Every day, individuals and businesses spend vast amounts of time and resources online. What we’re doing, in essence, is building a digital estate. And as the proportion of business and social interactions we conduct continue to swing toward the binary form, it will become more and more important to think about planning and managing digital estates — yours and, if your practice includes wills and estates, your clients’.
Toronto-based lawyer Daniel Nelson specializes in digital estate planning, though he’d be the first to admit that it’s not exactly top-of-mind in the legal community. “Some lawyers, and many non-lawyers for that matter, struggle to understand the nature and extent of some peoples’ digital lives,” he says, “and that intangible assets acquired as part of that digital life can have real value in the real world. It can be almost incomprehensible for some people, as the digital world has its own language and culture. They might not grasp the financial implications and the dedication that some people have for their blog, profile or game.”
But grasp it lawyers must, and experts like Nelson are well-positioned to capitalize once digital estate planning finally begins to take off. In the meantime, we asked him to explain a bit about what the practice entails, why it’s important and what lawyers and clients need to know about their digital estates.
Q: What is digital estate planning?
Daniel Nelson: Digital estates make up the intangible footprints each of us leave behind, whether online or on our digital storage devices. They may be important bits of intellectual property or just significant family souvenirs of a life well lived. They may have great financial worth or just have sentimental value.
Digital estate planning is really just the steps we take to organize and protect those digital assets, after death, by providing instructions and authorization for our executors.
Planning for digital assets is largely shaped by the type of digital asset. In effect, digital assets take two broad forms:
1. Physically Controllable Digital Assets are digital assets controlled by the testator/executor because the testator/executor controls the storage device that contains them. However, it is important to note that ownership of the storage device does not necessarily mean ownership of the digital asset. This is particularly true when the executor must transfer the storage device to one beneficiary and the digital asset to another beneficiary.
In either case, it is important to know the extent of your digital footprint and how, from a practical perspective, the executor will find the digital asset, gain control of it, and then transfer it to the beneficiary. This is easy to say but, unlike a physical asset, locating and gaining control of digital assets can be almost impossible without pre-planning.
Q: What factors are most likely to play into the growth in importance of this component of estate planning?
DN: More and more Canadians are sharing their lives online. They are creating websites or joining a whole host of web-based services from Facebook to Linkedin to Flickr.
Younger Canadians are spending more and more time and investing more and more “real” money in “massively multi player online role-playing games” (MMPORPGs) such as World of Warcraft and life simulation games such as Second Life. Participants in these games are acquiring intangible assets in these games that have real value in the real world, whether it is a magical amulet or digital land.
This sort of digital asset has real value right now. Second Life’s internal currency, Linden Dollars, are bought and sold on currency trading websites such as virwox.com. As of October 2010, the website announced that it had traded one billion Linden dollars with a value of $19 million USD. With so much at stake, it is only a matter of time before ownership and control of such digital assets end up in court. Already, some initial legal battles over digital assets have taken place in the United States.
Q: What are the biggest legal differences between a client’s digital assets and the more traditional components of his or her estate?
DN: A number of issues leap to mind. The first is the very ephemeral and inherently intangible nature of the digital asset, since it has no independent existence and depends on digital storage devices to exist.
Secondly, access to digital assets stored online is controlled by the service provider/website where the digital asset is stored. It may be impossible to know where a testator’s online digital assets are stored. Even if the executor know the location, it may be impossible to gain access to the digital asset without the username and password and/or the policies of the service provider in question.
Many online service providers, furthermore, have no policies to deal with deceased customers/users. This results in a significant lack of clarity for both the service providers, in dealing with executors, and executors in dealing with digital estates.
Q: What’s the most important first step in digital estate planning that a lawyer should recommend to a client?
DN: Clients need to know and understand the extent of the digital assets they possess, the policies of the online service provider that may control access to the digital asset and their plan for what should be done with the asset.
The ephemeral nature of digital assets, whether physically controlled digital assets or controlled access digital assets, also makes them very hard to inventorize.
There are a number of web-based services that provide online digital asset inventories where a testator can store usernames and passwords along with instructions with respect to the digital asset.
Q: What legal roadblocks must Canadian lawyers stickhandle around in order to properly plan a client’s digital estate? How do these differ from the U.S. and other jurisdictions?
DN: The rules of drafting estate documents are, not surprisingly, traditional and based on a pre-digital world. They are not well-designed for a multifaceted and constantly changing digital estate.
As a public document that cannot be quickly changed and it cannot cope with changing usernames and passwords, changing online service providers and shifting technologies.
Wills must physically exist, the various formalities of execution observed and any memorandum incorporated into the Will must exist before the Will is executed.
At best, a will can contain general authority for the executor to deal with digital assets and leave usernames and passwords in unincorporated precatory memorandum. This is not perfect because, of course, such documents are non-binding.
Currently, there really is no ideal method for managing digital assets despite the growing need for such protection.
I recommend that, like shares in a corporation, testators create a secondary will to deal with digital assets and may include general instructions or wishes for the digital estate. As a secondary will, probate may not be necessary, which keeps the contents of the digital estate private. The secondary will would also provide for a non-binding precatory memorandum — which can be changed as needed without amendment to the will — that provides access details and information about an online digital asset inventory service. The process varies from service to service but, essentially, upon verification of death, the service provides usernames, passwords and instructions for each digital asset to the named digital executor.
Wills and powers of attorney cannot be in electronic format owing to the Ontario Electronic Commerce Act.
Make sure you use a digital estate inventory service that reflects Canadian law. Estate law varies from country to country and from U.S. state to U.S. state, and each jurisdiction will have specific pitfalls.
Q: What, in your opinion, does the future hold for lawyers who focus on digital estate planning? Do you see entire practices devoted to this in the near future, or will firms instead continue to turn to specialists like you?
DN: Simple digital estate planning does not necessarily require a specialized practice so long as the client and lawyer understand the pitfalls, incorporate appropriate language into the will and use some form of online digital estate inventory service.
More complex and valuable digital assets, such as controlled access digital assets for a online simulation game or MMPORPG, may require specialized technical extraction, valuation and liquidation skills in addition to legal assistance. Given the value of some of the assets at stake, the online service providers may resist transference to beneficiaries, which might result in litigation.
Being a very new area of the law, digital assets and estates are a minefield of legal questions without a lot of answers and it is impossible to know how this will all unfold.
For the foreseeable future, I expect that this area will remain the domain of specialists such as myself.
Image by Ken Herron