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What You Need to Know about Estate Planning and “The Cloud”

In the Internet age, your estate no longer includes just physical property but digital assets like social media accounts, cloud storage and even computer-based currency. Taking stock of your digital assets is therefore an essential part of California estate planning. Here are a few issues to consider with respect to your “online estate.”

Online Devices and Cloud Storage

Recently the BBC reported on the story of Anthea Grant, a woman who passed away from cancer. Grant’s will directed her estate be divided equally among her five children. The children decided among themselves how to allocate individual pieces of property. Grant’s son Joshua received her iPad, manufactured by California-based Apple Inc.

Unfortunately, while Joshua Grant took physical possession of the iPad, he could not use the device without his late mother’s Apple ID and password, which none of the family members knew. Apple refused to unlock the device without written consent from the account holder, who was obviously deceased and therefore unable to do so. Even after Joshua Grant provided written proof of his mother’s death, Apple would only restore the iPad to its factory settings; it would not provide access to Anthea Grant’s files-which were part of a cloud account-without a court order.

If you have any type of cloud storage account, it is important to review the terms of service. Some services may simply suspend or delete an inactive account. Others may transfer an account to an executor or heir. Much like banks, an executor may need to provide a copy of the account holder’s death certificate and a court order authorizing the executor to act-usually known as testamentary letters-before the cloud service will grant access.

The Bitcoin Dilemma

Other types of digital assets may prove even more difficult for your estate or heirs to access. Digital currencies like Bitcoin have become popular in recent years. Bitcoin uses a public ledger called a “block chain” to manage peer-to-peer transactions. The block chain also “mines” new bitcoins. Individual users store their bitcoins in a “digital wallet” that uses a pair of cryptographic keys.

The dilemma is that if the user forgets or loses the keys-or simply loses the computer or device that stores the digital wallet-there is no method of recovery. Unlike a cloud storage service, there is no central authority who can reset or access a bitcoin digital wallet. The bitcoins are simply lost.

If you own bitcoins or a similar type of currency, it is therefore essential to keep backups of your cryptographic keys together with your other estate planning documents. Some Bitcoin experts also maintain other technical methods of verifying a digital wallet owner’s death and transferring the bitcoins to his or her estate. As this a continually evolving technology, it is important to consult with a California estate planning attorney before taking any action.

Estate Tax Implications

Bitcoin and digital currencies may also raise possible federal estate tax issues. The Internal Revenue Service recently issued guidelines stating that Bitcoins are to be treated as property rather than currency. Once again, that is why you should work with an experienced attorney who can keep you apprised of legal developments. Contact the Law Office of Scott C. Soady today if you have any questions.

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