Disposition of Digital Assets: Reasons for Digital Estate Planning

Authored by: Neeli G. Shah

Death in the digital age is a lot more complicated than it used to be.  Traditionally, fiduciaries and family members start administering an estate by reading the individual’s mail and sorting through records at the person’s home.  However, with online accounts and paperless billing, these traditional approaches may not be available to fiduciaries today.  The information needed to locate and access tangible and digital assets is often in the digital world itself.  Email accounts are typically the primary access point to all other online assets.  Online statements, notifications, messages, paperless bills etc., will all come through to the decedent’s emails.  Moreover, the decedent’s address book and calendar are often tied to or stored within the email account.

Given the breadth of digital assets it’s difficult to know where our survivors would start, other than that they would likely be overwhelmed. Further complicating these matters is the uncertainty of existing ownership and transferability laws that do not adequately address the category of property known as “digital assets.” 

What are Digital Assets?

Digital assets are broadly defined to include any online account and any file stored on a person’s computer or a server.  Online accounts include things like social networking sites (e.g. Facebook, Twitter, LinkedIn) email accounts (e.g. Gmail, Hotmail, Yahoo!), online financial or brokerage accounts and online bank accounts including bill pay (e.g. E-Trade, ING, ScottTrade, Fidelity), photo-sharing sites (e.g. Picassa, Kodak Gallery, Snapfish, Flicker), blogs, etc.  This class of digital assets also includes online resources like eBay, Yelp, PayPal, domain names and URLs from sites like GoDaddy.com, or avatars on video games and virtual worlds such as World of Warcraft or Second Life.  In short, any online account that is protected by a username and password and contains a user’s economically or sentimentally valuable content can be classified as a “Digital Asset.”  The second class of digital assets is comprised of files that are stored on a personal computer, tablet, smartphone, or on a server through an online backup service.  Such digital files can include business documents, address books, family photos, personal journals, family recipes, and a whole host of other types of information that individuals want their heirs to eventually have. 

Professionals such as computer programmers, graphic or web designers, photographers, writers, musicians, and artists may have created “digital data” which is stored on a computer or a server that may have substantial intellectual property and monetary value.  For example, when Leonard Bernstein died in 1990, he left only an electronic, password-protected, draft of his memoir, Blue Ink.  The manuscript is so well-protected that no one has yet been able to break the password.  Helen W. Gunnarsson, Plan for Administering Your Digital Estate, 99 Ill. B.J. 71 (2011). 

Laws Addressing Digital Assets

To date only five states have enacted laws that relate to digital assets with regard to estate planning.  Thus, rights of executors, agents, guardians, and beneficiaries with regard to accessing digital assets are muddy at best.  In addition, there is no real consensus regarding ownership and transferability of digital assets or the category of property in which digital assets belong.  Some say they are intellectual property, while others say they are intangible property.  In reality, some of the digital assets may not be “assets” entirely, rather mere licenses to use the website’s services.  Licenses are generally not transferrable and expire upon death.  There is also a higher risk of online identity theft as criminals have an enhanced opportunity to hack unmonitored accounts, open new credit cards, even apply for jobs or procure state identification cards using the deceased’s identity.  

Steps to Basic Digital Estate Planning

To ensure that your assets are disposed according to your wishes it is imperative that you engage in digital estate planning.  First, do a complete inventory of all digital accounts and assets so that your estate administrator will know just what you have of potential value (or liability) and where it is. Second, assemble a list of all usernames and passwords and keep it in a safe place (e.g. safe deposit box). If you have security concerns, you may make two difference lists, one for usernames and a second for passwords, and keep them in two difference locations.  Third, select a fiduciary and give them the proper information, instructions, and authority to administer your digital estate.  If you have privacy concerns or if a file contains sensitive information you wish to keep confidential, make arrangements to have your executor or a trusted individual delete it or take appropriate action after your death.  This can be as simple as writing things down, sealing it in an envelop and marking it “To Be Opened Upon My Death.”  It is best to leave this envelope along with your Will in a safe deposit box.

Conclusion

Laws to handle digital assets are still emerging, but lawmakers and the courts will lag behind technology, creating confusion and unnecessary expense for those trying to sort things out.  In the meantime digital-savvy individuals must take some basic steps to prepare an inventory of their digital accounts and assets, assemble a list of passwords, and give their executors proper information, instructions, and authority so that the estate administrator will know just what you have, where it is, and how you want to dispose of it.

Authored by: David L. Fox

It is common for lawyers to advise their clients when setting up a professional corporation to adopt a shareholder’s agreement. Such agreements, if well prepared, will provide a road map on how to resolve disputes when they arise, and provided a means for orderly succession when one or more of the professional shareholders leaves the business, becomes incapacitated or dies.

While many lawyers give such advice, a surprising number of professionals fail to adopt such agreements. Even those that do adopt such agreements may fail or refuse to make the hard choices in these early days of their business relationships. Our advice: Don’t Be One of Those People.  

Those of us who litigate business divorce cases for a living are familiar with the common problems that owners of a close corporation may encounter when deadlocks or succession issues arise. But these problems are greatly multiplied and made more difficult when the close corporation is also a professional corporation.

In the typical close corporation, where a business divorce is needed, one party may buy out the other, the family of a deceased shareholder may buy out other shareholders, shares can be sold to third parties  and business like decisions may be made.

By contrast in a professional corporation, if one shareholder-professional dies, his interest is not readily saleable, because no one other than a professional can own the decedent’s stock, the surviving professional may object to such sale, refuse to partner with the incoming buying professional or otherwise seek to limit or impair the decedent’s family from realizing the value of the shares left to them.

In one recent matter, we represented the estate of a decedent in an action against the surviving professional shareholder just to obtain a copy of the books and records of the Company and to recover money that the surviving shareholder had borrowed from the Company.  The standing of the estate to bring such an action was affirmed by the Appellate Division Second Department (Bernfeld v. Kurlineko 2012 Slip Opinion 00741 (Second Dept, Jan 31, 2012).   Because there was no adequate shareholder’s agreement, the surviving minority professional had been freezing the estate out the operation of the business and blocking any sale of the estate’s majority interest to a third party. 

All of those problems might have been avoided if the parties had entered into a shareholder’s agreement which provided for a business like solution to the problem- such as providing insurance to cover the cost of the survivor buying the shares of the decedent, or providing for an appraisal of the value of the shares and a structured payout arrangement.  These of course are only two of many alternatives one should consider.  If you are a professional shareholder in a professional corporation and have not yet faced and dealt with these issues, you should consider seeing your lawyer to deal with them now.

Authored by: Paul J. Sowell, Esq.

In a day of shrinking state coffers you would think that more and more states, in a last chance to grab revenue, would be looking to the estates of their deceased wealthy residents as a source of money.  Actually, you would be wrong. The growing trend among states which have a gift and/or estate or inheritance tax regime has been to repeal these onerous taxes.  Why would this be you may ask? An interesting study published this year by the Beacon Center of Tennessee looked at Tennessee’s death and gift taxes and concluded the following:

“Had Tennessee eliminated these taxes a decade ago, the state would have created an  additional 200,000 to 220,000 new jobs.

Tennessee’s gross state product would have been between $6 billion and $18 billion greater without these taxes over that time period.

Tennessee’s asset base would have increased by at least $16 billion and as much as $48 billion as a result of eliminating the taxes.”

It appears that the short term gain of revenue from these taxes is greatly offset by the chilling effect they have on the job creators and revenue producing small businesses which often feel the brunt of theses transfer taxes.

Following in the footsteps of Ohio, which last year abolished its estate tax, Indiana recently repealed its inheritance tax for deaths after December 31, 2021.  Indiana now joins the 29 other states that do not impose taxes at death. It appears that Oregon’s death tax may be the next to fall into its own grave, as there is wide support for an initiative on the November ballot to abolish the death tax. We will monitor what happens in Oregon and the rest of the states and keep our readers posted on this important issue.