What happens to your digital wealth on death and incapacity?

The statistics relating to social media use and the extent to which our lives are online are startling. In Australia, there are 15 million monthly users of Facebook.¹

We also:²

• talk to each other online (WhatsApp: 4.8 million active Australian users)
• comment online (Twitter: 3 million users)
• share pictures (Instagram: 9 million users, Snapchat: 4 million users)
• date online (Tinder: 2.7 million monthly active users)
• develop our businesses online (LinkedIn: 4.2 million monthly active Australian users)

Due to the popularity of these means of communicating, doing business, shopping, paying, playing and earning, it is not surprising that digital planning is increasingly important.

It is also even more important for individuals who have set up digital businesses to try and take advantage of the opportunities created by the new digital world.

Digital wealth will form part of an individual’s estate. It, therefore, needs to be considered as part of a comprehensive estate and succession planning strategy, so that on their death or incapacity, their digital wealth together with their other wealth is dealt with tax effectively and in an asset protective manner.

Well-drafted estate and succession planning documents ensure that their digital wealth forming part of their estate and held in other entities is managed smoothly and in accordance with their intentions. It is important to get this planning correct, in order to help manage against:

• Disruption to a digital business (if applicable).
• The potential for costly disputes.
• Family division.
• Added stress for family members after.

However, the unique characteristics of digital wealth create numerous issues and as our lives become increasingly digitalised and online, digital wealth will constitute a far greater proportion of individuals’ estate than many realise.

It is also clear that digital wealth is changing rapidly and it is difficult to predict the future let alone for the law to keep track, with the advent of the “Internet of Everything”, virtual reality and augmented reality.

Even if you do not own an online or virtual business, this digital wealth may have the ability to produce income or be sold, but will be of no value if nobody knows it exists due its intangible nature making it difficult for your personal representatives to find.

It may also have sentimental value where the account includes photos, memories or messages related to the deceased.

In addition, it may contain private information which could pose a security risk allowing a criminal to use it for identify theft, or contain sensitive information which the deceased would not want their family to know, such as that they were having an online affair.

Despite the above, a survey for the NSW Trustee and Guardian found that:³

• 83% of Australians who have a social media account have not discussed with their loved ones what they want to happen to their accounts when they die.
• Only 3% of Australians who have a Will have decided what to do with their social media accounts after their death.

What is your digital wealth?

Given how quickly technology is changing our lives and the intangible international nature of digital wealth, it is difficult to define “digital wealth”. However, it could include the following:

• Online or virtual businesses which may own goodwill or intellectual property, such as copyrighted materials, trademarks and code.
• Social networks, such as Facebook, Twitter, YouTube, Instagram or LinkedIn.
• Email accounts.
• Blogs and domain names.
• Music, photos or other files that you store online or in clouds.
• Accounts on PayPal, Amazon or eBay.
• Access to financial accounts or utilities.
• Hardware, such as computers, tablets, laptops, external hard drives, flash drives, smartphones, digital music players, e-readers, cameras and other hard devices.
• Information or data stored electronically, online or in the cloud, or on hardware.

What happens to your digital wealth on death?

The first step is to determine where it exists since it can exist locally on a device and/or in a cloud. However, this is then further complicated, as different social media providers have different account terms and different laws may apply due to the international nature of digital wealth. An example is where you want to gift videos or photographs in your Will since whether you can is determined by where they are stored:

• If they are saved on the digital device (such as your iPad), you can gift them by gifting the device or
• If they are saved in a cloud, the provider’s account terms will determine what is allowed and what happens to them, since such accounts are usually only a bundle of contractual rights.

However, it can be difficult to work this out if you do not know what accounts the deceased had, since the information on the device may be the only evidence to the information in the cloud.

Once the location of the information has been determined, the next step is to work out what rights are associated with that information in the cloud. However, this can be difficult, as the rights differ greatly from one provider to the other, as the following summary shows:

• Facebook allows users to decide whether they want their account memorialised or permanently deleted in advance.⁴ A memorialised account has the word “Remembering” shown next to the person’s name. Content, such as photographs and posts, remains visible to the audience it was shared with, but the account cannot be changed unless the deceased added a legacy contact. If an option is not chosen and Facebook is made aware of a death, their standard policy is to memorialise the account.
• Instagram accounts can be memorialised by anyone who has known the deceased making a request by providing proof of death, such as a link to an obituary or news article.⁵ However, accounts can only be removed by family members providing proof that they are an immediate family member, such as the deceased’s birth or death certificate or proof of authority under local law that the family member is the lawful representative of the deceased person or his/her estate.
• LinkedIn only offers the ability to remove the profile of the deceased member and not to memorialise it.⁶ Once removed, the profile will be deleted and no one will be able to access their information including their connections, recommendations and endorsements.
• Twitter only allows a deceased user’s account to be deactivated. Twitter will work with a person authorised to act on the behalf of the estate or with a verified immediate family member of the deceased to have an account deactivated.⁷
• iCloud’s terms and conditions⁸ provide that an account is non-transferable and that any rights to your Apple ID or content within your account terminate upon your death. Upon receipt of a copy of a death certificate, the account may be terminated and all content deleted. This appears very harsh, so an individual may wish to leave their login details with their personal representatives, so they can log in to retrieve photos and other sensitive information. If you do not, then a court order may be required which will likely prove difficult and expensive to obtain.
• PayPal’s terms⁹ mean that only an account owner can close their account unless the owner is deceased. If the owner dies, PayPal’s terms provide that the executor (or person duly authorised to administer the estate) needs to fax certain documentation to PayPal.

What to do?

In Australia, there is no specific legislation dealing with digital estate and succession planning or the management of digital wealth. This means that families have no clear rights in relation to access, let alone ownership, of the online life of a deceased or incapacitated family member. If they do not have the required password and login details these assets can remain locked away, or sometimes online indefinitely. Even if they have the password, they may be in breach of the service terms of the provider if they use that information.

Elsewhere in the world, the situation is similar, although some jurisdictions are at least trying to address the issues, such as New York’s recently enacted digital asset legislation¹⁰  and in the USA with the model Uniform Fiduciary Access to Digital Assets Act (UFADAA). This provides a framework for executors and attorneys to follow when seeking access to digital assets and regulations regarding disclosure.

The lack of legislative response to this fast developing issue in Australia means that there is a lack of clarity for families, and the complex jurisdictional issues and contractual issues remain. Due to this, there is no magic answer in deciding what to do. However, the following is considered best practice:

• Lawyers need to be aware of the issues and what can and cannot be done. The ownership of digital wealth needs to be discussed with clients and instructions obtained. However, despite the difficulties posed by digital wealth, the overall approach is similar to traditional estate and succession planning, so before documents are prepared, lawyers should:
  • understand the family dynamics and issues
  • conduct a review of asset ownership and any structures and propose solutions to resolve any problems
  • agree on strategy and obtain buy in from the individuals and their beneficiaries where possible, to lessen the chance of disputes arising in the future due the beneficiaries not understanding what was done and why
• Clients should be encouraged to keep a list of digital accounts and wealth with trusted family members knowing where it is. However, this should be kept securely and separate from passwords to avoid causing security issues if the information ever gets into the wrong hands. It should therefore not be included in the Will, as the Will becomes a public document if and when probate is granted. It also needs to be easy to access, so it can be updated given this is an ever changing area, so it should not be kept with the Will in a lawyer’s strong room.
• A letter of wishes may be helpful so that it is known what the individual would like to happen to the accounts and digital wealth in the event of their death or incapacity, as if no direction is given, there is no opportunity to give effect to the wishes. This letter could cover:
  • accounts to be closed, deleted and/or all content be erased
  • material to be downloaded and gifted to named individuals (for example, photos stored on a social media account or site)
  • accounts to be archived and saved
  • credits, points or cash values to be redeemed and transferred to particular people
  • lock websites, close down domain names
  • shut down online stores or online businesses, finalise any outstanding sales or fulfilment of services, direct where revenue is to pass or direct who is to control the online business
  • provision of passwords and login details to particular people
  • gifts of digital devices to particular people or directions to erase and destroy devices and drives
• Incapacity needs to be considered, especially as the need to deal with digital wealth and social media accounts may be more urgent than on death. However, account policies are often less clear regarding what happens than on death. Enduring powers of attorney should have definitions of digital assets and digital accounts and powers allowing the attorney to deal with them. Although the document is jurisdiction-specific and this is not strictly necessary under Australian law, if you are dealing with an account provider in a different jurisdiction, this may make them more likely to accept the authority of the attorney.
• Wills should have definitions of digital assets and digital accounts and powers allowing the executors and trustees to deal with them — for example, to access, use, delete, control, transfer, sell, manage and distribute. Although it is arguable that the general powers of the executor and trustee in a well-drafted Will will be sufficient for this purpose, this is recommended as a belt and braces approach.
• If the client has significant digital wealth in other jurisdictions, it may be preferable to have local Wills and the equivalent of enduring powers of attorney in each jurisdiction with a global Australian Will covering their worldwide estate other than that situated in these jurisdictions. Even if this is not strictly legally required after considering the relevant succession laws of each jurisdiction, it may facilitate the process and possibly lead to a better tax outcome, for example where a jurisdiction has a form of inheritance tax.
• If the client has significant digital wealth, subject to the tax implications being considered, an option could be to hold it through a trust structure which does not form part of their estate. However, consideration then needs to be given to who will control the trust on their death or incapacity and who the shares in the trustee company (if there is one) should pass to under the Will.
• As with all estate and succession planning, regular reviews, at least every 3 years and when there is a significant change in circumstances, are important particularly given how quickly the digital arena is changing.

Key points

Due to rapid changes in technology, digital wealth is forming a greater proportion of your estate than you may realise even where you do not own a digital business, although such business owners will have additional issues to consider.

Succession law has yet to evolve to deal with the challenges of digital wealth. Many lawyers also do not consider the issues raised by digital wealth.

The approach to what happens to digital wealth on death and incapacity is similar to traditional estate and succession planning. However, it is complicated by the intangible and often international nature of digital wealth.

Lawyers need to ensure that this issue is on our radar, seek to understand what we can and cannot be done in relation to digital wealth on death and incapacity and most importantly, encourage clients to consider this area. This includes advising clients to keep a secure and up-to-date list of digital wealth and accounts and ensuring that the documentation we draft contains sufficient powers to deal with such wealth and accounts. If we do not, we expose ourselves to the risk that a disappointed beneficiary may look to us to compensate for their loss.

Conclusion

It is essential that lawyers consider digital estate and succession planning with their clients given the increased digital wealth of individuals and how quickly this area is evolving. Failure to do so exposes the client to potential delay, disruption or disputes, which may expose the lawyer to claims from disappointed beneficiaries.

This article was originally published on LexisNexis.