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Digital Legacies

Billions of people use the web. The number of online accounts and the value of digital assets is only going to increase.  So why do so few people consider what will happen to their assets when they die?

Our digital lives fall into three categories.  The first is personal material such as our emails, social media pages, photos, videos and diaries.  These tend to have huge sentimental value, but little financial value.  The second is financial information which, whilst not being assets themselves, can lead us to our assets and liabilities such as online bank accounts, savings and investments, PayPal, eBay, utility bills and shopping accounts.  The third is our digital assets with value in their own right, whether it be a character in World of Warcraft or Second Life, an amusing video clip on YouTube, or our music downloads or Kindle library.   

Risk

You might wonder what the problem is.  The law covers all of this either with wills for those who make them or the rules on intestacy for those who do not.  Why are online accounts or digital assets any different to paper-based ones?  Executors or next of kin just gather in the assets of the deceased, settle their liabilities, pay any inheritance tax that is due, and then distribute the estate. 

Well, there are three problems: access, valuation and location.  Most of the internet or digital service providers regard their service as a lifetime service and do not see the concept of a digital legacy at all.  It is a common contractual term that when an account becomes permanently inactive (e.g. for 12 months) it will be deleted, and the fact that the executor or next of kin owns the copyright in an individual's photographs or diaries is meaningless if the provider is entitled to delete them.  The obvious solution is for the individual (let's call him Pip, for permanently inactive person) to make a list of all his online accounts with the passwords and ensure that it is available via some secure means to his executors or next of kin.  Pip could put it in a sealed envelope with his Will or might take advantage of the online services such as Deathswitch or LegacyLocker which will hold the details for a fee. 

Access rights

Much better would be for Pip to engage with the service provider and ensure that he has made his wishes known as to what he would like to happen after his death, for example that access should be passed to a certain individual.  Google provide an Inactive Account Manager service for this purpose but there are plenty of other providers where the service is not yet provided or indeed where any effort to pass on access is against the terms and conditions of the provider.  Sometimes it is just a case of understanding the limitations of the service you have signed up to - iTunes and Kindle being a case in point, unless Bruce Willis can save us once again!  In other cases, service providers must bring themselves more into line with the laws of the countries in which they operate, which require Pip's executors or next of kin to deal with his assets.  Otherwise they will find they receive more challenges to their terms and conditions such as Yahoo! did in the case of the emails of Justin Ellsworth, a US Marine who was killed in Afghanistan in 2004, or as Facebook did in the case of British model Sahar Daftary who died in 2008 after falling from her estranged husband's balcony.

It may be that Pip is not too worried about his emails being deleted but he might be alarmed to know that if his PayPal account becomes dormant it will be closed and the balance paid to the Treasury of Luxembourg, or if his Betfair account is not used for 30 months, the balance will be transferred to the Malta Lotteries and Gaming Authority.   

Accounts

In the absence of a paper trail, it may be that bank accounts or other online savings and investments could be lost.  Similarly liabilities which are only apparent from online accounts may fail to be settled.  Inability to deal with these things means an executor or next of kin will not be able to carry out their legal duties and it is therefore vital that access is provided somehow.

Further issues arise where the executors or next of kin have to value the digital assets.  Provided they can locate them, this often will not be a problem but digital assets in the form of pure gaming characters may require specialist assistance.  There are exchanges on which such virtual items can be sold, such as Sony's "Live Gamer Exchange".  But again the terms of the service providers will need to be considered since they will often require the asset to be forfeited on death.  The worst case scenario would be that the asset has to be given a value at the date of death which is taxable to inheritance tax but that then the executors or next of kin cannot gather it in and pass it onto the beneficiaries.  If that were to happen they may be able to claim that the asset had negligible value at death but if not then they will be left with the liability for having lost an asset during the administration of Pip's estate. 

In the event of any dispute over assets, it is not always clear what law will apply, whether it is the home country of the deceased or an overseas jurisdiction which the account provider chooses as its legal home.  If Pip is resident in the UK but not domiciled here, the asset will only be taxable if it is located within the UK.  That will then raise questions as to where these virtual assets are located, in the home country, in the service provider's home country or somewhere else, maybe where the server is located.

These complexities are only going to grow and it is important that service providers have policies in place which allow online accounts and digital assets to be dealt with fairly after the owner's death just like the rest of their estate.  Nowadays if someone prepares a will, they must also fully consider and make plans for their online assets.  Otherwise there is a risk of disappointment, loss and even litigation.

This article by Geoffrey Todd was written in January 2014. 

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