Digital Assets and Estate Planning

There’s an entire category of commonly overlooked assets to consider when creating an estate plan: digital assets.

Don’t worry if you did not consider these assets when you made your will or trust. It is surprisingly common. Fortunately, you can update your estate plan to address them.

What Are Digital Assets?

Digital assets can include financial assets, personal files, online accounts and digital business property. They may include:

• Photos, including the pictures stored on your phone or computer
• Files stored in the cloud or on your local computer
• Cryptocurrency and other digital assets
• Website URLs and domain names
• Social media profiles, such as Facebook and LinkedIn
• Device backups
• Databases
• Digital business documents
• Other digital property and online accounts

Technology continues to change, so the types of digital assets people own will continue to evolve.

Some digital assets can have significant financial value. Cryptocurrency, website domains and digital business assets are examples. Other digital assets may have primarily sentimental value, such as family photos and personal videos.

The IRS treats qualifying digital assets, including cryptocurrency and non-fungible tokens, as property for federal income tax purposes. This means digital assets can also create tax considerations when you sell, exchange or otherwise dispose of them. The IRS provides additional guidance on digital assets.

Why Digital Assets Belong in Your Estate Plan

Your estate includes more than the money and physical property you leave behind. Your digital life can also contain assets, records and information that your loved ones may need to locate or manage.

Without a plan, your family may not know which accounts exist, what you want to happen to them or who should handle them.

The same issue can arise if you become incapacitated. Your loved ones may need someone with appropriate legal authority to manage certain digital or financial matters on your behalf.

Simply giving someone your passwords does not necessarily solve the problem. Legal authority, privacy laws and the terms that apply to an online account can affect what another person can access or manage.

Your estate plan can help you address these issues in advance.

Digital Asset Planning at a Glance

3 Tips for Planning Your Digital Estate

1. Inventory Your Digital Assets

Make a list of the online accounts and digital assets you use.

Think beyond your email and social media accounts. Consider your cloud storage, online banking, investment accounts, cryptocurrency, domain names, digital subscriptions, photo libraries and device backups.

If you run a business, do not forget spreadsheets, digital records, client files, databases and other digital business documents. These assets may also need attention as part of your business succession and estate planning.

If it exists online, connects to an online account or has value to you or your business, consider putting it on your inventory.

2. Choose a Trusted Digital Successor

The original concept of a “cyber successor” refers to someone you trust to help manage your digital affairs after your death or if you become incapacitated.

However, do not assume that naming someone or giving them your password automatically gives them legal authority to access every account.

Instead, talk with your attorney about the authority your fiduciaries may need. Depending on the circumstances, your estate plan may need to address digital assets through a will, trust, power of attorney or another appropriate document.

You should also protect your list of accounts and credentials. Do not leave sensitive passwords in an unsecured document. Unprotected information can create risks such as unauthorised access, identity theft and data loss.

Your attorney can help you determine how to document the information securely while making sure your trusted decision-makers can find what they need.

3. Document Your Wishes

Once you identify your digital assets and the people you trust, determine which legal documents should address them.

You may want to include digital asset instructions in your will or trust. A power of attorney may also play an important role if someone needs to manage your affairs while you are alive but unable to act for yourself.

Littleton Legal’s Wills & Trusts services can help you consider how your estate plan should address your assets and your wishes.

Work with an estate planning attorney to determine the appropriate way to identify your successors, trustees and beneficiaries. Then make sure the appropriate documents and designations are in place.

Because technology, account terms and applicable laws can change, review your digital estate plan regularly. An estate plan that addressed your digital assets several years ago may need an update.

What Happens to Digital Assets After Death?

The answer depends on the type of asset, the applicable law, your estate planning documents and the terms that govern the account.

Some digital assets may have financial value and form part of your estate. Others may contain personal information or communications that require additional consideration.

Your fiduciary may need to locate accounts, preserve important information, manage transferable assets and follow your instructions. However, access does not always work the same way for every account.

That is why simply creating a password list is not a complete digital estate plan. Your legal documents should work together with your account information and your wishes.

Digital Assets and Incapacity Planning

Digital estate planning is not only about what happens after you die.

If you become incapacitated, someone may need to manage your financial affairs, business interests or other assets while you are still alive.

A properly drafted durable power of attorney can give a trusted agent authority to act on your behalf. The scope of that authority matters, especially when your affairs include digital assets and online accounts.

Littleton Legal also helps clients plan for incapacity through wills, trusts and powers of attorney. You can learn more about its estate planning services.

Potential Pitfalls of Digital Estate Planning

The worst thing you can do is nothing.

Without a plan, your family could lose access to digital family photo albums or struggle to locate important files. A business could also face disruption if no one knows where its digital records, databases or online accounts are located.

Digital assets can also create privacy and security concerns. Leaving passwords in an unsecured location can expose you and your family to unauthorised access or identity theft.

These problems become harder to resolve when no one knows what accounts exist or what you wanted to happen to them.

Keep Your Digital Estate Plan Updated

Your digital life can change quickly. You may create new accounts, close old ones, purchase cryptocurrency, change devices or start a new business.

Review your digital asset inventory and estate planning documents when these changes occur. Regular reviews can help keep your plan aligned with your current assets and wishes.

You should also review who you have chosen to manage your affairs. The person you trusted several years ago may no longer be the right choice.

Need Help With Digital Estate Planning?

Your digital assets may contain financial value, important business information or memories that matter to your family. A comprehensive estate plan can help you identify these assets and make your wishes clear.

Do not wait until an emergency to figure out who should manage your digital affairs.

Littleton Legal can help you review your estate plan, identify gaps and determine which legal documents may need to address your digital assets.

Contact Littleton Legal today to discuss your estate planning needs.