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INSIGHT: Five Signs That Estate Advisors Aren’t Getting With the Digital Program

July 20, 2020, 8:00 AM

In our previous Bloomberg Tax article, “Supporting Your Clients’ Digital Legacy,” we discussed how online providers need to consider incapacity and estate planning options for digital assets to meet consumer requirements.

Digital assets in their simplest form are all the data and information stored on “electronic records”––more familiarly understood as all of the data stored on devices, hard drives, computers, memory sticks, online and in cloud repositories. Basically, everything we access, store, execute, and transact online, including photo storage, loyalty or reward point collection, online banking access, unregulated cryptocurrency usage, rights or obligations under smart contracts, blockchain, digital collectibles, gaming token interests, ebook and music consumption, social media activity, websites, trademarks, and personal information, if any, stored in connection with these interests. James Norris of The Digital Legacy Association provides a conversational definition of a digital legacy as, “what remains of us digitally once we die. When we die our digital footprint becomes our digital legacy.

COVID-19 has affected many aspects of our lives, not the least of which is the widespread adoption of technology, which has accelerated faster than any other single technological innovation in history. The World Wide Web was born 30 years ago, and it took a decade for consumer awareness to gain momentum, a decade for adoption, and a further decade for innovation.

When the internet started, could we ever have imagined the explosion of the gig economy and the emergence of tech giants that transformed and revolutionized industries? The pandemic may have forced the adoption of technology to even the most stalwart holdouts as it has kept families and friends connected. Reported by the World Economic Forum, one of the top searched phrases in the U.S. during this unprecedented time was “Hobbies to pick during quarantine?” If you didn’t have a digital footprint before the pandemic, you and your clients have one now. And that footprint has an implication for estate planning.

Digital assets and why consumers should care about estate industry engagement?

Some individuals may discount the trivialities of social media and by extension conclude that online accounts do not have financial or sentimental value, but at the very least, online accounts contain personal information that should either be kept private or deleted. Many naysayers might be surprised to discover how emotional it can be for surviving family members when they suddenly don’t have access to the deceased’s digital photos or social media accounts. Rights to access and transfer digital assets upon incapacity and death are probably the least understood, least legislated, and most neglected space of the entire estate industry.

Moreover, the least understood role in estate administration is that of the fiduciary, whether that is the agent named in a power of attorney document or the executor/trustee named in a will or trust (fiduciary). Most people consider the fiduciary role an honor, but don’t realize that managing someone else’s life or winding it down is a significant project management undertaking. Even for a simple estate, it is not uncommon for the estate administration to take no less than a year to find all the assets, file probate, deal with taxes, and dispense of the assets in accordance with the will-maker’s (testator’s) wishes. A fundamental tenet in that equation, which is for the fiduciary to deal with the inventory of the deceased person’s assets, just got hammered by technology. Now, there are no longer convenient paper trails left in the home office given our lives have gone digital.

Red flags that your estate advisor could be unknowingly sabotaging your digital estate plan

1. When your estate advisor says a will is enough to handle your digital life and digital assets

If you are told “we’ll just add a digital clause to your will and your executor can take care of it,” be on the alert that while this may be a starting point, this is insufficient.

Not only should a will contain a carefully drafted digital asset clause that specifically provides for the ability or inability of a fiduciary to access digital assets, electronic communications, and online accounts, a financial power of attorney should also include such a provision. Digital asset access provisions must be drafted to ensure compliance with jurisdictional laws (e.g., federal and state laws governing access).

A will should specifically define digital assets, and provide specific designations for the intended beneficiary of any digital assets that are capable of being transferred. Most U.S. states have adopted a version of the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), which outlines when a fiduciary may access a person’s digital assets at their death or incapacity.

However, advisors should be aware that the laws governing a fiduciary’s access to digital assets under RUFADAA and other laws may vary by jurisdiction, and courts may have different interpretations of provisions granting access. The default rule under RUFADAA is that a user needs to explicitly authorize a fiduciary’s access to their digital assets; however, RUFADAA only controls accessing digital assets that are subject to a Terms of Service Agreement (TOSA).

Reality Check: A will insert is not enough to handle your digital life and digital assets

Consider a hierarchical approach to planning for digital assets: Start by including provisions in a will and power of attorney, add an inventory for your fiduciaries to use as a guide, and complete a tech management plan for more complex situations.

In addition to getting estate planning documents in place, individuals should create a detailed inventory listing their digital assets and accounts; otherwise, such assets may be impossible for the fiduciary to discover, causing unforeseen delays and expenses related to a search.

Inventories need to itemize hardware, as well as information about subscriptions or software licenses. Individuals who have significant digital assets or complicated digital interests may need additional tech management plans in addition to inventory lists. Or, consider the use of third-party custodial services and vaults that are digital asset management solutions offered by emerging estate tech providers but use of these services may come with other uncertainties as this area develops.

Another misunderstanding is how online pre-planning tools work in relation to the will and other estate planning documents. Under RUFADAA, an online tool is defined as an agreement between a user and a custodian separate from the TOSA, which specifies directions for the disclosure or non-disclosure of digital assets to the designated recipient. RUFADAA prioritizes designations in an online tool. Then, if an online tool is unavailable or not utilized, directions for the disclosure or non-disclosure of digital assets are governed by a will, power of attorney, trust, or other written record, and if there is none, access is determined under the TOSA. Issues can arise if advisors aren’t familiar with this hierarchy nor realize the implications if online tools are not used in conjunction with an estate plan to ensure cohesiveness. For more information about RUFADAA and identifying and valuing digital assets, check out “What to Know About Estate Planning for Digital Assets,” co-authored by Jennifer for Bloomberg Tax.

2. When your estate advisor swims outside their lane and gives you technical advice

People don’t visit a doctor for legal advice, and they don’t meet with lawyers for medical advice. In the same vein, advisors shouldn’t be doling out technical management advice. They should leave technological recommendations and tech management plans to technology experts and specialists, not estate or financial advisors. Estate advisors are better suited to consult with technical advisors for input on the technical aspects of a client’s digital assets estate plan, just as they might refer or seek the advice of a tax advisor if specialized tax related input is required.

Reality Check: An estate advisor should likely seek expert technical advice

This phenomenon is not unlike the entrance of the CIO and other tech pundits in the e-business era, circa 1999, when business leaders would rush to their IT departments and demand the latest whizzbang because they’d read about it on a recent flight or their brother-in-law used it at home. And many would never really understand why something that worked on a home PC had trouble scaling in an enterprise environment.

Technology use is pervasive, and most of us, regardless of socioeconomic status, rely on the internet. Although we might have IT departments at our workplace that guide us with policy, practice, and tools, we might not have the same rigor and focus with our home computers. Needless to say, as easy as tech can sometimes appear, it has many hazards and risks that can invite cybercrime resulting in identity theft when we don’t protect our home systems.

Let’s consider the number of new users on video conferencing platforms during the lockdown for social connectivity and business continuity. Early on we heard about “Zoom bombing”, the upshot of which was trolls and interlopers crashing a video call with disruptive and offensive images when the link to the event was shared widely or on social media. How many of those new users read the user’s manual, watched a YouTube video, or got advice from a pro-user before embarking on their Zoom journey?

3. When your estate advisor tells you all you need to do is leave passwords and magically all your digital assets will be taken care of after your death

Leaving passwords for loved ones as a means of transferring a digital asset has been the advice circulating since the early days of the digital assets topic, circa 2010 or earlier. In fact, some law firms and financial bloggers continue to encourage the use of password sharing as a means of estate planning for digital assets.

It’s understandable to leap to the conclusion that sharing passwords is the easy fix. After all, we use passwords to access online accounts, so how else would the fiduciary get access? Passwords and password managers are great tools for the living, and password managers help manage our growing volume of digital accounts and password currency––all factors for hardened cybersecurity. But just leaving passwords is an incomplete option for digital estate planning for legal, security, and technical reasons. For example, passwords don’t capture a person’s wishes or preferences, which is one of the fundamental elements of discovery and inclusion in the estate planning process.

Leaving passwords is not unlike leaving a set of keys to your car and telling your kids they can have your car after you die. Perhaps you’ve changed cars between making that statement of intent and your death. Certainly the keys won’t have any information about your wishes or preferences, and undoubtedly wouldn’t support the paper trail required to legally transfer the asset or effectively deal with the probate process, value determination, or address applicable tax matters.

Reality Check: Know the Limitations of Passwords and Password Managers

Passwords and password managers are for the living to stay organized and combat cybercrime, but they haven’t been designed to satisfy the requirements for estate planning or administration.

Although some password managers offer features such as family password sharing, this still could contravene most terms of service agreements. Leaving passwords and telling a family member or friend to “just deal with it” is basically instructing someone to potentially break both U.S. state and federal laws, especially for digital assets governed by RUFADAA. Although jurisdictional laws might differ, this is generally a global non-starter. A no-no in any language.

It’s not a violation to share passwords with a fiduciary who is required to access hardware such as computers and devices, as these types of tangible assets are not controlled by RUFADAA; however, trouble can arise here because there are likely applications, programs, or data on the device or computer that, if accessed by a fiduciary directly through the decedent’s computer and not through the proper channels under RUFADAA, are likely a violation of RUFADAA, the TOSA, and other state and federal laws.

If we further layer TOSAs into the equation, most, if not all service providers, prohibit password sharing directly in their TOSA. According to a study from Queen Mary University of London from its Cloud Legal Project, “Beyond the Clouds”, more than 85% of cloud providers do not have terms that address incapacity or death of the account holders. Of their five key findings, the TOSA of all 35 cloud providers reviewed in their study prohibited user password sharing.

Amidst the concerns surrounding password sharing, we haven’t even hit the technical practicalities. As Sharon outlines in her book, Your Digital Undertaker, “Technically speaking, without a password, all of the cybersecurity and privacy preventative measures put in place to protect yourself from identify theft, hacking, and cybertheft of your accounts, will act as barriers imposed on the executor. Even if the executor has the legal right to access your accounts in your jurisdiction, there is a very real practical aspect to this. In addition, passwords can get written down incorrectly, or expire. Further, as it stands today in terms of technology, process and the functionality of today’s software, it may still be difficult in some cases for the executor to gain access, even with a password. You may also want to consider other pre-planning activities.”

The estate industry will need to communicate a new paradigm for digital asset planning and unravel this perception that password sharing is the answer, in addition to a broader service provider and tech industry perspective on pre-planning options for incapacity and succession planning.

4. When your estate planner tells you to let your family sort out your social media

The minimalist advice of “just leave enough information for your family to handle your accounts” might make sense based on the way we digitally communicate and engage socially, along with the wholesale transformation from physical letters to email and social media. We may even share all our photos online through a social media platform, but are we that much of an open book ready to sacrifice privacy in death as well as in life?

Reality Check: Social Media

A decedent may have wishes about the handling of their online information. Particularly for social media, they may want accounts removed after death or memorialized. Without leaving instructions on wishes and preferences, it could leave the family at odds with the fiduciary, and frustrate known but undocumented intentions.

For the fiduciary, it’s no longer a question of getting around to changing the physical locks on a house to deter criminals, they will need to lock down the deceased person’s digital life to reduce the risk of cybersecurity and identify theft. Social media accounts provide a wealth of information for cybercrooks upon death and this area should be of mounting concern to fiduciaries.

The nuances of this topic can get complicated upon death or incapacity depending on the circumstances. Elaine Kasket in her book, All the Ghosts in the Machine: The Digital Afterlife of your Personal Data (Kindle), chronicles the Gazzard family seeking help dealing with their murdered daughter’s Facebook account to remove photos of her ex-boyfriend who was accused of her murder.

As it stands, very few service providers offer pre-planning. Where it does exist, you would be well advised to state and select your wishes, ensuring your pre-planning selections are aligned with other estate planning documents. Otherwise, your fiduciary may have little choice other than to contact the service provider and close the accounts.

5. When your advisor throws around invented terminology

Perhaps your advisor suggests terms, such as “digital executor, custodian, or steward” ––any title with “digital” in front of it labelling a person to manage your digital assets. The risk of creating a new role or inventing terms to deal with this asset class is that they have no basis in law, which may cause the person to misinterpret their role and take action such as using the deceased’s passwords that could directly violate a TOSA and protocols under RUFADAA.

It doesn’t help that the few tech giants that have recognized the need for pre-planning functions have no consistency in terminology for the role of the person identified or authorized to take action in these pre-planning tools. Facebook labels their pre-planning function “Legacy Contact,” and Google uses “InActive Account Manager.” Both provide different features and have different requirements.

Reality Check: Terminology

The various terms around “digital executor,” or the like, currently have no basis in the law. The transfer and access of property through estate administration and what a fiduciary is allowed or prohibited to do are governed by probate, estate, and fiduciary laws that are jurisdictionally specific. Sharon has raised this concern over terminology and use of passwords in a number of digital estate planning articles including LexisNexis Lawyer’s Daily - Three-part Series on Digital Estate Myths, highlighting as well the observation on just how intertwined some of our physical property rights are with our digital lives.

The quasi-judicial governmental offices in each U.S. state that probate wills are ill-equipped to recognize this terminology, nor can they legally bifurcate the powers and duties of fiduciaries. A much better solution is to appoint only one fiduciary, and give them the ability to hire technology experts to assist with the digital side of the estate administration, or appoint a technology advisor, but don’t divest the fiduciary of the legal rights of access for these assets. If the advisor feels so propelled to advise a client to name someone other than the fiduciary, consider a digital advisor who would work alongside the fiduciary with a documented, defined scope aligned with a specific digital asset and include discretionary powers documented legally that can be modified by the fiduciary.

Sharon’s book, Your Digital Undertaker, takes a project management and risk perspective about the challenges of naming two people, one as executor and one as digital executor. Take something as simple as an online newspaper subscription. Who is supposed to deal with it? The digital executor, or the legally recognized executor? If you say the digital executor, then you’ve relinquished the entire executor job, given how online we’ve all become.

The integrated nature of digital assets makes estate planning more complicated considering the myriad of options available. Case in point––if you appoint someone other than your fiduciary in Google’s Inactive Account Manager, this could have ramifications for the fiduciary if they require access to information from Google’s platform. Individuals should carefully consider who they name in service provider pre-planning tools, and not rely on email as a means of transferring estate information to the fiduciary.

When naming a fiduciary, individuals should ensure the fiduciary can handle not only your physical assets but also your digital or other specialized assets. For individuals with significant digital assets that could require specialized technical skills, there are more advanced legal and technical planning methods to address those types of assets.

We recommend that a starting point for pre-planning in the digital age is thoughtful selection of the fiduciary. Set up access to help, advice, or professional services for technical management which might be needed for the fiduciary to complete their roles. This is no different than identifying legal or tax specialists that might be required in complex estates.

If you can’t trust your fiduciary with your digital life, then perhaps you don’t have the right fiduciary.

In closing

A failed digital estate plan won’t look like a failure to the estate advisor. At first. When challenged by the beneficiaries years later, they might simply shrug their shoulders and say that your loved one, their client should have addressed their digital assets while living, because it will be impossible to address after death.

Without pre-planning, all the fiduciary will be able to do upon your incapacity or death is, at best, close down your accounts. The rub of digital asset management is that they need to be planned for while you are living and have mental capacity, otherwise, they will generally be invisible or inaccessible after death.

To pour more fuel onto the digital assets fire, most U.S. states have adopted fiduciary access laws that require pre-planning so assets can be more easily transferred. To the extent this is understood in the estate planning world, some financial, wealth, and estate planners are beginning to partner with the inventory, vault, and services companies along with tech entrepreneurs that provide management platforms as part of estate planning services.

If your estate advisor dismisses the idea that digital estate planning isn’t required within an estate plan, or you recognize some of the red flags, it might be time to find a new advisor. The pandemic has changed online habits, activities, and business operations and is busting open the tech side of the estate industry and forcing modernization. Is your advisor ready?

Read: Supporting Your Clients’ Digital Legacy

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Sharon Hartung, Captain (Ret’d), TEP, is the founder and principal of Your Digital Undertaker and has over 30 years of experience in IT management, project management and consulting. She is the author of the recently published Your Digital Undertaker — Exploring Death in the Digital Age in Canada. Sharon is a Society of Trust and Estate Practitioners (STEP) member and committee member of the STEP Global Digital Assets Special Interest Group. Sharon is reachable at www.yourdigitalundertaker.ca, and Twitter @UndertakerTech.

Jennifer L. Zegel, Esquire, LL.M., is the Practice Leader of Kleinbard LLC’s Trusts and Estates Group. Jennifer maintains a traditional estates and trusts practice but is unique in that she has a special focus in estate and business planning and the estate administration of digital assets, a fast growing and increasingly complex area. Jennifer co-created the Digital Planning Podcast (DPP), which is dedicated to exploring all things digital in connection with estate planning, business planning, and estate administration. Jennifer is a Society of Trust and Estate Practitioners (STEP) member and committee member of the STEP Global Digital Assets Special Interest Group, as well as the Chair of the Philadelphia Chapter of Diversity in Blockchain, which is a national 501(c)(3) organization. For more information on Jennifer, The Digital Planning Podcast, and Kleinbard LLC visit the Firm’s website at www.kleinbard.com.

Disclaimer: The intent of information provided in this article is to encourage individuals, businesses and organizations to consider the importance of digital assets in the context of a will, estate planning and estate administration. The authors do not warrant or guarantee the accuracy or currency of the information provided herein. The laws in a jurisdiction change and are potentially different than what was presented here. The authors are not providing advice, and you are encouraged to seek qualified professional advice authorized in your jurisdiction for your specific situation.

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