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Estate Planning Alert: Are your digital assets organized?

Increasingly, most people have adapted their financial lives to the Internet. Receipts and payments of bills, transfers of cash between accounts, financial information and statements delivered electronically, online purchases and sales are everyday occurrences for many people. Cloud computing and backups to the Internet are also common. If you become incapacitated or upon your death, who will have access to this information?

The answer to this question presents two issues: one is legal and the other is practical. Most users do not read carefully the terms of service before clicking “Agree” or “Accept,” and many never read or understand the implications of these one-sided agreements. There may be legal impediments in these agreements that limit legal access in unexpected ways. There may also be legal implications for anyone who accesses information in violation of the “Terms of Service” agreements. Perhaps at least as important is the practical issue of access. Who besides you knows the information on the accounts, the user id, passwords, and security questions that may be associated with the accounts? Even with legal authority in your attorney-in-fact or your executor and trustee, it may be very time consuming and expensive to extract information about the digital assets, if this practical issue has not been addressed.

What are digital assets?

A digital asset is any information in digital format stored on your computer or on Internet sites. Files on your own computers and backup devices, including financial data in programs like Quicken or MS Money, music downloads, ebooks, audio books, video and photographic files, email messages, and letters. If you do business via computer or the Internet, those valuable files also require special attention. Online services to receive and pay bills for credit cards, utilities, loans and mortgages, and similar transactions also fall within the broad definition.

What should you do?

We recommend a few simple steps to help you manage this important information:

  1. Get organized. Click here for a useful spreadsheet that you can adapt to your own circumstances.
  2. Decide with whom to entrust this information. A spouse, a child, a trusted advisor?
  3. Decide where you will keep the information. Hard copy and electronic versions are advisable. Any electronic versions should be password protected or encrypted in some fashion. If you wish, you may deliver a back-up copy to your attorney with the understanding that they are acting as a backup custodian only of the information. There are also online services that are designed to address some of these issues, although the example of the recent seizure of Megaupload’s assets and servers raises questions about accessibility when a provider of storage services encounters legal or financial issues, so proceed with caution.
  4. Keep the information current. As the information changes, share the updated information with your primary and secondary custodians.
  5. Modify your financial powers of attorney to add authority for your attorney-in-fact or a special attorney-in-fact to access and control of your digital assets.
  6. Modify your Will and Trust to authorize your attorney-in-fact/executor/personal representative, and trustee to access and control your digital assets.

We encourage you to organize your digital assets for all of the reasons provided in this Alert. It will be time well spent for both practical and legal reasons.

For more information, please contact:

Roger L. Shumaker

or any of the other attorneys in our Estate Planning and Probate/Trust Administration Group:

Estate Planning

Our estate planning and probate services for individuals and families are focused on helping clients meet their estate planning objectives through income, estate and gift tax minimization. Our services include preparation of wills, living trusts, financial powers of attorney, charitable trusts, and related documents. We take a comprehensive approach to the planning process to ensure that the goals of the family are carried out and that the estate is appropriately managed.

Carl J. Grassi, President
600 Superior Avenue, East, Suite 2100, Cleveland, Ohio 44114
Fax: 312.280.8232
Fax: 216.348.5474
Fax: 614.458.0028
Fax: 248.646.5075
Fax: 1.305.704.3999
West Palm Beach
Fax: 561.472.2122
IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments), was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding any penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any transaction matter addressed herein.

© 2012 McDonald Hopkins LLC All Rights Reserved. This Alert is designed to provide current information for our clients, friends and their advisors regarding important legal developments. The foregoing discussion is general information rather than specific legal advice. Because it is necessary to apply legal principles to specific facts, always consult your legal advisor before using this discussion as a basis for a specific action.