Estate Planning for Digital Assets

In April of 2017, I wrote an article titled “Executor of an Estate – Top 10 list of Responsibilities”, where I provided a list of primary duties and responsibilities for an estate executor.  At that time, planning for digital assets was typically an afterthought for individuals when constructing an estate plan.  

Times have quickly changed! Today, with the average person under 70 having more than 160 online accounts (Death with Dignity), and individuals generally accumulating more digital asset wealth, estate planning for digital assets has become increasingly important. 

What Are Digital Assets?

Understanding “digital assets” is an important starting point. Items you may not have considered much, such as your airline miles, are actually part of this newly identified category known as “digital assets.”

A simple definition of a digital asset is anything created and stored digitally that has or provides value.  They include a wide range of items such as: 

• Online banking and investment accounts 
• Cryptocurrency holdings (Bitcoin, Ethereum, etc.), tokenized assets 
• Social media and Email accounts 
• Credit card accounts, loyalty rewards programs (airline miles/hotel points) 
• Domain names and websites/blogs 
• Subscription services, shopping accounts, and online betting accounts 
• Smartphone, computer tablet, or cloud data 
• Photo and video sharing and storage accounts 

(US Bank)

What Are Some Obstacles To Accessing Digital Assets?

Unlike other assets, digital assets are not something tangible that you can hold. Additionally, they can exist in many different forms, are stored in many different locations, and can be accessed in various ways.   

For these reasons, gaining access to digital assets can typically present challenges for anybody other than the original owner, which means that for an estate executor, for example, there are potential accessibility challenges that should be known.  

Some of the obstacles that can be experienced when trying to access digital assets or important personal information of a deceased individual include: 

Security and Technical Barriers

• Passwords and Multi-Factor Authentication (MFA): 

Digital accounts are protected by passwords and security features like Multi-Factor Authentication (MFA), which can help prevent unauthorized access to information or property stored in a smartphone, computer, online accounts, or the cloud. 

• Encryption: 

Digitally stored data may be encrypted, which is data that is scrambled in a particular location—in a single file, on a device, or in the cloud—so thoroughly that it is extremely difficult for anyone without the proper passcode to unscramble the data.

• Account Termination: 

Some accounts are automatically terminated upon the owner’s death, leading to the potential loss of valuable data.  

Legal and Privacy Challenges

• Privacy Laws: 

Federal and state privacy laws, such as the Stored Communications Act, can restrict an executor’s ability to access a deceased person’s digital information.  

• Terms of Service Agreements: 

Most digital platforms have terms of service that are not designed for post-death access, creating legal barriers for executors.  

• Lack of Specific Laws: 

Laws on both state and federal levels prohibit unauthorized access to computer systems and private personal data.  The Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), which provides a legal framework for fiduciaries to access digital assets, has now been adopted in 47 U.S. states (Kitces).  The law is still evolving, though, and a lack of clarity surrounding these laws for digital asset access can leave executors without clear rights to handle these accounts.  

What Can You Do?

Best practices to address these obstacles and enable access to your digital assets 

Update your estate planning documents

For an estate plan created more than a decade ago, it is likely that no provision exists within the documents for digital assets.  Including a digital asset provision in a client’s will, for example, can prevent unnecessary burdens down the road, such as having the executor go through a lengthy legal process to access important digital assets. 

Think about naming a specific digital executor 

If you own valuable digital assets and your estate’s main executor might not know how to efficiently manage such assets, naming a separate digital executor in your will who has technical expertise, as well as business and legal experience, makes sense.  This person can be listed in your will alongside your general estate executor if that person does not have the skill set to manage digital assets.   

Make a list of your digital assets and how to access them 

Not only is it important to assemble a comprehensive list of all of your digital assets, but also instructions on how to access the various online accounts and hardware that hold those assets.  Providing specific directions to your executor on what should happen to the digital assets after your death is also helpful (i.e. should a social media and/or email account be closed, a service and/or subscription be discontinued, etc.). 

Make sure that a trusted family member or fiduciary knows how to access your important information through a list of various passwords. This is crucial not only after your death but also if you become incapacitated while still living. Whether you save these passwords and access credentials in a password manager or maintain a simple handwritten list, failing to provide this information could prevent access to valuable information or property stored on your smartphone, computer, online accounts, or in the cloud (Fidelity).

Store your inventory of digital assets in a secure location, such as a digital vault 

Digital vaults have become an important tool for securely storing critical data and information.  These vaults can provide both easy access for designated individuals (such as a trusted executor or family member) and can be a safeguard against unauthorized access.   

One of the key benefits of using a digital vault is that it centralizes all of the necessary information in one protected location, allowing for a smooth transition of assets in the event of a death.  Integrating digital vaults into the estate planning process can provide peace of mind, knowing that crucial documents and passwords are safely stored, easily accessible, and regularly updated to reflect any changes in the estate holder’s circumstances and wishes (Kitces). 

Summary

Whether or not you are one of those individuals who currently owns over 160 online accounts, digital assets are playing an increasingly significant role in most of our lives. Ensuring that they are properly accounted for and managed within an estate plan is becoming more important than ever.  Without proactive planning, heirs and fiduciaries can face substantial obstacles when trying to access a deceased individual’s digital assets. 

The information provided in this insight touches on a few of the many issues that need to be considered when planning for digital assets in an estate plan.  Along with contacting your estate planning attorney for assistance with updating legal documents as necessary, the Advanced Planning Team at Clearwater Capital Partners can provide guidance on estate-related matters as part of the comprehensive financial planning process. 

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