One of life’s biggest problems is a password. I’m talking about computer passwords. Years ago I used the same password for everything, “password1”. Yeah, I thought it was pretty creative at the time too. I had a friend named Forrest (he listened to a lot of Forrest Gump jokes) who used the password “1Forrest1”. Now that was creative.
It occurred to me that if I died tomorrow, it would be difficult for my family to access all my online accounts. And what about my growing list of digital assets? Will they know what those assets are? Do I even know what those assets are?
You’ve probably wondered who will inherit your house, your grandmother’s jewelry, and your collection of rubber chickens. But what about your digital assets?
Defined digital assets
Digital assets, like physical assets, can have significant value. And at the time of your death, you will be deemed to have sold any capital assets you own at fair market value, including digital assets. If those assets have appreciated, the gain may be taxed at your death.
Your digital assets can include things like cryptocurrencies, non-fungible tokens (NFTs), domain names, digital photos and videos, digital rights to literary, musical compositions, motion picture or theatrical works, blog content, online video channels where your is the content. monetized or generating advertising revenue, online gaming avatars that offer products or services that may be worth real money, digital online betting accounts, other accounts (such as PayPal) where you can store money or credits or even prepaid subscriptions online for content. or goods and services.
If your estate plan doesn’t properly account for these things, your heirs may not be able to access digital assets when you’re gone. Do you and your executor even know what digital assets you have?
Digital asset challenges
Even if your executor has a list of your digital assets, that doesn’t mean those assets can be accessed when you’re gone. Your online photos and videos may be forever unavailable, your social media accounts may remain online indefinitely, and your heirs may not receive the money or other valuable assets you intended.
The first hurdle your heirs will face in gaining access to your digital assets is not knowing your passwords or assets stored on your smartphone or computer, in online accounts or in the cloud. Some passwords (like logging into your laptop) can be cracked by experts, while others can’t (like cryptocurrency keys) and could mean losing those assets forever.
Furthermore, data privacy and criminal laws may prevent family members from accessing your online accounts and assets unless you specifically authorize them to provide such access.
As an aside, for assets other than cryptocurrencies and NFTs, it makes sense to use a password manager app like 1Password, LastPass, Dashlane, or something similar. If your executor or family has the master password for that app, when you leave, they’ll have access to all your passwords.
Digital Asset Strategies
If you want to ensure a smooth transition of digital assets when you leave, here’s the game plan:
1. Document your digital assets. In other words, understand what you belong to. And realize that there is a difference between owning a digital asset and owning a non-transferable license to use the asset.
2. Backup your digital assets. Make sure all your online documents, data, and assets are backed up in the cloud (there are many services like OneDrive, Drop Box, etc.). But it also makes sense to store them on a local computer or storage device so your family can access them with fewer obstacles.
3. Leave digital assets to your spouse. You can avoid the deemed distribution of fair market value if you leave assets to your spouse when you die. In this case, there will be no tax to pay until your spouse dies or passes the assets to your children or others.
4. Provide permission in your will. Update your will to make sure your executor is given permission to bypass, reset or recover your passwords. And by the way, if your digital assets are significant enough (perhaps a majority of your net worth), it would be wise to have a separate will to deal with those assets and name an executor of that second will who has some insight. digital assets.
5. Check regularly. Because digital assets are still new to most people and laws change quickly, talk to your attorney regularly to update your wills and powers of attorney to reflect any changes in the law or your digital assets.
Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author and co-founder and CEO of Our Family Office Inc. He can be contacted at the following address: tim@ourfamilyoffice.ca:.
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