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Digital Assets and Estate Planning: Protecting Your Online Legacy

As financial advisors, we’ve seen countless estate plans over the years. But lately, we’ve noticed a troubling trend: many of these plans are woefully unprepared for the digital age. We live in a world where our financial lives are increasingly online, yet our estate planning often lags behind. From cryptocurrency wallets to online investment accounts, digital assets are becoming a significant part of our wealth. But how many of us have actually considered what happens to these assets when we’re gone?

Let’s face it: the idea of planning for our digital afterlife isn’t exactly pleasant. It’s easy to put off, thinking we’ll get to it “someday.” But just like retirement planning, the best time to start is now. Whether you’re a tech-savvy millennial with a diverse crypto portfolio or a baby boomer with a lifetime of digital photos stored in the cloud, it’s crucial to include your digital assets in your estate plan.

Understanding Digital Assets

When we talk about digital assets in financial terms, we’re referring to any online account or digital file that has monetary value. This goes beyond the obvious cryptocurrencies and online investment accounts. Think about those airline miles you’ve accumulated, your PayPal balance, or even that YouTube channel you’ve monetized. If it has value and exists online, it’s a digital asset that needs to be accounted for in your estate plan. The last thing you want is for that account with a significant amount of wealth to remain unclaimed because your family members didn’t even know about it.

Many people assume their family can simply access these accounts after they’re gone. Unfortunately, it’s not that simple. Online services often have strict policies regarding transferring accounts, even to next of kin. Without proper planning, your digital wealth could end up in limbo, inaccessible to your heirs.

Steps for Digital Estate Planning

The first crucial step is taking inventory. Create a comprehensive list of your digital accounts and assets, including email, social media profiles, online banking, and investment account logins. Don’t forget about cryptocurrency wallet information, domain names you own, or any online businesses you operate. This inventory should focus on how to access these accounts, not the assets within them.

For each item, note down the username, website URL, and any other access information – but avoid listing actual passwords in this document. While you’re creating this inventory, it’s a good time to assess the importance of each account. Some, like email and social media, might be crucial for notifying contacts or preserving memories. Others, like cryptocurrency wallets or online businesses, may have significant financial implications for your estate. This assessment will help guide your executor in prioritizing their actions.

Next, consider designating a digital executor. This should be a tech-savvy person who will be responsible for managing and distributing your digital assets according to your wishes. Make sure they understand the nature of these assets and how to access them securely.

To make your digital executor’s job easier, consider using a password manager. This allows you to store all your online account information in one place, protected by a single master password. Just ensure your executor knows how to access this manager when the time comes. In fact, you probably shouldn’t know the majority of your passwords – if you can easily memorize them, they’re probably hackable.

Legal Considerations

Work with your estate planning professional to explicitly include your digital assets in your will or trust. Be careful not to add any passwords to any digital accounts you own, as your will be made public once you pass. Be very specific about how you want these assets handled or distributed. For high-value or complex digital assets like large cryptocurrency holdings, you might want to consider setting up a separate trust. This can provide additional protection and flexibility in managing these assets.

It’s also important to stay informed about laws and regulations, as the legal landscape around digital assets is still evolving.

The Cryptocurrency Challenge

Cryptocurrencies present unique challenges in estate planning due to their decentralized nature and potential for high value. There’s a saying in the crypto world – not your wallet, not your coins.  If you’re holding significant crypto assets, consider using a hardware wallet (cold storage) for long-term holding. These offline devices offer better security against hacking, though they require a higher level of tech savviness.

Did you get into Bitcoin early and hold? Congratulations, you’re likely a millionaire. However, a single cold storage wallet may be insufficient for your digital estate planning needs. For these kinds of larger crypto holdings, a multi-signature wallet can add an extra layer of security. It requires multiple keys to access the funds, which can be distributed among trusted individuals or entities. Whatever storage method you choose, leave clear, step-by-step instructions on how to access and transfer your crypto assets. Remember, if your heirs can’t figure out how to access your cryptocurrency assets, they’re essentially lost forever.

Don’t forget about the tax implications of your crypto holdings. Make sure your estate plan addresses how to handle potential capital gains taxes on these assets.

The Social Media Conundrum

Social media accounts have evolved from personal platforms to potential assets with real value, both financial and sentimental. Whether you’re an influencer with millions of followers or the admin of a popular Facebook group, your social media presence should be a part of your digital estate. Each platform has its own policies for handling accounts of deceased users, but these often fall short for high-value accounts.

For instance, Facebook and Instagram allow you to designate a legacy contact, but this doesn’t grant full access or transfer ownership. YouTube permits adding a legacy contact with limited access, crucial for monetized channels.

To protect your social media legacy, document all your accounts. Clearly state in your estate plan what should happen to each account – whether it should be memorialized, deleted, or, if possible, transferred. Consider appointing a specific social media executor with the knowledge and expertise to carry out your wishes. Most importantly, regularly review and update your plan as platform policies change. Remember, your online presence might be more than just a financial asset; it could be an important part of your legacy, continuing to impact others even after you’re gone.

Beyond Financial Value

It’s worth noting that digital assets aren’t just about money. They can hold significant sentimental value, too. Family photos stored in the cloud and personal emails can be precious legacies. While these may not have direct financial value, they’re still important to consider in your overall digital estate plan.

In Conclusion

As with all aspects of estate planning, the key is to start now and review regularly. The digital world moves fast, and your estate plan needs to keep up. Set a reminder to review your digital asset inventory at least once a year. Alternatively, you may want to update it when you acquire a significant new digital asset or your digital assets experience a significant rise in value.

Estate planning isn’t just about distributing your assets after you’re gone. It’s about making things easier for your loved ones during an already difficult time. By including your digital assets in your estate plan, you’re not just protecting your wealth – you’re also sparing your family the stress and complications of trying to sort out your digital life.

At Walters Strategic Advisors, we’re here to help you integrate these digital factors into your broader estate plan. Whether you’re just starting to think about your digital assets or you’re ready to update your existing plan, we can provide the guidance you need to protect your entire legacy—financial and digital.

 

About the Authors

  • Douglas Walters

    Doug is the Managing Partner of Walters Strategic Partners, LLC, a licensed Registered Investment Advisory firm. Doug is a licensed Certified Public Accountant (CPA) in the state of Florida and holds a Series 65 Investment Advisor Representative securities license. He is also a member of the AICPA. With over 28 years of experience as a CPA, he believes investment decisions should be based on decades of peer-reviewed research rather than relying on the latest “hot tip” from media outlets. This empirical evidence puts the science of investing to work for his clients.

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  • Jose Joia

    Jose M. Joia is a Wealth Advisor at Walters Strategic Advisors, LLC. As a member of the team, Jose’s responsibilities involve comprehensive wealth management, planning and customer service. He has over 6 years of industry experience specializing in planning and solving unique issues his clients encounter. Jose has experience serving individual clients, business owners and non-profit organizations.

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