Protecting Digital Assets

What is a Digital Asset, and Why Should I Care?

It has been a few years since the passage of the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA).  What’s remarkable about this is that, for the first time, property law recognizes the existence of digital property as a right that can be managed, conserved, and, in certain circumstances, accessed by third parties. This puts digital assets on a more even level with real and tangible property.

It’s important to note that it is now up to states to adopt this, as property and estate law are state-regulated. According to the National Conference of State Legislatures (NCSL), 48 states including Maine, New Hampshire, and Vermont plus the U.S. Virgin Islands, have some form of law addressing the transfer of digital assets after death. Meanwhile, Massachusetts legislators have attempted for several years to push through RUFADAA (most recently in 2021), although the measure always seems to need more study first.

A digital asset as defined by RUFADAA is an electronic record in which an individual has a right or interest. These assets are held in online accounts, which is generally controlled by a “terms-of-service agreement in which a custodian carries, maintains, processes, receives, or stores a digital asset of the user or provides goods or services to the user.” This can include information stored on an individual’s digital devices, content uploaded to websites, and rights in digital property. Digital assets can include accounts, documents, information, records, and photos that are accessible primarily through the user’s electronic device.

You may be thinking, so what?  Why do I care about this digital property?

Think about those long “Terms of Service Agreements” most of us never read and just simply click “I Agree” so we can get on with enjoying whatever benefits are offered by the site/software. Without planning around these assets, the unread agreement can be in the driver’s seat, which will usually end access to the digital asset upon the user’s death.  In fact, in a RUFADAA state, digital asset custodians are prohibited from disclosing a digital asset to a someone unless the user has consented to the disclosure.

Many of us are now taking photos exclusively with our smart phones and storing them in the cloud. What happens if you unexpectedly pass away and your family (a) doesn’t have your log-in info, and (b) the site administrator doesn’t allow access to anyone but the person who opened the account as per their agreement? Those snapshots of memories may be lost forever. What about the digital music library that you’ve spent years accumulating? The following list may help to put the importance of this in a bit more perspective: email, social media, blogs, cryptocurrency, photos and videos posted on sites or stored in the “cloud”, reward programs/points (hotel, airline, etc.), media subscription accounts (iTunes, Spotify, Netflix, newspapers, magazines, etc.), calendar, contacts, text messages, and documents stored on a device’s hard drive.

So, the question now is: What can we do to help protect these assets?

A complete modern-day estate plan would be remiss if it fails to consider the management and disposition of digital assets upon disability or death. Take an inventory of your digital assets. This will include websites, cloud storage, as well as hard drive storage. You may be surprised as how much of our lives is intertwined with technology. Many state laws address key aspects of how estate administrators can deal with all these digital assets held by a person when they die. In general, Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA):

• Gives fiduciaries the legal authority to manage the digital assets of the deceased.
• Gives custodians of digital assets a method to disclose information to fiduciaries while protecting the user’s privacy.

Next, take a step back and consider how important the information stored this way is to you and your family. What are your goals with regards to these assets? Do you want to be sure only certain things (like photos) are passed down, or do you want a contingency plan for it all? Do you potentially want to grant access to a trusted person in the case of emergency or your incapacity? There may only be certain assets you wish to protect in this way. Working with your estate attorney to update your pertinent estate documents will be important to address all asset, including digital, in light of current laws.

Third, consider how technology can assist. A Password Manager is a site/software that allows access to a vault of log-in information all by way of one master password.  While it’s important for a password manager to offer a ton of advanced features, first of all security, it also ideally needs to do so while still being easy to use and not overly complex. Here are a few highly rated programs, all with multi-factor authentication and the highest level of encryption available, with key features that may be worth considering:

• Dashlane – Well designed and executed, Dashlane makes password management truly easy. Featuring a standalone all-platform browser, you can use the service on almost any platform.
• LastPass – Featuring enhanced multi-factor authentication choices and 1 GB of secure online file storage, the LastPass free edition is a solid choice. For $48 a year you can get LastPass Family, which features six licenses so your whole family can keep their passwords safe.
• Sticky Password – For those reluctant to store any information in the cloud, Sticky Password offers an unusual and more secure option while still allowing you to sync your passwords between devices:  Wi-Fi sync. In this mode, your devices sync directly with each other when they’re connected to the same Wi-Fi network, and your data never goes to the cloud.

Dashlane and LastPass also offer emergency access to a trusted person, which is a great feature as we are discussing how to protect these assets.

For those with cryptocurrency, non-fungible tokens (NFTs) or other similar digital assets, keeping proprietary data and information in the digital/online world should be considered paramount. Like Password Managers, hardware wallets are a key component for those who are a part of the blockchain ecosystem. They provide security and utility when interacting on these platforms. Here are some reasons why having a hardware wallet is important:

1. Security – Keep your assets safe even when the computer you’re using isn’t secure. Hardware wallets give you an extra layer of protection against cyber-attacks, phishing sites, and malware.
2. Many Assets – One Location. A hardware wallet can work with multiple blockchains simultaneously. This allows you to manage different digital currencies all on the same device. All of them can be backed up easily with a single recovery phrase.
3. Convenience – A hardware wallet, often a small plug-in device, is a portable key to access your crypto assets safely from anywhere. A hardware wallet can “log you in” to many Apps without having to create new accounts. You can even use them to log in to regular apps like Google and Facebook.

How they work:

1. They protect your private keys. Hardware wallets are often considered cold storage, as they isolate your private keys from the internet, mitigating the risks of your assets being compromised in an online attack.
2. They let you sign in and confirm transactions on the blockchain. When you create a blockchain transaction, you’re “signing” a special message. Your “signature” proves ownership of your private key. It is impossible to forge this signature without the key, so no one else can make a transaction on your behalf without it.

Trezor and Ledger are some of the leading hardware wallets available on the market today.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.