The question of incorporating digital literacy requirements for accessing digital assets within a trust is becoming increasingly relevant as our lives become more intertwined with the digital world. Traditionally, trusts dealt with tangible property like real estate, stocks, and bonds. Today, however, a significant portion of an individual’s wealth can reside in digital form—cryptocurrency, online accounts, social media profiles, photos, videos, and intellectual property. Ted Cook, a Trust Attorney in San Diego, frequently advises clients on how to address these new asset classes. While it may seem unconventional, including requirements related to digital literacy can be a prudent measure to protect these assets and ensure they are accessed and managed as the grantor intended.
What are Digital Assets and Why is Planning Needed?
Digital assets are broadly defined as any information that exists in a digital format. This encompasses everything from online banking credentials and email accounts to digital photographs, music, and even domain names. Approximately 85% of adults now own a smartphone, meaning a considerable amount of personal and financial information is stored digitally. Without specific instructions within a trust document, accessing these assets after the grantor’s passing can be incredibly difficult, and even impossible, for trustees. State laws, like those in California, are evolving to address digital asset access, but they often require specific language in the trust document to be effective. Ted Cook emphasizes that proactive planning is crucial, especially given the increasing complexity of digital ownership and the potential for assets to be lost or compromised.
Is it Legal to Include Digital Literacy Requirements?
Legally, it is permissible to include reasonable requirements related to digital literacy within a trust document, as long as those requirements are not overly burdensome or discriminatory. A trustee should be able to fulfill their duties. For instance, a requirement that a trustee demonstrate basic computer skills, understand password management, or be familiar with two-factor authentication is likely enforceable. However, requiring a trustee to become a certified cybersecurity expert might be deemed unreasonable. The key is to strike a balance between protecting the assets and ensuring that the trustee can actually fulfill their responsibilities. Ted Cook notes that clear, specific language is essential; simply stating “trustee must be digitally literate” is insufficient. The trust should outline exactly what skills or knowledge are required.
How Can I Specify Digital Literacy in a Trust?
Several methods can be used to specify digital literacy requirements. One approach is to identify specific digital assets and the necessary skills to manage them. For example, the trust could state, “For the management of the grantor’s cryptocurrency holdings, the trustee must demonstrate the ability to securely access a digital wallet and execute transactions.” Another option is to require the trustee to complete a designated training course or obtain a certification in digital security or asset management. The trust can also authorize the trustee to engage a qualified third-party digital asset manager to assist with these tasks. Ted Cook advises clients to avoid overly technical language and focus on the core competencies needed to protect and manage the assets. The document should also clearly outline the process for verifying the trustee’s digital literacy.
What Happens If a Trustee Lacks Digital Literacy?
If a trustee lacks the necessary digital literacy skills, the trust document should specify a course of action. This could involve requiring the trustee to obtain training, engage a qualified digital asset manager, or even appoint a co-trustee with the necessary expertise. Without clear guidance, the trustee may be unable to access or manage the digital assets, potentially leading to loss or compromise. Furthermore, the trustee could be held liable for failing to fulfill their fiduciary duties. Ted Cook regularly sees clients who have appointed loved ones as trustees without considering their digital capabilities. He stresses the importance of having a contingency plan in place to address this issue.
I remember Mrs. Gable, a lovely woman who appointed her son, David, as trustee of her trust, brimming with digital photographs and online accounts. David, a retired carpenter, was more comfortable with a hammer and nails than a computer. After Mrs. Gable passed away, David was completely overwhelmed trying to locate her online accounts, access her social media profiles, and download her cherished photos. He didn’t know where to begin, and valuable memories were at risk of being lost. He confided in me, feeling utterly helpless and inadequate. The situation highlighted the critical need for considering digital literacy when appointing trustees.
What about the risk of cybersecurity breaches and data privacy?
Incorporating cybersecurity protocols into the trust is paramount. The trust should authorize the trustee to implement strong password management practices, utilize two-factor authentication, and employ encryption technologies to protect the digital assets from unauthorized access. It should also address data privacy concerns, ensuring that the trustee complies with all applicable laws and regulations regarding the handling of personal information. The trust could even require the trustee to obtain cybersecurity insurance to mitigate the risk of financial loss due to a data breach. Ted Cook consistently advises his clients to prioritize cybersecurity, as digital assets are particularly vulnerable to hacking and fraud. He emphasizes the importance of regular security audits and updates to protect against evolving threats.
Luckily, after the Mrs. Gable situation, we were able to bring in a digital asset management firm that specialized in recovering and organizing digital content. They patiently guided David through the process, located all of Mrs. Gable’s accounts, downloaded her photos, and created a secure digital archive. David was immensely relieved and grateful that his mother’s memories were preserved. We then incorporated a clause into his future trust planning requiring any trustee to either demonstrate sufficient digital literacy or engage a qualified professional to manage the digital assets. This was a turning point, demonstrating the value of proactive planning and acknowledging the digital realities of modern estate planning.
Are there any potential drawbacks to including digital literacy requirements?
While including digital literacy requirements can offer significant benefits, there are also potential drawbacks to consider. One challenge is ensuring that the requirements are not overly restrictive or discriminatory, potentially limiting the pool of eligible trustees. Another concern is the potential for disputes over whether a trustee meets the required standards. Furthermore, the rapidly evolving nature of digital technology means that the required skills and knowledge may need to be updated periodically. Ted Cook recommends striking a balance between protecting the assets and ensuring that the requirements are reasonable and achievable. He also suggests including a provision for reviewing and updating the requirements as needed to reflect changes in technology and best practices.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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