Preserving a digital legacy
In an era of technological advancements and an ever-growing digital landscape, international private client advisers have seen practices evolve to address new challenges and adapt to new generations.
As the world becomes increasingly interconnected and asset classes grow, the importance of family governance and comprehensive estate planning has never been more crucial and clients need to consider more than bricks and mortar, businesses, heirlooms, and cash as valuable assets.
What are assets?
When considering an estate, traditional tangible assets like watches, art or classic cars may come to mind. But as the Oxford Dictionary relays, an asset is a useful or valuable thing or person. An item of property owned by a person or company regarded as having value. As we see technology advancing daily and the digital landscape growing across the globe, a rising number of estates now have a significant ‘digital footprint’ which has reshaped the definition of assets and necessitated a re-evaluation of traditional wealth management strategies.
The digital landscape
The term ‘digital asset’ has been coined to describe a broad spectrum of assets, but often, Non-Fungible Tokens (NFTs) and cryptocurrencies will be front of mind for such term. According to Statista, an estimated 1 billion people around the world have interests in at least one form of cryptocurrency and research from Chainalysis shows that the Middle East & North Africa (MENA) is one of the most active in the world for digital asset adoption with the region witnessing 48% growth in 2022, the highest globally, followed by Latin America.
The rapid surge of virtual currencies and digital technologies has highlighted the need for a comprehensive approach to wealth management and it is now more significant than ever to consider both your palpable and digital possessions as part of your planning.
While NFTs and cryptocurrencies often steal the spotlight, figures shows that there are almost 6 billion smart phone users across the globe, which is just over 85% of people and it is essential to recognise that digital assets encompass a vast array of items. Photos and data held on ‘the cloud’ should not be forgotten either. These items can often have great emotional and sentimental value.
What are the laws surrounding digital assets?
Traditional tangible assets are dealt with under laws that have been long-established and put in place to see the transfer of property after death. Stored photos, private keys to digital wallets, and personal data held by digital platforms are all part of an individual’s digital legacy. However, unlike tangible assets, that will be passed on to executors or administrators and then disseminated in accordance with a will or the laws of intestacy when a death certificate or grant of probate is obtained, digital possessions will not pass to a spouse or to children in the same way. On death, unless the private key or password is known and the family beneficiaries know the details of the digital wallet, there is no way of accessing the assets, or proving ownership. As reported in the New York Times, research suggests, that of the existing 18.5 million Bitcoin, around 20 percent appear to be in lost or otherwise stranded in virtual wallets.
So, what steps can be taken to mitigate the consequences of these assets becoming inaccessible on death? In most cases the initial step is to make these assets known to personal representatives and professional advisers. Preparing an inventory that captures virtual asset(s) and how to access them and ensuring it is regularly updated and kept securely, will aid with the administration of the estate. Specific authority relating to a lasting power of attorney in the event of mental incapacity, should be considered too. In turn, this will make it more likely the individual who should benefit from or control these assets will be able to do so. If the assets are not included as part of an estate plan, there is a chance that they will be irretrievable, which may not be the owner’s intention.
A Will becomes publicly available following the grant of probate, and so it is important that any sensitive information such as guidance on how to retrieve a testator’s virtual assets should be kept in a separate memorandum which is stored safely. This will support the creation of a more robust ‘digital legacy’ strategy.
Futureproofing your digital assets
As the global landscape of wealth management continues to undergo a digital transformation, the importance of family governance and wealth planning has never been more pronounced. The concept of digital assets extends far beyond ‘the cloud’ and families with international interests must approach estate planning with a global perspective, considering legal, cultural, and technological nuances. By proactively addressing the challenges associated with digital assets, individuals can ensure the preservation of their digital assets and the seamless transfer of assets across borders and generations.
This article was first published in Global Banking and Finance in December 2023.