Digital Property: The Intersection of Legacies, Technology, and the Law

By Lee Poskanzer

Can you hear it? A little-known, trillion-dollar problem is whispering in the background—a new and expanding challenge for trust and estate practitioners: how to handle digital property in the planning process. Today, the average internet user has over 240 online password-protected accounts, and 97 percent of American adults own smartphones, meaning that the “average American” is an internet user. That this is true of the average American adult (not just of young or technologically savvy people) is a big change that has happened over a relatively short period!

Digital property in a trust or estate plan cannot be managed the same as physical property. Fiduciary laws, terms of service agreements (TOSAs), and client privacy all factor in. The changing landscape requires the revamping of policies and procedures within law firms. This article addresses the twenty-first-century problem that trust and estate practitioners face, discusses changes in fiduciary laws, and dives into effective planning strategies your team can utilize going forward. 

The Twenty-First-Century Problem 

The technological revolution and evolution have brought about some significant changes, from electric vehicles and artificial intelligence to robots and automation. The underlying component driving all of these innovations is digitization. Unlike the twentieth century, when innovators and practitioners focused on improving physical processes and productivity, the twenty-first century has shifted gears to prioritize backend improvements and new products and services, such as email, mobile financial services, new types of currency, title transfer, digital imaging, and other efficiencies that replace the need for trips to banks, retailers, and government offices. These new products and services have also become the preferred method for maintaining memories, personal collectibles, and documented records.

When you think of digital assets, what comes to mind? One of the most common answers is cryptocurrency. Although cryptocurrency is the predominant digital asset, it is not the only one that you should consider when helping your clients create estate plans. Tax law and succession planning have historically focused on tangible assets and traditional intangible assets such as financial accounts. Failing to adjust this traditional focus to the new reality can have serious repercussions when a client’s estate plan must address and provide access to digital property. Your planning must reflect the requirements of federal laws, including the Electronic Communications Privacy Act (ECPA), which protects certain wire, oral, and electronic communications from unauthorized interception, access, use, and disclosure; the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), which has been enacted in many states; TOSAs; and the inherent characteristics of online accounts and the management of their contents. 

Would you be surprised to know that social media and email accounts are among the most-asked-about assets when clients seek advice about digital assets? You must be able to identify digital property that should be included in the planning process and ensure that you comply with all applicable regulations. Below is a nonexhaustive list of digital properties that your clients may have. It is not comprehensive because the types of accounts are boundless and ever-increasing: 

When a tech innovator creates a new app, asset, or feature, they are generally not concerned with the users’ succession planning. Innovators focus on developing products that sell well to consumers, entertain account holders, educate users, or facilitate a process, not on the account holder’s death or the people they leave behind. ChatGPT, the Metaverse, nonfungible tokens (NFTs), personal avatars with artificial intelligence (AI), initial coin offerings (ICOs), and crypto wallets are all relevant innovations within the digital property realm. Estate planners must be able to identify these digital assets and develop an effective strategy for their client’s trust and estate plan. 

Fiduciary Laws Are Evolving to Encompass Digital Assets

The pandemic caused the demand for estate planning to skyrocket, evidenced by the fact that Americans are now much more likely to create a will. The interest piqued among younger generations is even more surprising. Historically, older generations and those with serious health conditions have been most likely to engage in trust and estate planning. 

Recently, we have seen the distribution even out, with 71 percent of Americans aged 21 to 35 and 81 percent of Americans aged 36 to 42 interested in a trust. These younger age ranges have pulled ahead of the 64 percent of Americans aged 51 and older who are interested in creating a trust. A significant number of younger people also have digital assets: if those who acquire investments and digital property are considered according to age group, nearly 60 percent of millennial investors hold digital currency. 

Many estate planners have not factored in the shift in investments and the prevalence of digital property when they are preparing trusts and other succession planning documents, despite the adaptation of fiduciary laws to address changing conditions. There are now three main definitions of digital assets:

1. Legal: an electronic record in which an individual has a right or interest 
2. Financial: commonly cryptocurrencies and NFTs (although there is no formal definition)
3. Internal Revenue Service: any digital representation of value that is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary of the Treasury, including convertible virtual currency and cryptocurrency, stablecoins, and NFTs 

The most popular definition is the financial definition, but the legal definition provided by the RUFADAA fully encompasses what digital assets truly are: any form of digital property. Advisors who narrow their view of digital assets to the financial definition miss a key component of trust and estate planning. 

The RUFADAA allows individuals to authorize a fiduciary to access some or all of their digital assets in their will, trust, or power of attorney. Prior to its enactment, fiduciaries were often barred from access by a custodian’s TOSA or federal laws governing the unauthorized access of digital assets. 

It is important to differentiate between disclosure of account contents and account holder impersonation. Data disclosure occurs when the custodian of an account posts raw data to the cloud so that data disclosure designees can retrieve and evaluate the data to find important matters. In contrast, access to the account means someone is permitted to log in as if they are the account holder and conduct activity as the account holder. Account holder impersonation, which occurs if someone other than a fiduciary or individual authorized under the RUFADAA or similar law logs into an account, may violate TOSAs and privacy laws. 

Tomorrow Is Not Guaranteed: Take Action Today

There are steps you can take to effectively advise your clients about the intricacies of trust and estate planning with digital property. Now is the time to take action and solidify your client’s succession plan for their digital property. 

Where do you start? It can be an overwhelming process . . . 

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