What Are Digital Assets?5th March 2021
We all acknowledge that we are now living more of our lives online and this applies not only to our working and social life, but also our financial lives. Many of us will operate our bank accounts, pay all our bills and even own and manage investments wholly online.
This has led to growth of the term “digital asset”. There is no legal definition of a digital asset and it has come to mean a number of different things. To understand what digital assets are, we have to understand the difference between digital records and property rights and interests.
Digital records are things like text, photos, songs, videos and other information stored in computer devices or clouds. These might be very valuable to the person that has collected them but legally they are not property which that person owns. They are merely digital information and possession of them passes with the storage device on which they are located.
Digital assets which might form part of a deceased’s estate have an element of property rights or interest. An obvious example of this would be crypto currency such as bitcoin, but also online savings account which are only accessed online and online gambling accounts or credits and tokens in online games.
Intellectual Property Rights such as copyright, patents and contractual rights can also be digital assets. So, whilst a digital picture or text might not be a digital asset, the copyright in a Literary work, artwork or photographs published online, would be digital assets.
Digital assets can also be contractual rights such as a subscription to an online account or service. Those contractual rights might entitle a person’s Executor or an Attorney to a refund on any prepaid subscription or to continued access for the remainder of the contract.
Why Are Digital Assets Important?
Digital assets are important because almost everyone will own some whether they realise it or not. In future, more of the world’s wealth is going to comprise of digital assets. An example of this is the billionaire, Elon Musk recently buying about £1.5 billion worth of bitcoin.
It is important to think about digital assets when making a Will or administering a person’s estate because they can be easily overlooked. An Executor or an Attorney who fails to make reasonable enquiries about a person’s digital assets could leave thousands of pounds worth of assets unclaimed and unadministered.
Even where an Executor might be aware of digital assets, they may still go unclaimed if they do not have access to the relevant account names and passwords to access the funds. With some digital assets, like bitcoin, without the relevant passwords, there is no other way of accessing them in the “real world”.
How Are Digital Assets Different?
Digital assets are not really any different to traditional assets except for the fact there may be no physical documentation or paperwork. With most estates still dealt with in a traditional paper-based way, it can make digital assets difficult to deal with. However, a beneficiary is as entitled to receive their share of the digital assets as they are of traditional assets such as cash or personal chattels.
These assets are also subject to all the same taxes as traditional assets. So, a person who does not include digital assets in an estate, might be unintentionally under paying the Inheritance Tax due.
Digital assets are also different in the way that they are collected in and managed. An Executor or Attorney will have to have some knowledge of crypto currency or online accounts to be able to access and retrieve those funds. If they do not, they may need to employ someone who has such knowledge and experience.
What Should You Do About Traditional Assets?
When people are making a Will or reviewing their financial affairs, they should think about what digital assets they might have and prepare an inventory setting them out.
You also need to decide how and where you can store the passwords and account names to access these in a safe manner. Keeping a list in a safe or secret place is one option. You also need to decide who to entrust with this information or at least its location until after your demise.
Finally, you should consider who to leave these digital assets to, following your death. Do you just want them to be distributed amongst your normal beneficiaries or are there particular beneficiaries with an interest in digital assets who might be more suited to inheriting them?
Whatever you do, you should not ignore digital assets, and this is something which we all need to be more knowledgeable about and give more consideration to both now and in the future.