One would think technology would make estate planning easier. In some ways, that is the case, but, in a number of surprising ways, it complicates the landscape. Technology and the digital universe have introduced estate planning complexities and nightmares in recent years. In today's digital age, the scarcity of physical documents can pose a challenge. It's crucial to arrange and preserve key personal information for your family. Without this, your loved ones may face increased difficulties and expenses during already tough times. We have shared some example stories and experiences here in an effort to educate you on potential issues created by the digital universe and help you better plan and prepare for the unexpected or inevitable. Here are some key issues:

Have Questions? Call us for Your consultation.

Smart Home Devices & AI

Smart devices and AI systems often contain personal data and preferences. Without proper directives for such devices and systems, accessing or managing these devices can be problematic for heirs.

We recently heard a story illustrating the complexities of something so basic to home access for a technology-enthusiast individual.  This individual had fully automated his home with smart home devices and AI systems. He controlled everything from his heating, lighting, and security systems to his personal AI assistant through a centralized network, which was accessible only through his biometric data (fingerprints in this case) and a complex password known only to him.  Unfortunately, he passed away suddenly without leaving any instructions or access details for his smart home system. His family, trying to access his house for important documents and sentimental items, found themselves locked out. The smart locks, programmed to recognize only his biometrics, wouldn't grant the family access. Efforts to bypass the system triggered additional security protocols, making access even more challenging. Furthermore, the AI system, which managed everything from paying bills to maintaining the house, continued to operate as if the individual were still alive leading to distressing situations with loved ones receiving “Happy Birthday” emails from the deceased months after his death. The family faced a twofold challenge: they could not physically access the house due to the advanced security system and they struggled to stop the AI from executing pre-set tasks and communications. The situation required them to seek legal assistance and IT experts, resulting in a prolonged, costly, and emotionally draining process.

Cryptocurrency Planning

Cryptocurrencies pose a significant challenge due to their decentralized nature. If the private keys to these assets are not properly shared or included in estate planning, the assets can become inaccessible.  It is estimated that over three million of the 19 million Bitcoin in existence have been lost due to either lost passwords while the holder is living or the holder passing away without planning for the transfer upon their death (Source: New York Times).

In addition to providing the fiduciary access to cryptocurrencies, it is important that estate planning documents properly authorize the fiduciary to manage, access them, and take care to distinguish between tangible devices holding such assets from other tangible assets. For example, if someone wants to leave all of their personal effects to their spouse, but leave cryptocurrency to a child, if the device holding the currency is inadvertently included in physical assets left to the spouse because it is considered tangible personal property, problems can ensue. 

We luckily have not had to personally deal with clients losing access to cryptocurrency wallets yet, but we have each fielded inquiries from perspective clients dealing with the issues of loved ones passing away and leaving no ability for loved ones to access.  

We have worked with clients with cryptocurrency to set up trusts and “multi-signature” wallets that allow a third-party custodian, along with the estate attorney and beneficiaries, to gather separate passcodes/signatures. When enough signatures are gathered (in this case, three), you can build the ability to sign a transaction and move the digital assets to the beneficiary.  These types of arrangements should become more normalized in the coming years to ensure these types of assets are not lost forever.

Digital Legacy Services

Some platforms offer digital legacy services where users can appoint a legacy contact to manage their account posthumously.  Not setting up these services can result in digital profiles remaining active indefinitely, which may be distressing for family members.  In one case, we had a client whose Facebook account was hacked years after his death and loved ones received messages from financial scammers looking to trick his family members into sending money. 

Posthumous identity theft is a growing concern. If digital accounts and assets are not properly secured or managed after death, they can become targets for identity theft and fraud.

Digital Assets and Intellectual Property Rights

For content creators and those with online businesses, the value of digital assets and intellectual property can be significant. Ensuring these are transferred or managed according to the deceased's wishes requires careful planning.  

Consider a hypothetical situation where a YouTube content creator, who earns significant ad revenue and sponsorship income, passes away without an estate plan. In such a case, a complex situation could arise: First, the creator’s channel can continue to generate substantial ad revenue, but without access to the account, the creator’s loved ones could possibly be unable to access these earnings, effectively leaving the funds in limbo. Second, the family might wish to preserve the creator’s legacy by keeping the channel active. However, without legal access, they would not be able to respond to comments, manage existing videos, or maintain the channel's presence. As one might expect, the legal hurdles to gaining access to the YouTube account could be substantial. As of late, Google has done well to add additional account owners to try to rectify this issue before it becomes commonplace.

We have also dealt with families who want to recover access to photo accounts and other files on computers and other devices that have little to no financial value, but great sentimental value. Where access is not provided by a will, the cost of pursuing access can be prohibitive. 

Most states have laws covering fiduciary access to digital assets. When authority to access digital assets is not directly provided for in a will or trust, the fiduciary may have to go through the court system to ultimately obtain access, which is costly and time-consuming. Given these challenges, it's advisable for individuals, especially those with significant digital assets or online presence, to consult with estate planning professionals who are knowledgeable about the intersection of technology and estate law. This helps ensure that all assets, both tangible and digital, are properly accounted for and managed after death. 

If you have any questions or concerns about your late filed tax forms then please reach out to our team at (410) 497-5947 or schedule a confidential consultation.

Footnotes

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Digital Assets & Technology Complexities of Estate Planning in 2024

Published on
October 29, 2024
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Co-Author: Matt Costa CPA, CFP® Managing Partner of Foundation Wealth and Tax Advisors

One would think technology would make estate planning easier. In some ways, that is the case, but, in a number of surprising ways, it complicates the landscape. Technology and the digital universe have introduced estate planning complexities and nightmares in recent years. In today's digital age, the scarcity of physical documents can pose a challenge. It's crucial to arrange and preserve key personal information for your family. Without this, your loved ones may face increased difficulties and expenses during already tough times. We have shared some example stories and experiences here in an effort to educate you on potential issues created by the digital universe and help you better plan and prepare for the unexpected or inevitable. Here are some key issues:

Have Questions? Call Our Team Today.

Smart Home Devices & AI

Smart devices and AI systems often contain personal data and preferences. Without proper directives for such devices and systems, accessing or managing these devices can be problematic for heirs.

We recently heard a story illustrating the complexities of something so basic to home access for a technology-enthusiast individual.  This individual had fully automated his home with smart home devices and AI systems. He controlled everything from his heating, lighting, and security systems to his personal AI assistant through a centralized network, which was accessible only through his biometric data (fingerprints in this case) and a complex password known only to him.  Unfortunately, he passed away suddenly without leaving any instructions or access details for his smart home system. His family, trying to access his house for important documents and sentimental items, found themselves locked out. The smart locks, programmed to recognize only his biometrics, wouldn't grant the family access. Efforts to bypass the system triggered additional security protocols, making access even more challenging. Furthermore, the AI system, which managed everything from paying bills to maintaining the house, continued to operate as if the individual were still alive leading to distressing situations with loved ones receiving “Happy Birthday” emails from the deceased months after his death. The family faced a twofold challenge: they could not physically access the house due to the advanced security system and they struggled to stop the AI from executing pre-set tasks and communications. The situation required them to seek legal assistance and IT experts, resulting in a prolonged, costly, and emotionally draining process.

Cryptocurrency Planning

Cryptocurrencies pose a significant challenge due to their decentralized nature. If the private keys to these assets are not properly shared or included in estate planning, the assets can become inaccessible.  It is estimated that over three million of the 19 million Bitcoin in existence have been lost due to either lost passwords while the holder is living or the holder passing away without planning for the transfer upon their death (Source: New York Times).

In addition to providing the fiduciary access to cryptocurrencies, it is important that estate planning documents properly authorize the fiduciary to manage, access them, and take care to distinguish between tangible devices holding such assets from other tangible assets. For example, if someone wants to leave all of their personal effects to their spouse, but leave cryptocurrency to a child, if the device holding the currency is inadvertently included in physical assets left to the spouse because it is considered tangible personal property, problems can ensue. 

We luckily have not had to personally deal with clients losing access to cryptocurrency wallets yet, but we have each fielded inquiries from perspective clients dealing with the issues of loved ones passing away and leaving no ability for loved ones to access.  

We have worked with clients with cryptocurrency to set up trusts and “multi-signature” wallets that allow a third-party custodian, along with the estate attorney and beneficiaries, to gather separate passcodes/signatures. When enough signatures are gathered (in this case, three), you can build the ability to sign a transaction and move the digital assets to the beneficiary.  These types of arrangements should become more normalized in the coming years to ensure these types of assets are not lost forever.

Digital Legacy Services

Some platforms offer digital legacy services where users can appoint a legacy contact to manage their account posthumously.  Not setting up these services can result in digital profiles remaining active indefinitely, which may be distressing for family members.  In one case, we had a client whose Facebook account was hacked years after his death and loved ones received messages from financial scammers looking to trick his family members into sending money. 

Posthumous identity theft is a growing concern. If digital accounts and assets are not properly secured or managed after death, they can become targets for identity theft and fraud.

Digital Assets and Intellectual Property Rights

For content creators and those with online businesses, the value of digital assets and intellectual property can be significant. Ensuring these are transferred or managed according to the deceased's wishes requires careful planning.  

Consider a hypothetical situation where a YouTube content creator, who earns significant ad revenue and sponsorship income, passes away without an estate plan. In such a case, a complex situation could arise: First, the creator’s channel can continue to generate substantial ad revenue, but without access to the account, the creator’s loved ones could possibly be unable to access these earnings, effectively leaving the funds in limbo. Second, the family might wish to preserve the creator’s legacy by keeping the channel active. However, without legal access, they would not be able to respond to comments, manage existing videos, or maintain the channel's presence. As one might expect, the legal hurdles to gaining access to the YouTube account could be substantial. As of late, Google has done well to add additional account owners to try to rectify this issue before it becomes commonplace.

We have also dealt with families who want to recover access to photo accounts and other files on computers and other devices that have little to no financial value, but great sentimental value. Where access is not provided by a will, the cost of pursuing access can be prohibitive. 

Most states have laws covering fiduciary access to digital assets. When authority to access digital assets is not directly provided for in a will or trust, the fiduciary may have to go through the court system to ultimately obtain access, which is costly and time-consuming. Given these challenges, it's advisable for individuals, especially those with significant digital assets or online presence, to consult with estate planning professionals who are knowledgeable about the intersection of technology and estate law. This helps ensure that all assets, both tangible and digital, are properly accounted for and managed after death. 

If you have any questions or concerns about your late filed tax forms then please reach out to our team at (410) 497-5947 or schedule a confidential consultation.

Footnotes