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Digital Assets Inheritance in California pt. 3

Navigating the Digital Domain


The new class of assets – digital assets encompass a diverse range of types of asset and present unique challenges in the realm of inheritance planning. There are three crucial aspects of digital asset inheritance in California: categorization, distinguishing ownership from access, and the implications of community property laws.


Categorization of Digital Assets

The term "digital assets" encompasses a broad spectrum of online holdings. Some prominent categories include:


Financial Digital Assets: Cryptocurrency wallets, online bank accounts, investment accounts holding digital assets like stocks or bonds. Crypto wallets are often highly password or multi-layered password sensitive requiring multi-step verification to access the digital wallet, invest, and convert the currency. Online bank accounts offer a unique circumstance whereby there is typically never a “brick and mortar” facility with a physical banker. This online realm of banking therefore relies on passwords and online verification for access and use of the funds. Investments accounts are similar to online banks in that a person-to-person relationship has not been forged. Users of online investment accounts have only a digital footprint which means the user agreements and password access become the key to unlocking and accessing the assets.


Digital Collectibles: Non-fungible tokens (NFTs), represents unique digital ownership of artwork, music, or other items. NFTs have a unique digital footprint which much like digital wallets lack a person-to-person relationship manager and rely on security passwords and online verification methods for accessibility. Without the security keys and ability to verify the named user, and absent an explicit instruction, the pathway for inheritance to a family member narrows significantly.


Online Accounts: Social media profiles, email accounts, cloud storage accounts containing data, photos, videos, and documents. While many of these accounts are seen to have significant sentimental value, there are some online accounts that have business categorization, such as those owned by social media influencers.   The content and followers carry a value that could continue to earn for the estate if there is a proper pathway for the succession of the property interests.


Intellectual Property: Digital creations like software, ebooks, or online courses protected by copyright or patents. This matters immensely to the estate upon a person’s death – who should have access and who should have a legal interest in the property that likely carries an ongoing value and earnings potential.


Understanding the unique characteristics of each category is crucial for effective estate planning. For example, cryptocurrency wallets require specific private keys for access, while social media accounts might have their own ToS regarding inheritance.


Distinguishing Ownership and Access

A key distinction exists between ownership of a digital asset and access to it. While individuals may own the content stored in online accounts, accessing them after death often requires knowledge of passwords and login credentials. This distinction is vital when designating beneficiaries.


In California, RUFADAA allows individuals to appoint a fiduciary to manage their digital assets, but platforms like Facebook might still have restrictions on data access, even with a designated representative.


Community Property vs. Separate Property

California operates under a community property system, where all assets acquired during marriage are generally considered jointly owned by both spouses. This distinction becomes crucial in digital asset inheritance. For instance, if one spouse purchases cryptocurrency during marriage, it likely falls under community property, meaning the surviving spouse automatically inherits half upon the other's death. However, separate property, such as digital assets acquired before marriage or through inheritance, is not subject to automatic community property rules and requires specific designations in estate planning documents to ensure proper inheritance.

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