Posted On: March 30th 2016
In an increasingly digital world, people often overlook digital assets when developing an estate plan, and the consequences can be disastrous. With no paper trail, a decedent’s family members may be unaware that certain assets exist, or may need a court order to have someone hack into a password-protected computer. Or, if a small-business owner dies and his or her family lacks access to important information, the business may suffer. This article discusses strategies for ensuring that family or personal representatives have access to important records when the time comes.
If you had a suitcase full of cash that you wanted to leave for your family, would you bury it in the backyard without telling anyone about it? Of course not. But you may be doing the equivalent if you manage assets online without leaving instructions on how to access them.
Unfortunately, in an increasingly digital world, people often overlook digital assets when developing an estate plan, and the consequences can be disastrous.
Meet Tim. He’s a 45-year-old single father and, like many tech-savvy, environmentally conscious people, he does just about everything electronically. His paychecks are deposited directly into his checking account. He manages his bank and brokerage accounts online and receives the statements via e-mail. Most of his bills are delivered electronically and paid automatically from his checking account. He files his tax returns online and doesn’t keep hard copies. He uses a Web-based storage service to back up important documents.
Tragically, Tim dies unexpectedly. His executor searches his home but finds no paper records of Tim’s assets and debts. He finds a laptop and a smartphone, but both are password-protected. No one in the family knows where Tim had accounts, and even if they did, a court order would likely be required to access them.
The executor has little choice but to hire an IT expert to hack into Tim’s computer. But without user names and passwords, he still has to go to court to gain access to Tim’s accounts.
Meanwhile, Tim’s bills are still being processed automatically. But with no more paychecks being deposited, his checking account has insufficient funds to pay them.
As people rely less and less on paper records, scenarios like Tim’s will become increasingly common. And the impact goes well beyond personal finances.
A sole proprietor or small-business owner likely uses computers to maintain customer and product information, to track orders and to prepare bills and probably relies on e-mail for most correspondence. If the owner dies and his or her family lacks access to this information, the business may suffer.
In addition, many people have digital assets with great sentimental value, such as online photo and video galleries, social media pages and personal websites.
To avoid a situation similar to Tim’s, you must include digital assets in your estate plan. Fortunately, it’s not hard to do. It can be as simple as listing (on paper or on a flash drive or similar medium) the locations, user names and passwords for all digital assets and storing the list in a safe-deposit box or other secure place.
One problem with this approach is that the list is of little use if you change your passwords frequently. A better alternative may be to use password management software on your computer and other devices and to write down the master password and store it in a safe place together with the password for unlocking the computer itself.
In recent years, several companies have established Web-based services that store user names, passwords and other digital assets and make them available to your loved ones according to your instructions. For example, a service might release your information after two or more trusted “verifiers” confirm that you’ve died or become incapacitated.
If, like many people today, you have significant digital assets, talk to your estate planning advisor about strategies for ensuring that your family or personal representatives have access to them when the time comes. A little preparation now can make things much easier on your family during a stressful time.