Technology—Probate

A New Era in Estate Planning for the Digital Age

Technology—Probate provides information on current technology and microcomputer software of interest in the trust and estate area. The editors of Probate & Property welcome information and suggestions from readers.

Technology—Property Editor: Ross Bruch, Brown Brothers Harriman & Co., One Logan Square, 14th Floor, Philadelphia, PA 19103. Contributing Authors: Jennifer L. Zegel, LL.M., TEP is the practice leader of Kleinbard LLC’s Trusts and Estates Group, based in Philadelphia, Pennsylvania. Sharon Hartung, Captain (Ret’d), PEng, TEP, is a professional engineer and author of Digital Executor®: Unraveling the New Path for Estate Planning and Your Digital Undertaker: Exploring Death in the Digital Age in Canada.

Today’s business and personal planning landscape is dramatically different from what we left behind in 2020 and 2021. The rapid adoption of technological innovations underscores the overused cliché that these are “unprecedented” times to navigate pandemic realities. During times of global crisis, the threat of uncertainty fosters creativity to overcome obstacles or to develop solutions never previously contemplated. There are three drivers of change disrupting the estate industry: the increased digitization of processes, acceleration of technology, and the increased usage and continued adoption of technology during and anticipated post-pandemic.

Technical advancements have enabled the normalization of electronic document signing, with traditional wet signatures and paper-based estate planning no longer aligned with many clients’ expectations. The knowledge base surrounding the category of digital assets and the technical, legal, and practical challenges of planning for a client’s digital assets from email accounts to non-fungible tokens (NFTs) has burgeoned. Suppose professionals are lagging in advising clients on their use of technology on their estates. In that case, a sense of urgency is heightened as the technical planning spectrum will only increase. Clients will expect their estate plans to include their digital assets. Their representatives will ultimately hold practitioners accountable if they are not legally and technically accessible at the time of incapacity or death.

Although we should be long past talking about social media and digitally-stored photos, it is worth revisiting basic terminology. Fundamentally, digital assets are our memories, financial records, documents, identities, collectibles, and information stored in digital form. The Uniform Law Commission’s model legislation, the Revised Fiduciary Access to Digital Assets Act (RUFADAA), defines digital assets as an electronic record in which an individual has a right or an interest. Most US states have adopted a version of RUFADAA.

As overwhelming and abstract digital asset planning may appear to some, a professional advisor must prepare for this digital reality. This article orients the reader to digital awareness and aims to provide the perspective to affect the development of estate planning and administration practices. Integrating digital analysis into traditional estate planning requires a new planning paradigm. Digital Asset Entanglement: Unraveling the Intersection of Estate Laws & Technology, co-authored by the writers of this article and forthcoming by LexisNexis® in March 2022, proposes a client persona framework to navigate a client’s digital universe. The book explores this developing framework against the case study of Gerald Cotten and his cryptocurrency exchange, Quadriga CX. Cotten died under mysterious circumstances in December 2018, leaving no plans for the management of his company, the largest cryptocurrency exchange in Canada. Quadriga was forced into bankruptcy, uncovering an abundance of issues. His estate was probated in the Probate Court of Halifax, Nova Scotia.

Digital Assets Are Pervasive Within Client Portfolios

Globally, court cases have emerged with families suing cloud service providers to provide access to digital assets. Examples include Ajemian v. Yahoo!, Inc., 84 N.E.3d 766 (Mass. 2017), where family members requested access to the deceased’s Yahoo account, and the UK’s Rachel Thompson case, where a widow sought access to her husband’s iCloud account. In the Matter of White, 2017 WL 8944064 (N.Y. Sur. Oct. 3, 2017), the administrator requested that the court grant access to emails containing information about the decedent’s business. The court limited the disclosure, in that case, to contact information in the account because the will was silent on digital assets. More complex issues stem from estates without cryptocurrency planning, such as the Estate of Matthew T. Mellon II (probate is ongoing in California, Los Angeles County Superior Court; Case No. 18STPB04491). Mr. Mellon died in 2018 with approximately $193 million of the cryptocurrency XRP on the Ripple blockchain, leaving no information to access the private keys (alphanumeric codes) to transfer the crypto. For years, his estate has been tied up with massive tax bills and access issues to most of his fortune. His estate did enjoy the novelty of negotiating a deal with Ripple, however, for reasons that are not fully clear and would be nearly impossible in most other circumstances, to access his holdings and enter into an agreement to slowly sell them over time, as reported in December 2021 by the Dailydot.

Although cases exist, how widespread is the issue of digital assets in the estate industry? The Society of Trust and Estate Practitioners (STEP) Digital Assets 2021 global survey report Digital Assets a Call to Action (conducted by STEP and the Microsoft Funded Cloud Legal Project at Queen Mary University of London) gives evidence on how pervasive digital assets are in an estate practitioner’s practice. Three key findings follow, which sets the context of the disruption facing the estate industry:

1. 90 percent of estate practitioners predict client demand for advice about digital assets will increase.

2. 24 percent of estate practitioners reported that clients had difficulties accessing or transferring digital assets on death or incapacity.

3. Only 6 percent of estate practitioners considered there was a straightforward process for accessing digital assets stored in the cloud in their jurisdiction. The most cited obstacles to accessing cloud-stored digital assets included technical restrictions, lack of clarity around property rights, and lack of estate planning. The five providers most mentioned were Apple, Google, Facebook, Microsoft, and Dropbox.

More than half of the global population uses social media. Gartner predicts that, in the United States, remote workers will represent 53 percent of the workforce in 2022. The estate industry is digitizing every aspect of its estate planning and administration processes, which will affect all advisors in the industry. As jurisdictions enact electronic wills legislation, it will further propel change with data integration across the entire process from client engagement to probate processes. (Refer to Digital Executor®: Unraveling the New Path for Estate Planning for more information.)

Shiny New Objects in Estate Portfolios

Moving beyond digital assets like email and photos are cryptocurrency, NFTs, and the metaverse. Cryptocurrencies, once taboo, have become mainstream. Countries such as El Salvador now recognize bitcoin as legal tender. The British overseas territory of Gibraltar began reviewing a proposal in 2021 for the blockchain Valereum to require the Gibraltar Stock Exchange to trade cryptocurrency along with traditional investments, which could result in the territory becoming a global hub for cryptocurrency. The IRS has expanded its crackdown on crypto-tax evasion and sought funding to bolster its enforcement unit. Currently, the IRS generally treats digital assets as personal property for income tax purposes. This is likely to change as laws, regulations, and technology progress, adding more items for an advisor to track.

NFTs have been sensationalized in the media, and they present a host of challenges for estate planners. An NFT is a one-of-a-kind digital token with an embedded smart contract stored on the blockchain. A smart contract is a set of codes that trigger specific automated actions in pre-defined contexts. NFTs can be a digital collectible, like a sports trading card, artwork, or even a digital version of physical property rights. NFTs add multiple elements to planning, such as potential copyright issues, licensing restrictions, and other prohibitions in Terms of Service Agreements (TOSA) that may not be readily apparent. Many do not realize that an NFT is not the actual digital collectible; the NFT merely points to the location on the internet where the digital asset is stored, which may not always be on a blockchain—presenting other long-term storage and access issues. The metaverse, which comprises online virtual worlds with various interconnected functions, is likely the future of our digital identities, entertainment, work, and even digital assets. For example, companies are establishing virtual space in Decentraland, a metaverse, where attorneys also set up virtual shops. Meta (formerly known as Facebook) recently launched its metaverse, Horizon Worlds, and has committed to spending $10 billion over the next ten years on its development.

Most of us have been oblivious to integrating our physical and digital footprints. Still, social media, AI bots, gaming, digital currency, avatars, and digital identification are all indications of an integrated digital world with tech giants battling for dominance. While the metaverse and other technologies present new digital planning problems, considering digital assets as an asset class helps conceptualize and leverage existing estate planning and administration processes.

The Digital Assets Journey Has Begun

Recognizing that a multi-disciplinary approach was required to address the integrated nature of digital asset planning, Digital Asset Entanglement: Unraveling the Intersection of Estate Laws & Technology sets forth client personas to assist in identifying the implications of legal, tax, and technical strategies for digital assets in estate planning and administration based on a client’s technological behavior. Many types of clients with varying digital usage may affect both technical and legal aspects of a plan. Digital asset planning cannot be done through a single lens because needs will be diverse and changeable over time. The following are examples of a few client personas:

• Basic users are clients who use email, but the use and purpose of the email must be explored. Are there multiple accounts for business and personal use? Are bill payment and other household maintenance functions tied to a single email account? Have any pre-planning settings offered through a service provider’s platform been used to determine access at death, such as Google’s Inactive Account Manager or Apple’s Legacy Contact? Are there paper trails to this information? What devices are owned and used? These types of questions begin to shape the implications of email and device dependency for a client, which will be necessary information in the planning process to increase efficiencies for a fiduciary.

• Content creators and gig economy users are also basic users, but how a client’s personal life intertwines with his business life must be explored for this category. Clients encompassing this persona include artists selling photos online, small Etsy-type virtual shops, and bloggers. Often hobbies turn into meaningful revenue streams that could present obligations, require action, or necessitate the protection of copyrights. Domain and website ownership are important considerations for these clients, as well as the existence of payment or merchant accounts.

• Innovators, tech entrepreneurs, and crypto enthusiasts are an expanding universe of individuals resulting from the blockchain revolution, central bank digital currencies, and decentralized finance. Many clients in this category may own NFTs and other digital collectibles as well as crypto and other novel digital assets, on top of being a basic user. In addition to more advanced estate planning strategies to ensure both legal and physical access to these types of digital assets at death or incapacity, this type of client needs a technical management guide or team to ensure intentions are followed upon death or incapacity.

The client persona framework raises awareness of digital behaviors and their effect on the estate industry, including the future development of estate plans, administrative policies, technical management guides, and practices.

Digital Assets Readiness Starts with Awareness

If the challenges from the pandemic have taught us anything about technology and innovation, it is that organizational policies, practices, and tools need to adapt, be augmented, or change as new situations arise. The early pandemic years increased our awareness of the need to address digital assets across the estate industry. Apple’s announcement of its Digital Legacy Program validated the industry’s need to address incapacity and death for digital account holders and online users. We all have a digital life, and we must acknowledge that managing our digital footprint, including our devices, accounts, and assets, is a natural part of the planning process. Examples of basic life planning hygiene follow:

• Cybersecurity awareness is a dependency when operating in our digital world. Just as we have seen the COVID-19 virus mutate, the bad actors in the cyber world also vary their tactics, readying them to strike at account vulnerabilities. Cybersecurity is also about reducing your digital footprint. If an account is not required, delete it.

• Consider selecting a password manager to manage digital accounts for personal use and inquire about password managers for company accounts. If clients are hesitant to use a password manager for personal use, the good old-fashioned way of password management still works. Write down the names of your accounts, your username, and your passwords, and store the list in a safe and secure place. But sharing passwords for accounts maintained by service providers is generally a breach of the TOSA. Sharing passwords has other cybersecurity risks, but ensuring the fiduciary has an access plan that accounts for legal, tax, and technical management considerations are critical.

• In Digital Asset Planning 101, all the basics apply that are used in traditional estate planning, such as inventorying assets and creating at least a will and financial power of attorney that addresses digital assets and a fiduciary’s access to those assets. If clients have digital assets of significant sentimental and monetary value or have other complexities, it will be necessary to engage experts on legal, technical management, tax, and valuation aspects during the estate planning and administration process.

• Although controversial, tech entrepreneurs are already embedding estate planning business processes in consumer-based AI solutions. Business Insider reported in 2021 that venture capital has come to the end-oflife planning industry, according to their interviews with CEOs and PitchBook data. They report the median deal value in the industry is $2.65 million, up 194 percent from 2020. Stay tuned as the #estatetech area evolves.

Like physical assets, real property, and traditional property rights, digital assets have an assortment of characteristics that matter in estate planning and subsequent estate administration to meet client wishes and preferences. There are additional technical and practical access planning requirements if the future fiduciary will have any hope of first finding and successfully (and legally) transferring or disposing of these assets. Although we suggest using traditional planning methods, there are two fundamental differences between digital and traditional assets. Digital assets, by their nature, are virtual and may be difficult to find, and the law has not had hundreds of years of legislation and case law to work out the kinks. This poses unique challenges to the planner as the industry tries to keep pace with the emergence and acceleration of this asset class. A client’s usage and technological behavior while living will dramatically affect the accessibility of these assets at death or incapacity. Clients must plan for their digital estates to ensure that the result will meet their wishes. Digital assets are not all the same, and advisors need multiple options to address the realities of planning and administration. Despite all these new planning challenges, there is a tremendous opportunity to help shape the estate industry by embracing change and creating general practices and frameworks for the benefit of all.

Published in Probate & Property, Volume 36, No 2 © 2022 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.