Estate Planning for Digital Assets

Today, many people conduct their transactions online and have accumulated significant “digital assets” that require special consideration in their estate plan. This article looks at how the lack of a paper trail can create problems after a person dies in terms of both locating and accessing assets. It also provides suggestions for securely documenting such information for heirs.

Estate planning for digital assets

In an increasingly paperless world, we live much of our lives online. We conduct business online, we communicate electronically and we manage our finances through e-mail and Web sites. As a result, most people today have accumulated significant “digital assets” that require special consideration in your estate plan.

No paper trail

When a person dies, one of the first things his or her executor or family members must do is get a handle on assets and liabilities. In a paper-based world, that generally means sifting through the deceased’s mail, desk drawers and filing cabinets to look for tax returns, bank and brokerage account statements, bills, check registers, and loan documents.

In a digital world, however, it’s not unusual for people to conduct many of these transactions online, in many cases leaving no paper trail at all. Many people receive statements by e-mail, receive and pay bills using online services, and use programs like Quicken® to track and reconcile their bank accounts and other financial records.

Without careful planning, it may be difficult or even impossible for your representatives or loved ones to locate your assets or identify your creditors. And even if they do, they won’t be able to gain access to or manage your accounts without your user name, password and other security information (at least not without following time-consuming procedures or seeking a court order).

What if deposits are made to your accounts automatically, or if bills are automatically debited from your accounts? How will your representatives find out about these transactions so that they can settle your financial affairs?

Creating a record

To ensure that none of your digital assets or debts fall through the cracks, it’s critical to create a detailed record of these items, including Web addresses, account numbers, user names, passwords and other security information one might need to access and manage your accounts.

Your record should include e-mail accounts you use to receive statements or other financial information. If you use an online bill paying service, list creditors that you pay through the service, especially those whose bills are automatically debited from your bank account.

After you create your list, the question becomes, “What do I do with it?” Leaving a copy at home or in your office could be risky because of the possibility that someone could steal the list and use your username and passwords for nefarious reasons.

You could store the list on your computer in a password-protected file — or use an “electronic wallet” program that stores passwords and other sensitive information. Of course, you’d need to give the master password to a family member or some other trusted person, something you may not be ready to do. Plus, if the computer is stolen or the hard drive crashes, the information may be lost.

Another option is to keep the list in a safe deposit box. But this can be inconvenient if you follow recommended security practices, including changing your passwords regularly.

Not surprisingly, several companies have developed online solutions to this problem. Sometimes referred to as “virtual safe deposit boxes,” these services store all of your user names, passwords and other electronic data on a secure Web site in an escrow-like arrangement. They can also store digital copies of important paper documents, such as insurance policies, wills, trusts, deeds and mortgages.

After you die, your designated representatives can retrieve the information, typically by presenting identification and a death certificate.

Ease the pain during a difficult time

Documenting your digital assets relieves your family of the difficult and often impossible task of tracking down these assets themselves during an already difficult time. Ask your estate planning advisor about whether a virtual safe deposit box makes sense for your situation.

Please confirm that you understand the consultation is paid and the fee is $350.