The online footprint of Canadians is getting deeper every day, from e-mail and Instagram posts to brokerage accounts and bitcoin wallets. Yet, when it comes to estate planning, these digital accounts often take a backseat to more traditional strategies such as the tax-efficient transfer of the family cottage or how to pass along a tax-free savings account.
Even some advisers tend to overlook the potential impact of not accounting for digital assets in an estate plan, says Sam Febbraro, executive vice-president at Investment Planning Counsel (IPC), who assists advisers on this growing issue.
“Digital assets haven’t really been part of the planning equation until recently,” Mr. Febbraro says. “But it’s now a bigger issue with boomers and gen-Xers becoming the first generations to pass these on in their estates.”
The most obvious growing concern is bitcoin and other cryptocurrencies. A recent study by cryptocurrency trading platform Triple A estimates about 1.2 million Canadians hold digital currencies, or about 3.2 per cent of the population.
More broadly, the pandemic has expanded Canadians’ digital presence as we engage more in virtual communication and e-commerce, in turn creating even more accounts and passwords.
Even new assets have emerged that weren’t part of the digital vernacular a few years ago, such as non-fungible assets (NFTs), some of which now trade at auction for millions of dollars.
Plenty of examples have cropped up in the headlines in recent years of these assets being lost when someone dies or disappears. An infamous example is Gerald Cotten, the chief executive officer of cryptocurrency exchange QuadrigaCX. He reportedly died on his honeymoon in India in 2018, leaving tens millions of dollars in personal and client wealth in cryptocurrency in limbo. The funds were largely inaccessible because no one could find the passwords.
More generally, people are mostly unaware of the potential legal snafus that can arise upon death or incapacity, says Toronto lawyer Kimberly Whaley, a certified specialist in estate and trust law at WEL Partners.
“From an estate litigation perspective, it can be a horrendously difficult job for estate trustee fiduciaries, like the executor, to administer an estate with no access to these assets,” Ms. Whaley says.
One major problem in many countries, including Canada, is legislation has not kept pace.
Ms. Whaley points to model legislation developed and adopted in 2016 by the Uniform Law Conference of Canada, called Uniform Access to Digital Assets by Fiduciaries Act, to address the problem. Yet to date, only Saskatchewan has formalized it as law, she says, and no uniform legal framework exists nationwide governing access to online accounts for trustees.
In the absence of a legal framework, large technology companies are mostly unwilling to provide access without court order, fearing potential litigation for violating user agreements individuals agree to when opening accounts, Ms. Whaley says.
“The user agreements … have no correlation to any legislation because it’s non-existent, and so [tech companies] are able to do what they want until courts says, ‘no way,’” she explains.
One workaround involves creating a list of accounts and password information for a spouse or trustee to access in the event of a death or incapacity. Still, this practical measure can be problematic because accessing accounts in this manner also often violates user agreements, says Andrew Higdon, senior associate and lawyer for estates and trusts at KPMG Law LLP, based in Ottawa.
“It can even run afoul of certain legislation in certain jurisdictions of logging into someone else’s computer,” he adds.
Mr. Higdon recommends individuals download important documents, including personal ones they want loved ones to access, on their own storage to avoid potential legal problems.
Investment adviser Wynn Harvey, director of wealth management at Richardson Wealth in Toronto, says monetary value of digital assets is growing among many high-net-worth Canadians investing in bitcoin and other cryptocurrencies.
“[Other] monetary value digital assets include any accounts used to manage money, bank accounts, investment accounts, airline loyalty cards, retail store cards [and] online sales accounts,” such as eBay and Amazon, Ms. Harvey adds.
Digital footprints are even more vital for business owners to consider as “their digital assets can include websites or blogs, e-mail and client contact lists … and intellectual property,” she says.
Not all accounts have financial value; other cloud-based accounts containing photos and personal items are of sentimental value, but these can be equally important to access for family, Ms. Harvey adds.
Given the legal grey areas concerning access for executors and individuals with power of attorney, it’s important to consult not just with a financial adviser but to seek advice from a lawyer to ensure the estate plan considers access to digital assets and their distribution.
Fintech companies such as Toronto-based online will company Willful enable people to include digital assets in their estate planning, adds Ms. Whaley of WEL Partners. “They’re trying to provide a service, which is good and helpful.”
She also points to Toronto-based NoticeConnect, a platform that helps executors advertise for creditors and search for missing wills, avoiding the need to take out ads in newspapers, which can be time-consuming and costly.
Technological innovations in estate planning and administration aside, “the will should provide the executor the authority to deal with digital assets, and if there are digital assets importance, those should be enumerated in a memorandum kept with the will,” Mr. Higdon of KPMG Law says.
Account passwords remain a thorny matter, given the legal uncertainty over access. Even still, their security is a priority.
Ms. Harvey of Richardson Wealth recommends clients use an online password manager service to keep all log-in details within an online safe-deposit box. She also suggests storing the will and list assets in a physical safe-deposit box so important documents are in one secure place and easy to find.
Equally important, ensure a spouse, adult child or executor is aware of how to access these documents, if necessary, Mr. Febbraro of IPC says.
“Awareness is important,” he says, adding that many people can’t truly grasp digital assets they might have themselves – let alone loved ones.
Creating a directory of assets and passwords as a companion to the will may be less than ideal, Ms. Whaley adds. “But you have to do something, and so how else are you going to do it, but to say, ‘Hey, I have this asset; here is my password; I give you authority to access it.’”
And while it may not be compliant with a large technology company’s user agreement, she says, “at least people know it’s there, and the asset is not lost forever.”