The Impact of Digital Assets on Estate Planning and Litigation

Nearly everyone owns digital assets these days, from email accounts to online cloud storage of files and photos, to cryptocurrency and NFTs. Some of these assets can hold great sentimental or even financial value to a person’s loved ones after their death. In spite of this, many people fail to account for their digital assets when preparing an estate plan. The impact of digital assets on estate litigation is still being measured, but one thing is clear: if you don’t focus on estate planning for digital assets and plan for who will care for them after your death, someone else will.

The Need for a Digital Asset Estate Plan

When a person dies with estate assets, it is up to their family, specifically their personal representative, to take an inventory of the assets within the estate, and file it with the Florida Probate Court. But creating an inventory of a person’s digital assets is far harder than simply finding the items stored in their attic.

Without a digital asset estate plan, it will be far more difficult for your personal representative to identify and document your digital assets. They may be able to locate certain assets by accessing your household computer and reviewing your saved passwords. However, other digital assets may be overlooked or simply lost if not documented as part of a digital asset estate plan. To avoid this, you and your estate planning attorney should prepare a list of your digital assets, along with links to the apps or URLs used to access them and log-in credentials necessary to access the account.

What Happens Without Estate Planning for Digital Assets

The short answer for what will happen to your digital assets without an estate plan is that they may simply disappear. For example, Google recently announced that beginning December 1, 2023, it will be deleting unused accounts. Idle accounts that have been dormant for at least 2 years, including those that belonged to the deceased will be deleted to make space for future uploads. This affects Gmail emails and files stored in Google Drive, Docs, Meet, Calendar and Photos, as well as some YouTube videos. To preserve those files, someone must log in to the account at least every two years.

Fiduciary Access to Digital Assets

Your personal representative acts as the fiduciary for your estate after your death. The letters of administration issued by the Florida probate court can be used to access your bank accounts, talk to your financial advisors and insurance companies, and perform financial transactions such as selling real and personal property. Since 2016, that has included granting fiduciaries access to digital assets as if they were the account holder.

However, some digital asset companies like Facebook or Google do not honor letters of administration easily. They may have their own processes for a person to designate a legacy contact for their accounts and may assert federal privacy laws prevent them from giving your executor full access to the accounts without your consent. If you die without naming a legacy contact, your personal representative may need to file a petition with the Florida Probate Court to enforce the Fiduciary Access to Digital Assets Act and gain access to your online accounts. This will increase the cost of estate litigation as the social media and digital asset companies seek to protect your privacy even when you never wanted them to.

Transferring Cryptocurrency to Beneficiaries

This access issue becomes especially complicated with blockchain technology and cryptocurrency assets. One of the unique aspects of cryptocurrency is that it is decentralized – there is no one entity overseeing and endorsing all the transactions. Instead, your possession of Bitcoin or other crypto assets is represented by your possession of a key. Without it, your digital wallet will be lost. Many estate planning attorneys and their clients have devised interesting ways to pass these keys to the intended beneficiaries without violating federal cybersecurity laws.

Without a plan in place, there may be no amount of estate litigation will be able to save your digital assets if that digital key is lost. The cryptocurrency companies do not maintain records tying their users’ identities to their keys. That means there is no way for the probate court to compel discovery of the login credentials.

However, in other cases, a caregiver or other person with access to the deceased’s home may wrongfully take possession of the flash drive or paper your digital key is stored on. If they do, it could require estate litigation against them to get them to turn that property over to the personal representative so it can be distributed according to your wishes.

Tax Impacts of Digital Assets in Estates

In 2014, the IRS issued a notice stating it would treat “virtual currency” like Bitcoin as personal property, rather than cash. This means that in probate court these assets are more like heirlooms than bank accounts. The distribution of digital currency within an estate administration case could trigger capital gains taxes based on the change in value between when the crypto assets were obtained and when they were transferred out of the estate.

This can also create problems in the estate’s accounting. Personal representatives are required to account for all the financial transactions of the estate, including the distribution of assets to beneficiaries. However, in calculating the value of crypto assets, the personal representative will need to determine the “cost basis” of those assets based on when they were obtained by the deceased. Unless that person kept careful records of their crypto transactions, the estate may need to retain a financial professional to establish the change of those assets’ value over time. If the personal representative fails to do so, it could expose the family to estate litigation or even tax consequences related to the improper accounting for cryptocurrency.

At Harrison Estate Law, we don’t shy away from complicated estate planning issues and probate disputes. We can help you plan for the future of your digital affairs now, or assist in the administration of your digital assets after your death. We are happy to help personal representatives locate, account for, and distribute digital assets, and will work to defend your loved ones’ access to your digital memory in the Florida probate courts. Please contact us online or via email or call 352-290-7579 to schedule a free consultation. If you don’t live close to Gainesville, we are happy to set up a phone or Zoom call. We are now available for extended evening and weekend appointments.