Florida Banking May 2024

TRUST AND WEALTH MANAGEMENT

DIGITAL PROPERTY: THE INTERSECTION OF LEGACIES, TECHNOLOGY AND THE LAW

BY LEE POSKANZER, CEO OF DIRECTIVE COMMUNICATION SYSTEMS AND THE DIGITAL DEATH CLINIC

ORIGINALLY PUBLISHED IN WEALTHCOUNSEL QUARTERLY, WINTER 2024; UPDATED APRIL 2, 2024

C an you hear it? The quietest trillion-dollar problem is lingering in the background. Today, the average American has more than 250 online accounts,1 with 97 percent2 of Americans owning smartphones. These trends didn’t exist 10 or even 20 years ago. This brings about a new and expanding challenge for trust and estate practitioners: how to handle digital property in the planning process. Digital property within a trust or estate plan can’t be managed in the same way as physical property. Fiduciary laws, Terms of Service Agreements (TOSA), and client privacy all factor in. And don’t forget to add the ongoing introduction of new asset types and new uses of digital property. This changing landscape demands the revamping of policies and procedures within practitioners of all categories. In this article, we’ll elaborate on the 21st Century problem that trust and estate practitioners are facing, discuss alterations in fiduciary laws, and dive into effective planning strategies your team can utilize going forward. The 21st Century Problem The technology revolution and its evolution has brought about some significant changes, from electric vehicles and artificial intelligence to robots and automation. The underlying component driving all of these innovations is digitalization. Unlike the 20th Century, when innovators and practitioners were focused on physical process improvements and productivity, the 21st Century has shifted gears to prioritize back-end improvements and new products and services, such as email, mobile financial services, new currency types, title transfer, digital imaging and other efficiencies that replace trips to the banks, retailers and governmental offices. It has 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 a predominant digital asset, it’s not the only one that you need to consider when trust and estate planning for clients. Tax law and succession planning have historically focused on physical assets. This traditional way of thinking can have serious repercussions when it comes time to address and access digital property, including the controls set by the ECPA and RUFADAA laws, TOSAs, and the inherent characteristics of online accounts and the management of their contents. And now, the IRS has included digital property in tax codes but it is not complete and will require modification in the future. Would you be surprised to know that social media and email accounts are at the top of the list of most asked-about assets when clients seek digital advice? You not only need to be able to identify digital property to include in the planning process, but you need to ensure you are complying with all regulations. Below is a short list of digital properties that your clients might have. This is not comprehensive as the types of accounts are boundless and ever-increasing: Email, Cloud Storage, Artificial Intelligence (AI), Password Managers, Internet of Things, Virtual Collectibles, Social Media, Investments, Banking/ Loans, Crypto/NFTs, Domain Names, Online Games, Text Messages, Loyalty Accounts, DNA Tracing, Personalized IP, E-Commerce Sites, Online business, and In-home Entertainment. When a tech innovator creates a new app, asset or feature, do you think they’re concerned with 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, NFTs, personal avatars

1. Dashlane 2014 2. https://news.gallup.com/poll/393785/americans-close-wary-bond-smartphone.aspx

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