.
The Law Commission of England and Wales is currently carrying out a detailed study to change the law so that appropriate digital assets can be recognized as legal properties. The digital assets under the study includes various forms of digital data, digital media, crypto assets and software. The consultation paper details the proposition of a third category of property known as Digital Objects. If approved and passed into law, digital assets can be classified as Digital Objects if they meet the following criteria:
- The object is composed of electronic data.
- The object is rivalrous in use.
- The object exists independently of any person and legal system.
When it comes to pre- and post-mortem access of digital assets, the law is still evolving with many state and federal laws overlapping and contradicting each other. The rules regarding access to digital assets pre and post-mortem can be mainly found in the contract terms of service between the owner (who only possess technological control) and services providers (custodians of the assets) such as Exchanges, Apple, Facebook etc.
Contract terms or Terms of Service Agreement is a legal agreement between service providers and their customers outlining the terms and conditions about the products/services being provided. They are usually given to customers to review before service is rendered. Terms of service agreement protect service providers from future legal issues by clearly outlining expectations, obligations, scope and restrictions in order to ensure the customers know what is expected of them while using their products or service.
Survey shows that the experts have identified the following as the primary issues surrounding access to digital assets: restrictive terms in standard contracts, uncooperative service providers, privacy and data policy issues. 75% of contract terms do not cover post-mortem access, a greater % of them prevent password/access sharing, and 33% of contract terms stipulates the loss or termination of assets after specified periods of inactivity.
For example, the service provider Yahoo prohibits post-mortem access to digital assets in its custody. Other service providers such as Apple iCloud and Facebook offer only conditional access. Service providers are beginning to develop post-mortem access planning tools to enable digital assets owners easily plan and manage their digital assets.
Apple’s post-mortem planning tool is called the Digital Legacy Tool. Facebook calls theirs the Legacy Contract.
These post-mortem access planning tools are very useful in planning your digital asset estate. These tools are simply made available by service providers to enable users identify the individuals who are supposed to have access to their digital assets post-mortem. Due to privacy and confidentiality issues, only authorized users specified in the legacy tools and contracts will be granted access to digital assets pre- and post-mortem by service providers.
Why is it Important to Plan and Manage Your Digital Assets?
At the present pace the world is moving, your digital assets are gradually becoming a digital extension of yourself. This digital extension holds great present and future sentimental or financial value which can easily be passed on as your legacy and digital footprints in the sands of time. However, constantly evolving state of digital assets coupled with the present absence of protection by traditional estate planning laws leave digital assets volatile and without proper planning and management they can be easily lost or rendered inaccessible especially post-mortem.
Proper planning and management of your digital assets helps you protect your digital legacy and pass it on designated individuals of your choice. Below are some of the action steps in digital asset management:
- Develop a Catalogue of Your Assets:
Begin by creating an inventory of all your digital assets. You can use a spreadsheet or a document to list all your digital assets, including usernames, passwords, and any other relevant digital information. You want to ensure that you keep this document secure and updated from time to time.
- Communicate Important Details and Contracts with Your Estate Managers:
Ensure that your digital assets are included in your estate planning documents. Communicate all details, documents, and contracts with your estate managers. Communicate specific instructions on how you would like your digital assets to be processed and managed in the event of your passing.
- Utilize Password Management and Legacy Tools:
You should also consider using a password management tool to manage your login information or data for all of your digital accounts. This can help you to create strong passwords and store them safely. Adopt legacy tools to plan for post-mortem access.
- Stay Up-to-Date:
With how fast-paced the digital landscape is, you want to ensure you keep up-to-date with the latest developments in digital assets and asset management practices. Attend workshops or seminars, or read articles and publications to stay keep yourself abreast with the latest industry trends and additional terms of service.
Thank you for your time and remember that we are only a call or email away from answering your questions or providing clarifications on the subject. You can send us an email contact@fiduciaryservicesltd.com or call +234 803 7265 961. You can also access our Digital Assets Questionnaire/Inventory here.
