The Value of Digital Assets in Your Estate Plan
Due to advances in technology, a concept has emerged that has changed the way everyone should think about their estate plan. Digital assets are intangible, because they can't be held in a person's hand, or hauled off by a moving truck. However, there is no mistaking that such assets can be very valuable to you, and should be considered an essential part of any estate plan.
Even though most people own a lot of digital assets these days, it took many estate planners a while to get on board with this idea, but the idea that protecting digital assets is important is finally somewhat universal. As usual, the law hasn't kept up with changes in this area, and can't be counted on to protect you, so you have to protect yourself.
Consider the Value of What You Have
If you're typical, you probably have a number of books, photos, music and movies stored online, quite possibly in various places. You may have an online gaming account. Perhaps you run an eBay or Amazon store on the side. If you do, there's a likelihood you have a PayPal or Google Wallet account.
Those types of things are obvious, of course, everyone thinks of those because they involve cash. However, what about the value of things that are a bit less obvious? Everything from domain names, websites, blogs, logos, hosting accounts, advertising and affiliate accounts with advertisers may be providing you with what you perceive to be a small passive income, but could be something extremely valuable to potential heirs. Their value may be more than you think.
This isn't about assessing the emotional value of your digital assets, but rather their potential monetary value. If an asset is personally and emotionally valuable, but has no real monetary value, just leave it to an heir or instruct that it be liquidated. In some cases, some of your digital assets could be very valuable, and you may not even realize it. In the past, for example, domain names have sold for millions of dollars to companies who just decided they needed that one. This could serve as either a blessing or a tax curse for your heirs.
Don't be blindsided by technology. You need to know what your digital assets are worth.
Three Principles for Valuing Digital Assets
The first principle in valuing a digital asset involves determining whether or not said asset can be used outside the context of the enterprise from which it derives value. Most digital assets derive their value when they are used in a certain context, and not from an independent free market value. An example would be if you have a blog that makes you proud, but which makes little or no money. While it's valuable to you, it is likely to have has little monetary value. However, imagine that your blog has hundreds of thousands, or even millions, of followers, and brings in a significant amount of revenue. In that case, it might have a greater value, and you might want to set it up so that your heirs have income even after you're gone.
The second principle involves you placing a value on a digital asset based on its ability to create business value. It's possible that a digital asset isn't making a lot of money right now from your perspective, but it could help improve the quality of life of one or more of your heirs. If you own a few domain names that several large companies covet, they could be worth thousands of dollars, even if they're not actually making you any money directly. Think of it like a baseball card collection. In a box in your closet, you may not think of it and it's not making money for you. However, if you start putting them on eBay, there's the possibility of a big surprise.
That leads to the third principle, which requires that any valuation of your digital assets must be forward-looking. It doesn't matter what you paid for something, but rather, what it may be worth to someone at some point in the future. For example, if you have an auto repair blog with thousands of great tips for maintaining a car, but you haven't made any money on it to date, don't discount the possibility that an automaker or an auto repair company may want to buy it to place on their website as a marketing tool at some time in the future. Perhaps you wrote a novel that didn't sell while you were alive. Don't just assume that it will never sell at some point in the future, after you have passed on.
These days, digital assets are an important part of any estate plan. Doing your best to determine their value now can protect your heirs from potential surprises later on.