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Digital Legacy Planning: Protecting Your Online Assets

December 9, 2024

Presented by: Brian McKinney, CFP®

Over the years, you’ve carefully managed your finances online—whether it’s checking your bank accounts, making investments, or paying bills. Your cloud storage holds important tax documents, and your email is filled with financial correspondence. But have you ever stopped to consider what would happen to these accounts—and your loved ones—if something unexpected happened to you? Would your spouse know how to pay the mortgage if they couldn’t access your bank account? Would your children be able to manage investments they didn’t even know about?

Without proper planning, your family could face financial uncertainty as they try to navigate your digital accounts without guidance, in addition to their emotional stress. This is why digital legacy planning is not just important—it’s a key component of modern estate planning that many overlook. But before diving into the process, it’s helpful to understand exactly what digital financial assets are.

What Are Digital Financial Assets?

In today’s interconnected world, our financial lives increasingly exist online. They include a wide range of accounts and information, such as:

  • Online bank accounts
  • Investment and brokerage accounts
  • Digital copies of tax returns and financial documents
  • Online bill payment systems
  • Email accounts containing financial correspondence
  • Digital accounting software for small business owners
  • Cryptocurrency wallets and exchange accounts
  • Non-fungible tokens (NFTs) and other blockchain-based assets

It’s important to note that digital assets like cryptocurrencies, NFTs, and tokens require special consideration. Unlike traditional financial accounts, these assets often rely on private keys or seed phrases for access. Losing this information could mean permanently losing access to the assets.

While not strictly financial, other digital assets like social media accounts and cloud storage can also hold significant personal and sometimes monetary value. So, you’ll likely want to consider these accounts when planning your digital legacy as well.

How to Plan

Create an inventory. Start by making a simple list of all your digital accounts. It might seem like a chore, but this step is a gift to your loved ones so they can handle everything easily when the time comes. This record should include a list of all online financial accounts, login information, security questions, and two-factor authentication details. It needs to be stored securely so it’s only accessible to you and those you trust to keep it safe. Be sure to update this record on a regular basis as you open new accounts or change access credentials, and back it up if it’s saved in electronic format.

For cryptocurrency and blockchain-based assets, include information on wallet addresses and locations of any hardware wallets. However, never include private keys or seed phrases in this inventory—instead, provide clear instructions on where to find this crucial information.

Appoint a digital executor. This person will be responsible for managing your digital assets according to your wishes. For financial accounts, consider choosing someone with a background in finance or accounting who can navigate complex financial systems. Include a provision in your will that specifically grants authority to access and manage your digital assets and accounts, both financial and nonfinancial.

Incorporate digital assets into your power of attorney (POA). A POA is a legal document that gives one or more persons the power to act on another’s behalf. While a will addresses what happens to your assets after death, a POA is important for managing your online assets if you become incapacitated. Here’s what you need to know:

  1. Talk to your lawyer about adding specific wording to your POA that clearly allows your agent to handle your digital accounts and assets on your behalf.
  2. Most standard POAs don’t cover digital assets very well. Make sure yours is up to date and includes all the rights needed to manage your online world.
  3. Your POA agent can manage your digital assets while you’re alive but incapacitated, whereas your will’s executor only gains access after your death.
  4. If you have a lot of digital assets or they’re particularly complex, you might want to think about creating a separate POA just for these assets.

By covering both bases—your will and your POA—you’re making sure all your digital assets are protected. Your digital executor can handle these assets after you’re gone, while your POA agent can step in if you can’t manage them yourself during your lifetime. This dual approach gives you the best protection and management of your digital legacy, no matter what happens.

Provide clear instructions. The directions you leave for your digital executor and beneficiaries should detail how to access your online financial accounts, where to find and what to do with important financial documents stored digitally, and how to handle any financial information tied to your email or social media accounts.

For cryptocurrency and NFTs, explain the process of accessing and transferring these assets. This might include step-by-step instructions on using hardware wallets or accessing exchange accounts.

Store securely. Keep your digital inventory and instructions in a safe location, such as with a trusted attorney or in a safe deposit box. For added security, some people use reputable online digital estate planning services.

Check with your bank. Some financial institutions and investment firms now offer features that allow you to choose beneficiaries or authorize access to your digital accounts in the event of your death.

Review regularly. Make sure to keep this plan up to date—it’s easy to forget, but staying on top of things ensures your loved ones are always in the loop. Set reminders to go over your plan each year or after significant life events (e.g., a career change, marriage, buying or selling a home), as well as when you open new financial accounts or there’s a change in your financial situation.

Communicate. Have open conversations with your loved ones about your digital legacy plan and where they can find the necessary information when the time comes. This dialogue can prevent confusion and ensure your financial affairs are managed according to your wishes.

Legal Considerations

The rules around digital assets, especially financial ones, can be tricky and change often. Laws can vary significantly in different states, so be sure to research the regulations in your area.

Many financial institutions have their own policies regarding account access after a client’s death. These policies may conflict with your wishes, so it’s important to learn what they are and make necessary arrangements. In some cases, privacy laws may prevent anyone from accessing your accounts without prior authorization.

The legal status of cryptocurrencies and NFTs can be complex and varies by jurisdiction. Some countries may not recognize these as legally inheritable assets. Consult with a legal professional familiar with blockchain technology to ensure your digital legacy plan accounts for these unique assets.

Thankfully, you don’t have to tackle this alone. Consulting with a legal professional who understands digital assets and estate planning can help simplify the process and ensure everything is taken care of. Professional guidance can help you navigate the complexities of digital legacy planning, ensuring that all your assets—both digital and physical—are properly managed according to current regulations.

What If I Skipped Planning for Online Accounts?

You may consider avoiding this “extra” step of including digital assets in your estate plan, but the consequences can be severe. Families may lose access to your financial information, struggle to close accounts, or miss out on funds. In some cases, identity thieves might exploit unused accounts, causing financial and emotional distress to grieving loved ones. And don’t forget: keeping digital accounts unattended can lead to ongoing charges or fees, draining the estate’s resources.

For cryptocurrency holders, the consequences can be even more severe. Without proper planning, your entire crypto portfolio could become inaccessible, essentially disappearing forever. This could potentially mean the loss of significant value from your estate.

Please feel free to reach out to our team with any questions about incorporating digital legacy planning into your overall financial strategy. By taking the time to plan your digital legacy now, you’re giving your loved ones the ultimate gift: peace of mind. You’ll know they’re prepared and protected, no matter what happens.