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Digital assets becoming key in estate planning

Liam Lahey

Have you thought about what becomes of your online life after you've died? Of course you haven't. But as our daily lives are increasingly spent online, there's a growing concern to include one's digital assets in estate plans or wills.

A recently released study on the subject by the BMO Retirement Institute suggests estate plans need to evolve to include the accumulation of our online properties. For instance, the report states 86 per cent of Canadian Baby Boomers use at least one financial online tool and they are actively involved in online areas such as finance, social networking and data collections including photographs and music. However, Canadians have not been addressing these in their estate plans.

"Identify, inventory and value your digital assets. This will minimize the burden on your attorney/executor as they may not be aware of the existence of these assets. Doing so will also minimize the risk of losing assets that may have both financial and sentimental value," says Marlena Pospiech, senior manager, retirement planning strategy, BMO Financial Group. "The definition of value can be different for different people. Some digital assets have financial value while others have sentimental value. It may be difficult for individuals to value their digital assets particularly since this is such a new frontier in estate planning."

In the U.S., a survey conducted in 2011 by Internet security firm McAfee found that the average online user has more than $37,000 in under-protected digital assets. Moreover, the report stated that U.S. consumers value their digital assets at about $55,000.

Getting the law up to speed

Hari Nesathurai, counsel at Devry Smith Frank LLP in Toronto, says it's a slightly odd area of law, one that is very new, and he adds that law itself is in general slow to develop.

"The law generally follows trends and the Americans are ahead of us. I think 30-plus states actually have certain laws with respect to digital assets. But in Ontario, and in Canada, we have no specific law that addresses that although we have certain consumer protection acts," he explains.

"You can gain access to someone's safety deposit box in the same way that you can gain access to someone's bank account, under PIPEDA (Personal Information Protection and Electronic Documents Act). But (the deceased) has to maintain (personal) records so the executor of the estate can then request, on behalf of the deceased, bank information."

Nesathurai is licensed to practice in Ontario, New York, Massachusetts and the U.K. He says the most practical consideration in the evolution of estate planning is to know what digital assets exist, where they are, and how the estate executor or trustee can access them.

"In terms of those assets, can you monetize it? Is it valuable? And if it is, do you have the right to sell it?" he asks. "When you sign up for (web-based email) or Facebook or LinkedIn, you're generally granting a license to that website to use your information and it's an irrevocable license."

Erin Cowling, associate, Whaley Estate Litigation in Toronto, says in Canada there has definitely been an increase in dialogue surrounding digital/virtual assets and estate planning.

"While we in the 'estate world' are aware of the potential negative consequences of not planning for your digital assets after you die, I find when I am talking to people outside of the profession they have not even thought about their digital assets/accounts and what may or may not happen to them when they do die."

Putting a value on digital assets

Cowling will be participating in a panel discussion on the subject on Sept. 19 at a STEP Canada seminar at Osgoode Hall in Toronto. When asked how to quantify the value of a person's online life, she says as with all estate assets, digital assets have both a monetary and sentimental value attached to them. She's seen some rather nasty fights among families over the least valuable assets.

"Now that we are adding in digital assets I think we will see an increase in family disputes over these assets as well (family photos, videos, Mom or Dad's emails) if the deceased does not plan properly and let their family know their intentions and wishes," she remarks. "Families used to be able to find old love letters in shoe boxes that recorded their grandparents' courtship and life together. Evidence of current relationships and love lives are now found in emails, text messages, on Twitter, and Facebook walls."

Many digital assets do have a substantial monetary value as well. For instance, a blog that has sponsored banner ads; if this blog is generating a sizeable income from those ads, where will this money go? Or, if you own a small business and you keep your orders and invoices on your computer that no one else has the password to, how will your business fill those orders once you are gone?

Choose an estate professional comfortable with tech

Whaley Estate Litigation's Cowling adds there have yet to be any Canadian court cases that have directly dealt with estate trustee's rights and responsibilities to access and deal with digital assets or accounts.

"I think this will definitely change," she says. "Once we have some guidance from the courts, or after legislation is enacted, we will have a better idea of how to plan for our clients' digital lives after death."

In terms of choosing an estate trustee or executor, and in light of the shifting dynamics of estate planning, it may be wise to select an individual that's comfortable using technology.

"A person who is not computer savvy may not be the right person to assist with inventorying, safeguarding and distributing digital assets, particularly if the deceased has an extensive and complex digital presence like an online business," BMO's Pospiech adds. "This does not mean that they cannot be named as attorney/executor, as some individuals appoint two executors to act jointly. One might consider naming a spouse who may not be tech-savvy and also an adult child or corporate executor who is computer savvy to act jointly with the spouse."

Take an inventory of your digital life

It's important to get proactive with your planning. Nesathurai recommends individuals keep a detailed, regularly updated list of all digital assets on a non-electronic source. And be sure to include all of your usernames and passwords on that list.

"Most people agree in their licensing agreements with the bank or other online accounts that they won't disclose passwords or usernames. But odds are you're in violation of the terms of use (if you provide this info to others)," he says. "The reality is you need to keep some record of all of these items and the real impact will probably happen 20 years from now because the people heavily invested in social media are now in their 20s and 30s."

Lori Duffy, a partner at WeirFoulds LLP in Toronto, says to be organized and identify items that you hold digitally and determine how you want them to be dealt with. "Check the terms of your ownership/access to ensure you have the right to transfer such items to your successors."

Cowling also advises to keep an active record of all digital assets. Most importantly, she says, provide your estate trustee with explicit instructions in terms of how you want these assets dealt with.

"Do you really want your children to read your emails? Do you have personal information on your computer that you do not want you family to know about? If this is the case, then you must advise you trustee to delete/destroy these items," she says.