Estate planning for a digital world

PRACTICALLY EVERY ASPECT OF OUR LIVES TODAY is inextricably tied to our devices, networks and the digital assets we’ve accumulated. Our digital assets have become just as critical as anything we possess. We need to account for these assets in our estate plans as much as any others, taking all eventualities into account.

But what are “digital assets”? The term refers to any electronic record to which an individual has a right or interest. These can be financial assets, including bill pay sites, insurance or virtual currencies; business assets, which might include a domain name, client data or intellectual property stored in the cloud; personal assets like photos or email accounts; and social assets like Facebook or LinkedIn accounts.

It’s more than simply a matter of making sure your passwords are secure and your account information is safely stored. It’s important to have a plan for how and when the people you trust can gain access to these details.

As you’re developing that plan, consider these five tips:

Create a legal framework

At first glance, the solution seems simple: Why not just give your heir, executor or fiduciary the passwords they need for access to your laptop, smartphone and other devices? Unfortunately, this strategy can weaken your personal security. And there are other potential pitfalls you may not be aware of. “Many people don’t fully appreciate that digital assets are different animals from traditional assets such as bank accounts,” says Colin Korzec, head of Trust and Estate Settlement Services at Bank of America. “They’re often subject to terms of service agreements as well as state and federal laws, so you need to work with your estate attorney to be sure these assets are identified and granted authorized access by specific parties.” In other words, others will likely need your explicit permission to go into these accounts.

As you consider the matter of granting access to other people, be aware of potential trade-offs. Your personal email account, for example, might contain a trove of documents, attachments and information that could help your executor or fiduciary settle your estate. At the same time, there may be personal messages you want to keep private. Balancing those two needs requires a thoughtful approach. You can choose to grant access to some digital accounts while excluding others or choose different people to receive access to different accounts.

Make an inventory of your digital assets

Keep passwords separate

While you may be inclined to include usernames and passwords on the inventory document you create, Korzec cautions against including passwords. “For one thing, those passwords may well have expired by the time the inventory is accessed,” he says. “But it’s also important to note that the person with your inventory may not be authorized under the law or terms of service to access those accounts. I would rather simply know where the accounts are, period.”

One way of keeping your digital asset inventory and your passwords safe is to save them as two separate, password-protected documents. Tools such as a password vault can serve as a secured central storage location, not only for passwords but also for key account information and documents your heirs and executors may need to ensure a smooth transition. Alternately, you can write down the passwords and store them in a locked safe, a safe deposit box or with your attorney, Korzec says.

You might also want to look into designating a contact or other authorized user to recover passwords in the event of an emergency or for contacting an insurance provider, canceling services or other tasks. However, as Korzec notes, your provider may not allow for this type of designation.

Whatever way you choose, it’s best to keep your passwords separate from the inventory. When you name a fiduciary or an executor, that person should be granted access to both documents. Bear in mind that failed attempts to log in to some password-protected accounts or documents can lock them — which is why experts recommend that whoever is going through the physical devices should first make copies of the hard drives.

Engage experts when you need to

In some cases, it may be worthwhile to call on a digital expert. “We actually have a third party we engage who, depending on the facts and circumstances, can assist us by examining a device to understand if there is a reference to a digital wallet or an NFT [non-fungible token] somewhere,” says Korzec. “We had one client who had a relatively valuable painting on consignment that no heirs knew about — until a forensic computing expert found a reference to it stored electronically,” he adds. “It turns out it was worth a significant amount.”

Revisit your plan from time to time

Just as you update your estate planning documents every couple of years or if something major changes, like a marriage or the birth of a grandchild, you’ll want to periodically take another look at your digital asset inventory.

Keeping track of those assets “isn’t really optional anymore,” Korzec says. “But dealing with it now will ensure that your loved ones and heirs aren’t spending an already difficult time scrambling for passwords and account access for those assets — which is probably not the legacy you intended to leave.”