27 Oct Digital Assets and Estate Planning
Digital assets are an important part of every estate plan. Most people have more digital assets than they realize. Online bank accounts, social media, online retail accounts, etc., are part of modern life that we all take for granted. But they are easy to overlook when talking about estate planning—especially when it comes to the one-size-fits-all estate plans that some people turn to online. We recognize the need for custom estate plans because every person’s situation is unique. At Phelps LaClair, we serve a diverse clientele in Chandler, Mesa, Phoenix and Scottsdale. When it comes to digital assets and estate planning, our unique experience will serve your unique needs.
Digital Asset Definition
In a recent post, we made a broad sketch of what a digital asset is. Here, we will go into more detail about these assets because they are becoming more important in everyday life. To properly plan for them as assets that need to be protected and passed on, we need to understand what they are.
Digital assets are “value containers” that exist in a digital environment. By value, we mean something that has value to a person or entity. It could be a commercial value such as a financial account like Bitcoin, or a personal value such as a photograph on Facebook. The Bitcoin financial account is a container for commerce; the digital photograph can also be a container for commercial value, but more often is a container for sentimental value, historical value, or educational value. The value of a digital asset is determined by its data. Every instance in which value is stored or transferred digitally is deemed a digital asset.
Digital Asset Valuation
Like tangible assets, digital assets can increase or decrease in value over time. Because the range of digital assets is so broad, we need a way to understand how to assign both present and future value to them.
Starting with personal value, there will be some digital assets that increase in value over time. Family portraits or vacation videos are a good example of this. Succeeding generations will find these to be more interesting as time goes by, so their sentimental and historical value will increase. The same will probably hold true for diaries, poetry, art and music. But there will also be digital assets that decrease in value over time, such as shopping lists, birthday lists, resumés and mileage logs. Whenever you put a file in the trash and empty it, you are determining that the asset has no further value to you.
With assets like digital currency, there are market fluctuations that rise and fall periodically, so their intrinsic value will often be in flux.
With a domain name for a website, the value will be based on the uniqueness, the traffic it is able to draw, and the hyperlinks that connect to it. Strong traffic absolutely increases the value of the name.
The value of online user accounts is the permission to do transactions on the site. The more you access the site, the greater value it has. Retail sites, social media platforms, blogging posts and email are examples of digital assets whose value increases with use.
Managing Digital Assets
Like tangible assets, digital assets can be managed, updated, retired or invested. Facebook advertising is an example of this. Your Facebook account can be monetized and used for third party ads. Your YouTube account can likewise be monetized, providing an income stream independent of digital content sales. Bloggers can be sponsored by companies that are mentioned or highlighted in blogs, and companies with a strong SEO presence have both intrinsic and extrinsic value in their websites. Careful analysis and management of these digital assets can lead to greater value over time.
Brave New-ish World
Digital life is a reality in today’s world. It will not go away, it will not diminish—it will only increase in use and value. Phelps LaClair is aware that digital assets and estate planning are becoming more important to our clients with every passing year. That is why we advocate updating your plan at least every three years. If you do not have a plan, give us a call for a free, no-obligation consultation. We will review your situation, your goals and desires, and suggest the best options for your estate plan. The future is now—go into it bravely with peace of mind.
Images used under creative commons license (Commerical Use) 10/27/20 Photo by Marvin Meyer on Unsplash