Traditionally, cash, properties, high value possessions, investments, etc. all formed part of a person’s estate when they passed away. However, in the 21st century, digital assets are becoming more and more common when administering an estate.
Someone’s digital estate can include alternative assets that each carries its own value or potential for inheritance.
Let’s take a closer look at what this all means.
What are digital assets?
A digital asset is an ambiguous term. Essentially, it refers to any property, records or accounts that are held by someone in electronic format. There are three main categories that digital assets fall into:
- Digital records
- Digital property rights
- Digital property interests
Anything held on a computer, such as text, images, video, music, etc. all form part of the digital record. They usually form part of the memory of the deceased and have high sentimental value, however, they do not hold any intrinsic value nor have proprietary existence. As a result, digital records usually do not form part of one’s estate, as per section 25 of the Administration of Estates Act 1925.
Digital property rights:
Contrary to digital records, these do have propriety existence and a possible value. There are two types:
Intellectual property rights: Items such as copyrights, patents, design rights or trademarks all fall within this group. Although they may be difficult to calculate, they do have some type of value attached to them. An Executor or Administrator is usually responsible for determining the appropriate value of these items if they form part of an estate.
Contractual rights: This group contains items such as online storage, emails, online publications (e.g. blogs, emails, podcasts, etc.). These can be difficult to value and to access.
Digital property interests:
Cryptocurrencies, or virtual currencies that only exist in digital format, make up digital property interests. They are not held in a conventional bank account nor would one receive a typical bank statement produced for a cryptocurrency. The more common examples of these are Bitcoin, Ripple and Ethereum, but there are many others.
Cryptocurrencies require two things in order to complete a transaction – a ‘public key’ and a ‘private key’. Public keys are generally visible and known to anyone, however a private key is only known by the owner as this is what they use to access money in their virtual account. Evidently, if the private key information is not communicated to the Executor, it becomes impossible to access the details of the virtual account, which can be a conundrum to an Executor or Administrator.
Blockchain tokens and gaming property tokens are also interests that must be considered.
Ultimately, any of these digital property interests can be passed down in a Will, inherited through intestacy or given as a lifetime gift as they have a value attached to them so they are important to be aware of.
What are some common issues families face?
When someone passes away, it’s not uncommon for a family to know that an online account exists but they may not be able to access it as they do not have the correct username or password. This can be a huge source of anxiety for an Executor or Administrator in instances where digital assets form part of the estate.
How you can help
Digital assets are likely to become more popular with time, but they can often be forgotten when someone thinks about their assets or preparing a Will. When having conversations with clients about their legacy, you should ask questions and provide advice about digital assets to ensure you have the full picture of what they own. For example, a ‘digital Will’ is something that could be suggested for a client who discloses they own any form of digital asset. This is a record of a person’s digital possessions. It helps an Executor know of any online accounts, passwords, private keys for cryptocurrency accounts, etc. which can prevent stress when trying to obtain a full list of assets.
Where Kings Court Trust comes in
If Kings Court Trust administers an estate, we will contact all known institutions, including online transfer platforms such as PayPal, to obtain balances and perform account closures. This is a critical process to ensure that accurate Inheritance Tax and Income Tax declarations are made. Our team is also very familiar with various types of digital assets and can either advise on or deal with these assets during the administration process for our clients.