It is critical to assess the value of digital records and assets, and to make sure they are integrated into succession plans.

By Sarah Z. Collins

We now live a big part of our lives online. In the digital world, people meet, shop, interact, bank and save. The cloud is also where many of us store the visual and written memories of our lives. 

It is important to see all this rich digital footprint as part of our legacy and to integrate it into our succession plans. Especially now, with the perspective and time gained during the COVID-19 crisis, we have the perfect opportunity to assess the value of our digital records and assets, and the potential for financial or sentimental loss if these digital assets become inaccessible.

 

What is a “digital asset”?

 

Digital assets include any online account or service protected by log-in security, such as identification and password. This includes services and tools you might use every day, like your phone and computer, email, social media, photos and videos, music playlists and various subscriptions.

But there are also other assets you might not think about until you need them, such as medical records, files stored on “cloud accounts,” any web domains you own, and online payment systems such as PayPal, Venmo and QuickPay. Online financial accounts are, of course, digital assets.

Does this scenario sounds familiar? You saw an ad sometime ago for an online high-yield savings account that offered a sign-up bonus. Your savings account paid very little interest, so you opened the new account online and transferred the money from the old one. Account statements and transactions for the new digital account were only accessible online. Forgetting about it was easy. You might not even have mentioned it to anyone in your family.

The question is—if something happened to you, who would know about this account? How would your beneficiaries access the funds deposited there?

 

What should you be doing? Here, we offer four simple steps to clean up your digital closet and keep it in order:

1) Take an inventory

Make a list of all your digital assets mentioned above and any others you can think of. In one secure place, keep a record of the names of each account, digital location and the information needed to gain access to them, such as usernames and passwords.

Let at least one trusted person know how to access your inventory. It could be your accountant, lawyer, or spouse. One effective way of providing access and keeping your accounts organized is by using and sharing a reputable online password manager that uses encryption and stores all your passwords in one place. 

With financial accounts, review each by its title and make sure that beneficiaries are named. Most digital accounts, just like traditional financial accounts, allow you to name one or more beneficiaries. Joint accounts typically pass automatically to the survivor under local law. 

Two useful account designations to apply are “Transfer on Death” (TOD) and “Payable on Death” (POD). These terms may ease the transition of assets and save inconvenience and unnecessary cost to your beneficiaries. Instead of using an account designation, you might also discuss with your lawyer whether you would like to put the digital account in the name of your trust or personal holding company.

For any online accounts outside your home country, it is especially important to consider your country’s local laws and any potential conflict of law. Knowing how accounts should be titled and what may happen to your assets when you can no longer manage them is an important topic to discuss with your tax advisor or lawyer.

2) Name your trusted contact person

Consider naming a trusted contact person for every one of your online financial accounts. Most online financial accounts allow you to name a trusted contact person (TCP), someone you authorize your bank or brokerage firm to contact if they believe your account may be exposed to possible financial exploitation or fraud, or if they cannot get in touch with you. Naming a TCP when you set up or review your accounts can help protect your digital assets down the road.

3) Make sure your legal documents address your digital assets and give your executor proper access

If you do not account for your digital assets in your succession plan, your heirs may not be granted access or they might have to incur inconvenience and costs to gain that access.

Lack of proper legal planning for online financial assets also could create liabilities for estate or inheritance taxes. Online financial accounts may generate income or losses that need to be woven into your overall wealth plan. 

Consult your lawyer about the language that should be included in your testament or trust.

4) Always be planning

In the digital age, we are constantly creating new accounts and changing the passwords on existing ones.

Be sure to keep an ongoing record of your online presence and stay in touch with your lawyer and your J.P. Morgan advisor when you open new accounts that could affect not only your current financial status, but also your family’s future.