Today our lives are becoming increasingly intertwined with digital devices and the internet. It’s how we manage our finances, store photos and videos, run our businesses, and interact with loved ones. Now, a person’s online assets can be just as valuable as those they possess physically, though it may take some extra planning to ensure families can access them after their passing. Which makes the need for digital assets estate planning more critical than ever.
Accounting for digital assets during estate planning ensures that any property stored online can be properly passed down to the client’s heirs. Otherwise, transferring ownership of treasured photos, important documents, personal websites, cryptocurrency wallets, and other electronically stored resources could become complicated for loved ones.
Your clients have plenty of decisions and considerations to make while preparing their wills. However, you shouldn’t overlook the need to protect their digital assets and make sure their beneficiaries receive them when the time comes. In this guide, we’ll discuss the importance of estate planning for digital assets and how to help clients plan what happens to their digital assets once they’ve passed away.
Modern day assets someone might inherit from a loved one extend beyond family heirlooms, real estate, and personal belongings, and might also include electronically stored items such as:
Any type of data, file, or information in an electronic form could be considered a digital asset. This encompasses both business and personal matters, which should be adequately accounted for during estate planning to ensure their seamless transfer to heirs.
Creating a digital asset estate plan serves both practical and sentimental purposes. It ensures that a person’s loved ones can access and manage digital assets as keepsakes for future generations. This might include family photo albums stored in the cloud, a personal blog where they’ve shared their famous recipes, or their social media pages with archived messages documenting their interactions with family and friends over the years.
At the same time, accounting for digital assets in an estate plan also helps eliminate ownership disputes after a person has passed away. It clarifies who will gain ownership of which digital assets, preventing lengthy and complicated legal proceedings after the fact.
Above all, a digital estate plan ensures the desires of the deceased individual are carried out according to their wishes.
Despite the importance of digital estate planning, its execution can become complicated due to some common hurdles:
Creating a digital estate plan helps clients eliminate unnecessary stress and legal burdens from their loved ones after their passing. In the meantime, it helps ensure their digital assets remain private and secure without risking unauthorized access.
While each firm will have its own approach to creating digital estate plans for clients, here is an overview of what the process looks like:
First, the client should take inventory of all digital assets they own. This can be time-consuming, however, it’s critical to be thorough as it will help prevent gaps in the estate plan and ensure all relevant digital assets are accounted for.
It might be helpful to create a digital estate planning checklist of common digital assets to guide clients through this step. This way, they don’t have to start from scratch, which could cause them to leave out important details or accounts.
Where applicable, the client should note the account password. They could also write down their answers to common security questions to make it easier for loved ones to gain access.
The next step is for clients to determine what they’d like to happen to each asset. While they might want to pass on valuable assets to loved ones, there are certain online accounts, documents, or files they’ll want deleted or erased.
For example, they might want to hand over bank account login information to their spouse or children. However, they might decide to shut down their food blog rather than pass it down to a loved one.
Clients should go through the master list created in the first step, noting how each one should be allocated. This should include detailed instructions on how the designated beneficiary can access each asset, allowing for a seamless transfer of ownership.
A key aspect of digital asset estate planning is appointing a digital executor. This is the person the client would like to be in charge of carrying out the wishes of their digital estate after their death.
The executor can be officially appointed in a will or trust. Ideally, clients should choose someone who they trust to respect their wishes and who is familiar with digital technology to make for a smooth transition.
The details of the client’s digital estate plan should be kept securely, with the executor receiving clear instructions on how to access it after the individual’s death. Importantly, the specifics of the digital estate plan should not be written in a will, as it becomes public record after going through probate.
People are often surprised to discover how complicated digital asset transfers can be without the proper legal framework. For instance, after a loved one's death, a person can’t just request access to their social media, email, or cloud storage accounts. Digital providers usually have strict restrictions per federal privacy laws that prevent them from granting others access to private information without the account holder's express permission.
So, while digital asset planning is still relatively new, clients must explicitly mention in estate planning documents how they’d like their digital assets to be distributed so fiduciaries can gain legal access.
Have clients regularly review their digital asset plan to ensure all account information is up-to-date and allow them to add new digital assets if necessary. Maybe they’ve opened a new email, bank, or cloud storage account, which they’d need to include in their plan.
It might also be a good idea to frequently check in with the executor to ensure they’re still able and willing to carry out their duties.
Recommend clients store the details of their digital estate plan in a password manager or secure vault. This way, only one login credential needs to be shared with the executor upon their passing, where they can access all other account login information and important documents.
Plus, these platforms give clients a centralized location to manage all account details, making it easier to update passwords or add new accounts when necessary.
2FA is a great security feature that ensures only authorized account holders are granted access. But this can make it tricky to pass on digital assets to heirs.
During a login attempt, a one-time code will be sent to the account holder’s email, phone number, or authenticator app. If fiduciaries or executors don’t possess the proper device or account to complete a 2FA security challenge, they can’t access the digital asset.
The estate plan should proactively account for this. It should include the backup codes provided during the 2FA setup or ensure the executor has access to the person’s phone or email address as part of the estate plan.
Finally, encourage clients to regularly back up their important digital assets to a local computer or hard drive. In doing so, they can protect their digital assets from being lost or corrupted due to a misplaced password, device, or other reason. Of course, all credentials and instructions to access the backup data should be included in the digital estate plan.
Aiding clients with digital assets estate planning can help ensure a seamless transfer of ownership of essential documents, files, and accounts to friends and family once they pass. With so much of our modern lives engrained with digital devices and online accounts, digital estate planning will only become more commonplace as the years progress.
If you’re an estate or trust professional, Estateably offers solutions to make tedious work more effortless. Whether you’re administering a digital asset estate or trust, our platform helps you work more efficiently and easily by leveraging automation for functions like document automation, accounting, and reporting.
Schedule a personalized demo to see Estateably in action, or sign up to create your account today.
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