Accounting for Digital Assets in your Estate Plan

Accounting for Digital Assets in your Estate Plan

Like many things rendered obsolete by the progress of technology, older estate plans may not adequately address the realities of the digital age. In the last 15 years, the Internet has become commonplace and many transactions are now recorded electronically or completed entirely online. Most people now manage their finances, business and personal lives through the Internet, and a growing number of organizations are going “paperless.” With this progress came a new form of asset which old laws did not properly address: digital property.

Even those who view themselves as digitally removed probably have some important connection to a digital asset. For example, someone without e-mail, social media accounts and who does not make online purchases, may still store important family photographs or videos on an online or other electronic platform. While of minimal monetary value, such digital assets can be important emotionally. Inversely, some individuals’ lives have become so entwined with their digital presence, making sense of their finances or business dealings would be impossible without full access. Ensuring the ability for loved ones or caretakers to reach such data has become a legitimate part of modern estate planning.

The rise of digital technology developed more quickly than the law, so historically, survivors and caretakers had no clear right to access the digital assets or accounts of a deceased or disabled loved one. Technology company user agreements controlled and were usually designed to provide security and privacy for the company’s living users and often only recognized the rights of the original user. This made accessing vital information a headache at best, and impossible at worst, when the original user was no longer alive or able to manage their own affairs. Adding to this confusion was the fact that few users ever actually read or understood these policies.

In response to the lack of appropriate laws for digital property, the Uniform Law Commission created model guidelines which were presented to the states to pass into law. Wisconsin based its Digital Property Act on these uniform rules but made several changes before passing it into law in 2016.

The Wisconsin Digital Property Act only applies to users who reside in Wisconsin or resided in Wisconsin at the time of their death. Under the Act, digital property means “an electronic record in which a person has a right or interest” but not the underlying non-electronic property. This can be understood as information about you, created by you, or purchased by you that exists digitally. This includes your e-mail, social media, photo and video sharing, gaming, and online information storage accounts. Internet shopping sites like Amazon or eBay may include credit balances in your favor; and accounts like PayPal can hold funds for use in online purchases. Digital media accounts, like iTunes, often store valuable rights to songs, subscriptions, e-books, or other media. Some individuals may even have websites, articles, domain names, online stores or blogs they own or manage which generate revenue. Personal accounts tied to businesses can contain client information, mailing lists and valuable newsletter subscriptions.

The Act automatically provides limited access to digital information to individuals named in estate plans and power of attorney documents upon their written request, but the Act takes an “opt-in” approach for a user to grant rights to the actual content of digital communications. This means the law allows users to decide how their online information will be granted but does not do so automatically. Users can opt-in by either completing an “online tool” or specifically giving the rights to individuals named in an estate planning document, such as a will, trust or power of attorney.

“Online tools” are options built into some websites for opting in, but not all websites contain this feature. As an example, Facebook’s online tool is called a “Legacy Contact” and can be accessed under the security menu on an account. Google’s online tool is called an “Inactive Account Manager” and can be set to notify a designated contact and allow them to download certain types of data.

Wisconsin uses a “tiered approach,” meaning a designation in an online tool takes priority over a conflicting designation in an estate planning document. Because of this priority issue, you may wish to discuss with your estate planning attorney how to coordinate use of these features to reach your desired outcome.

If you opt-in under either method, the law requires the website provider to allow the designated person access and management of the digital property. This allows them to archive important information or photos, maintain & close accounts and transfer any credits or income generating assets. If you do not opt-in, the user agreements govern and usually do not allow such access or management.

In addition to creating the legal authority for someone to manage your digital assets by opting-in, it is important they have the information necessary to fulfill their role. A simple step in organizing your digital estate is making a list of your digital assets and how to access them. This includes login usernames and passwords. However, make sure to also consider access to accounts with additional protections, like two-factor verification or encryption programs. The list should be stored in a secure, but accessible, location, and someone you trust should know where it is kept. Once made, the list should be updated periodically. Also, this list should not be included in your last will and testament, as this will be filed with the court after your death and becomes available to the public.

An estate planning attorney can assist you with understanding and organizing both your digital and non-digital estate. If you already have an estate plan, consider having it reviewed to make sure it covers digital property. Most estate planning completed by a Wisconsin attorney in the last several years will include these digital estate provisions, but older documents are likely silent on the issue or may address it in a way inconsistent with the 2016 law. The digital revolution has changed many things, but for estate planning, the old rule still holds true: a little planning up-front can save a lot of stress and expense for your loved ones down the road.

 

Buy-Sell Agreements: Working for the Best and Planning for the Worst

Buy-Sell Agreements: Working for the Best and Planning for the Worst

However optimistic you are about the future of your business, the reality is at some point your business will either end or change hands. A thorough business plan takes this into consideration. The best-case scenario is after many years of success, your business partners or a successor will fund a comfortable retirement for you by purchasing your interest in the business. The worst-case scenarios generally involve death, disability, divorce, disagreement or bankruptcy of you or your business partners. From the best-case to the worst, both you and your business may benefit from having a Buy-Sell Agreement in place.

Buy-Sell Agreements are sometimes called “business pre-nups” because they serve a similar function to the agreements soon-to-be married couples enter into which direct how their assets would be divided upon their death or divorce. Buy-Sell Agreements are binding contracts which spell out who business owners can sell their interests to, on what terms, and how the price will be determined. When the business is going well, and all the owners are getting along, it is much easier to agree on equitable terms than when tensions are high at the time of a buy-out and parties have little incentive to negotiate fairly. By discussing issues in advance and setting the ground rules for what happens upon the occurrence of certain events, business owners can avoid future arguments and limit the potential for expensive litigation down the road.

Starting with the best-case scenario, a voluntary retirement from a successful business, Buy-Sell Agreements can help define an exit strategy and ownership succession. The value of a business is not always clear and can be calculated in different ways with a wide range of potential results. The Agreement can state which valuation method will be used for the exiting owner’s share of the Company. The Agreement can also help define the structure of the exit to minimize taxes or allow them to be paid over time. For business owners hoping to fund a large part of their retirement using these proceeds, not knowing their buy-out price or tax burdens in advance can seriously jeopardize their ability to plan for retirement. These Agreements also are helpful in getting owners to think about who their buyers may be. As the Baby Boomer generation is entering retirement age, there will be a lot of small business owners looking to sell, and the market for willing and able buyers may be strained. If a buyer must be found unexpectedly or on short notice, the purchase price will likely be much lower than the true value.

As great as you and your business partners may get along now, it is possible at some point business or personal disagreement will rise to the level where one of you will be forced to leave the business. Business owners may also unexpectedly exit the business for reasons like a desire to focus on their families, illness of themselves or a loved one, or moving out of the area. In these situations, you and the exiting owner may have different opinions about what fair buy-out prices and procedures would be. In the absence of an Agreement, these disagreements can escalate quickly and may result in litigation. By having the Agreement in place, the emotional impact of dispute and the tendency for people to believe they are being treated unfairly is checked by being able to look to an agreement everyone consented to beforehand for how the exit will take place.

Even if you and your business partners are lucky enough to always agree, events outside of your control, such as an owner’s death, divorce, disability or bankruptcy, can lead to uncertainty as to who ends up with control of the business. When an owner dies, his or her share passes to their heirs. This often results in the spouse or children of a deceased business partner either wanting to participate in the business or, more commonly, wanting their proportionate share of the business earnings without having to work for them. Divorce can lead to a similar situation, and a court may order the business interest divided between divorcing spouses. If a business owner becomes disabled and unable to contribute to the business, their interest may become a burden on the other owners. Buy-Sell Agreements also often contain provisions for what happens if an owner becomes involved in criminal activity or becomes mentally unstable. If a business partner goes bankrupt, potentially for reasons having nothing to do with your business, creditors may be able to pursue their business interest to pay off what they are owed. Each of these situations result in either an unwanted business partner or an unexpected party demanding the value of the interest they now possess. A Buy-Sell Agreement can give the remaining owners rights to force out owners who have become a liability or purchase interests at a determined price to prevent heirs, ex-spouses, or creditors from gaining control. These goals are often accomplished by terms which give the remaining owners the first option to purchase any interest transferred from an owner for a price determined in the agreement. The source of funding the buy-out can vary, but is often a life insurance policy, which ensures available funds to buy the interest from the owner’s heirs.

Whatever the future holds for you and your business, a Buy-Sell Agreement can help make sure you are prepared for it. If your business already has a Buy-Sell Agreement in place, it may be time to review the document to make sure you understand it and that it still meets the needs of your business. An Agreement drafted for a start-up may no longer suit a business which has grown or added new business partners.

 

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