A Digital Asset Protection Trust (“DAP Trust”) is a special type of trust that can be used to secure certain digital rights and/or property that is owned by the trust’s creator (i.e., the settlor). DAP trusts are a relatively new type of trust formation. DAP trusts were originally designed by attorneys to keep up with the demands of digital asset management in the event of a property owner’s death.
Prior to the concept of DAP trusts, attorneys would have to choose from various estate planning tools, such as spendthrift trusts, revocable trusts, and wills. Now, however, estate planning attorneys can recommend that their clients use a DAP trust to protect their digital assets instead.
DAP trusts are much more efficient when it comes to the management, distribution, and protection of a person’s digital assets. Thus, a settlor may decide to create a DAP trust when they wish to store their digital rights or assets in the form of a trust for the purposes of distributing it in the future to the named beneficiaries of the DAP trust.
For example, suppose a settlor has an account that contains cryptocurrency (e.g., Bitcoin, Ethereum, Dogecoin, etc.) and they want to make sure that a family member or close friend will have access to the account if they become deceased. The settlor could choose to set up a DAP trust, so when they die, the account information and cryptocurrency will be released to the individuals assigned to the trust (i.e., the beneficiaries of the trust).
To learn more about DAP trusts and how to form one, it is strongly recommended that you speak to an estate planning attorney in your area for further information.
What Is a Digital Estate?
A digital estate refers to the digital assets or rights owned by a person, which tend to exist online or on the property owner’s technological devices. Some examples that may constitute part of a digital estate include:
- Domain names, blogs, and personal websites;
- Social media or online user accounts;
- Cryptocurrency or virtual wallets;
- Records or documents that are stored online (e.g., Dropbox, Google Docs, etc.);
- Digital image or music files;
- Emails and text messages;
- Online business accounts; and/or
- Various other types of digital assets that exist in a virtual realm.
All of this information will need to be legally protected if the property owner does not want to lose it after they are deceased. The property owner can now do this by setting up a DAP trust, which can help to protect their digital assets and overall digital estate.
Why Shouldn’t I Use a Will To Control My Digital Estate?
The most pressing issue concerning wills and using them to protect a person’s digital estate is that a will does not always give a decedent’s estate exclusive ownership over digital property. This is because estate law prohibits decedents from distributing property that they do not own.
For instance, a person can create a profile on Facebook for free. Facebook will then allow them to use their site and access the profile, so long as the person is alive. This type of relationship essentially forms a license. Once the user dies, however, their license will expire. Thus, allowing Facebook to retain control of their profile since the user will no longer be considered the owner.
Although a decedent may have given their loved ones the log-in information before their death, most online user agreements prohibit password sharing. Accordingly, the action could potentially lead to serious legal consequences for the deceased’s estate. Therefore, the best and safest way to prevent such a situation from happening is to use a DAP trust to protect a person’s digital assets and their ownership rights.
Why Would a DAP Trust Protect Digital Rights?
Before DAP trusts were created, many people would lose access to their digital rights and assets once they died. The reason why this kept happening is because tech companies and social media platforms viewed user accounts as if they were licensed property. Therefore, if a user died, then their accounts would expire.
DAP trusts can be used to circumvent this issue by allowing a settlor to insert their own licensing terms directly into the trust documents. Also, while the appointed trustee will have many of the same fiduciary duties and legal obligations as they do when overseeing a standard trust, the beneficiaries to a DAP trust will not be able to take direct control of the licenses. However, similar to other trusts, the beneficiaries will still be able to reap the financial benefits of a DAP trust.
Are DAP Trusts Online?
Whether or not a settlor can access their DAP trust online will depend on how their lawyer structured the trust. As of 2021, there is no legal reason as to why such trusts cannot be kept online. In fact, many attorneys who are familiar with working with DAP trusts prefer to provide their clients with a way to keep track of their digital estate and access the trust online.
Given the sensitive content contained in DAP trusts, both a client and their attorney must make sure that any trust-related documents or websites that are accessible through the internet are heavily secured by strong cyber protections.
Can I Update My DAP Trust?
One of the greatest benefits that DAP trusts seem to offer is the fact that these types of trusts are revocable. This means that DAP trusts can be modified and changed instantly while the settlor is still alive. So, for instance, if a settlor needs to update their address, change a password, or include a new online account, they will legally be permitted to do so from the comfort of their own home.
However, if a settlor wishes to amend the actual terms and conditions of a DAP trust, then they should hire an attorney to ensure that the final document is valid and legally enforceable.
Are DAP Trusts Recognized By Courts?
As discussed above, DAP trusts have only recently become a new trend in estate planning law. Consequently, not too much is known about how courts will start to react to disputes over DAP trusts. Thus far, there have been no cases involving a DAP trust.
It is important to keep in mind, however, that just because a person or entity has not yet challenged the legality of DAP trusts, does not mean that such issues will not arise in the near future. Therefore, a person who wishes to create a DAP trust should consult an attorney who has experience in setting up and handling issues concerning DAP trusts.
Do I Need an Attorney To Create a DAP Trust?
As previously mentioned, DAP trusts are a fairly recent invention and were created to address an emerging field of law. The regulations surrounding DAP trusts are also still murky and may constantly change due to how rapidly technology keeps advancing. Therefore, if you wish to set up a DAP trust for your digital assets, it is generally recommended that you hire a local estate planning attorney for further assistance.
An estate planning attorney who has experience with DAP trusts will be able to determine and explain why a DAP trust may or may not be suited for your particular situation. If you decide to move forward with creating a DAP trust, your attorney can also guide you through the process of setting one up.
Alternatively, if you choose not to create a DAP trust or your lawyer suggests that there is a better estate planning tool to use to protect your digital property, your lawyer can also assist you with drafting a will or setting up other trust options.
In addition, your lawyer can inform you when DAP trust laws are updated since it is part of their job to know the current and relevant laws. If your lawyer discovers that DAP trust laws have been amended or if you need to modify an already existing DAP trust, your lawyer will be able to help you with this process as well.