Take a close look at your clients’ digital assets

By Rosemary McCracken | May 13 2014 03:06PM

Does your client sell on eBay, have a PayPal account, collect loyalty points or have a library of books on his e-readers? He may be richer than he thinks.“Nine months ago, I calculated the value of my digital assets at $7,000,” said Duncan Stewart, Toronto-based director of research for technology, media and telecommunications at Deloitte Canada. “Today they’re worth about $12,000. Canadians’ digital assets are growing at rate of about 100% a year.”

So when financial advisors ask clients for a statement of their assets, Mr. Stewart said, “They will need to make sure they include their digital assets.”

Advisors will also have to make sure that clients provide for these assets in their estate plans. Although digital assets will be covered by broad wording in the will, such as “all other property and assets,” Floyd Gradley, a trust and estate lawyer with Mackenzie Investments in Vancouver, suggested that clients may wish to draw up separate wills for their digital and non-digital assets, and that each will may appoint different executors. “The ‘digital’ will should state that the digital executor has no right to deal with the estate’s regular assets, and the primary will should state that the regular executor has no right to deal with the estate’s digital assets, except where required by provincial law to disclose those assets for probate and to receive value from the sale of any of those assets for distribution according to the terms of the primary will,” Gradley said.

In Ontario, he noted, it is fairly common to have two wills due to provincial legislation that allows separate wills for assets that will be subject to probate and those that will not be probated such as shares in a private company, works of art and jewelry.

Gradley said that a “digital” will should:

  • Describe the client’s digital assets with monetary or sentimental value—websites, photos, loyalty-point accounts, cryptocurrency such as Bitcoin, and PayPal accounts. In Canada, it is legal to gamble online, Stewart added, so a client may also have a sizeable balance in an online gambling account at the time of his death.
  • If provincial legislation allows for separate wills, Gradley suggested that the “digital” will give directions about who is to receive ownership of these digital assets after the client’s death. “Otherwise,” he said, “if a separate will is used for digital assets, it will have to give directions to the executor of that will to transfer the assets, or the proceeds from the sale of those assets, to the executor of the primary will for distribution according to the terms of the primary will.”
  • Describe the client’s social media accounts—email accounts, blogs, Facebook, Twitter and LinkedIn accounts, and give directions about what will happen to them after the client’s death.
  • Describe the client’s online shopping accounts, which will have the client’s credit card information. Directions should be given to have these accounts shut down upon the client’s death.
  • A digital will, Gradley added, can be kept on the client’s computer, and updated and signed whenever he opens a new social media account. “It does not need to be as formal as the primary will unless some of the digital assets have significant value, and there is generally no need for it to be drawn up by a lawyer.”

    He also suggested that clients draw up separate continuing power of attorney documents for their digital and non-digital assets, and appoint separate attorneys. “I often recommend separate POAs for small business owners with incorporated businesses, so these individuals would appoint a third attorney for their digital assets. This person should be computer literate, and the document should specify exactly what assets he is responsible for.”

    Executors and attorneys will need to be able to access your client’s digital assets. The first step, Gradley said, is to compile a list of logins, passwords and answers to security questions for social media and online shopping accounts. “Then the client needs to draw up a second list of logins, passwords and answers to security questions for his online banking and investment accounts, and for all the devices—computer, laptop, cell phone—that he uses. The location of this list should only be disclosed to the regular executor, who will be responsible for his financial assets, and the regular attorney.”

    This information can be kept in digital vaults such as SecureSafe, Gradley noted. “Use one vault to store the list for the digital executor and attorney, and another for the list that will go to the regular executor and attorney. But because of the presence of computer hackers and because these companies can go out of business, I like to keep hard copies in a safety deposit box or another secure location.”

    Tax implications

    There can be tax implications for digital assets upon a client’s death. “A website could be worth 20 times what the client paid to set it up so that would be a capital gain,” Gradley said. “It is the responsibility of the executor of the primary will to file the final tax return and pay taxes owing on the estate. The digital will should direct the digital executor to provide information to the regular executor about the value of the estate’s digital assets.”

    Many online account providers have their own privacy rules that govern who can access accounts. Gradley noted that clients need to give their digital executors and digital attorneys the tools to access these accounts in compliance with the providers’ rules. “For example, PayPal requires a cover letter saying that the account of the deceased is to be closed, a copy of the death certificate, a copy of the will and a letter specifying how to deal with the remaining funds.”

    Social media accounts

    Social media accounts don’t usually have monetary value, but they should be closed upon the client’s death, noted Paul Coleman, Toronto-based head of succession and estate planning at Grant Thornton LLP. “Fraudsters can access them to build fraudulent profiles,” he said. “Facebook holds a wealth of information about people.”

    Facebook accounts can be closed or memorialized after the holder’s death if the executor emails the social network with the deceased’s Facebook URL and email ID, and a copy of the death certificate.

    Twitter requires executors to fax or mail a copy of their own government-issued ID (such as a driver’s licence), the account holder’s death certificate and a signed statement requesting account deactivation. And LinkedIn requires executors to fill out a death verification form to close an account.

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