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Digital Assets 101: How to Account for Digital Assets in Estate Plans

Digital assets are a popular topic and an ever-important aspect of estate planning with today’s digital age. Even simple accounts such as Facebook and Twitter have tremendous transferable value to beneficiaries. However, beneficiaries and clients alike believe that merely sharing a password or access gives the beneficiaries the rights to the account. Ironically, this may constitute a violation of the law if this is how a digital asset is handled in an estate. It is important to understand the transferability, the value and how to provide instructions for transfer.

When planning for digital assets in an estate plan, it is important to help your clients identify their digital assets. Certainly, the best place to start is with an inventory. Try asking them if they have some of the popular digital assets and explaining the intrinsic value to the beneficiaries. Once they have a comprehension of the value, they are more likely to identify digital assets they own. While they may not initially see value in digital asset planning, photos, videos and stories go a long way in legacy planning. Helping clients realize the value of legacy planning can assist with digital asset planning.

After taking inventory, you will have to familiarize yourself with some of the policies of a particular digital asset. Digital assets can be transferred in similar ways to normal assets. Some will allow the account holder to appoint a legacy person and some need specific language in wills or trusts to transfer the digital asset. The only caveat is that some assets (unlike liquid and tangible assets) are not considered property and simply cannot be transferred. Most of this occurs in loyalty reward programs.

One of the most popular digital assets is Facebook. The reason for its popularity is because of the memories it holds. A user can appoint a legacy sponsor to handle the account once someone has passed. The user can also choose to delete the account. The challenge here is similar to that of a beneficiary designated account, someone must be chosen prior to death. Once someone dies and Facebook finds out they memorialize the account. This basically freezes the account and provides no access. Just like setting beneficiary designations (and revisiting them), digital assets that have legacy access should have those designations set and revisited periodically.

Loyalty reward programs are equally as popular. While most are not that friendly within an estate, some have clauses that can be accounted for in legal documents. Let’s take American Airlines. American Airlines has some language in its AAdvantage program terms and conditions which does not specifically allow transfer after death, but the airline gives itself a “loophole” to transfer the miles after approved legal documents have been submitted. Accounting for specific language in estate documents can be vital in transferring a specific digital asset with significant value. This is an excellent example accounting for digital assets within a will or trust document.

Digital assets can be tricky when accounting for them in an estate plan. The key is to take proper inventory, gather some familiarity or help and account for transfer. The great news is, this is an excellent conversation starter, a differentiator in practice and a way to provide great value to your clients. In the digital age we are in, digital assets are becoming more important in estate planning. Take the time to learn how to account for them in estate plans, it will be well worth it.

 

Scott Huff_Updated

Scott Huff is the CEO of Yourefolio.

 


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Connect with Families of Clients with Diminished Capacity

MauterstockIt isn’t an easy situation when your client starts losing their mental capacity.

Author and planner Robert B. Mauterstock, CFP®, CLU, ChFC, knows this all too well. Only it wasn’t his client, it was his late mother. She was in her early 80s when she was at a doctor’s appointment. Her longtime nurse greeted her only for her to ask, “Do I know you?”

She lived with Alzheimer’s ten years, so Mauterstock came to know the ins and outs of living and working with someone with the disease. Chances are you will be working with clients who are going through something similar as 46 percent of people over the age of 85 will develop dementia, Mauterstock said.

Mauterstock presented at the FPA Annual Conference—BE Boston 2015—a session titled “The Seven Steps to Protect Yourself, Your Practice and Your Clients Who Have Diminished Mental Capacity.” In it he said one of the steps to working successfully with clients facing diminished capacity is to connect and build trust with the families.

A Fidelity Investments Study Shows that 84 percent of planners want help with clients who have dementia and Alzheimer’s. The following are the seven steps Mauterstock said these planners can refer to:

1.) Recognize the Behavior Patterns. When your clients start calling your office asking for their accountant, chances are something is off.

2.) Develop a Diminished Capacity Checklist. This includes designating a client advocate and power of attorney—somebody who is privy to all your client’s details and will be able to make decisions for them. Client advocates and your client must fill out a “Third-Party Sharing of Information” document.

3.) Learn How to Protect Your Client’s Assets. Know the ins and outs of Medicare—for example it only covers three nights in a hospital—nothing less. Research and present the best long-term care insurance for your client.  

4.) Build a Network of Professionals. This network should include an elder law attorney, a geriatric care manager, and an insurance agent.

5.) Build a Relationship with the Client’s Family. The entire family is going to be affected by this situation so call a family meeting, connect with them, and help them through it. A side benefit is that the family may want to continue working with you later on.

6.) Utilize a Single Source with All Relevant Records. Mauterstock calls this the Lifefolio—a PDF document put on a flash drive that includes all medical insurance information, usernames and password for all accounts, and the like.

7.) Create an Investment Policy Statement. This is to remind the client what your plan was and how it works. The client advocate should also have access to this.

Find more information on Mauterstock’s BE presentation here, including the presentation slides. You can also earn 1 CE credit by taking the exam for this particular presentation.

HeadshotAna Trujillo
Associate Editor
Journal of Financial Planning
Denver, Colo.