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Estate planning for the digital era

Key takeaways

  • Many people own digital assets: everything from domain names and electronically stored photos and videos to email and social media accounts. It's important to understand the terms of use regarding access and control of this data.
  • Make a list of your digital assets and passwords so other people you trust will know where to find them. Back up data stored in the cloud to a local computer or storage device.
  • To help protect your digital or online assets, work with an attorney to provide consent in legal documents.

You may have planned for your loved ones to eventually inherit your house, the Steinway grand piano, your dad's 88-year-old Swiss watch, or other family heirlooms, but with life increasingly being lived online, you may be overlooking an increasingly important kind of property: digital assets.

If your estate plan doesn't account for digital assets properly, your heirs may not be able to gain access to them. Family photos and videos could be lost forever, social media accounts could stay online long after you've passed, and your heirs may not receive all the money that you'd like to leave them.

Nick Beis, vice president of advanced planning at Fidelity, notes the increasing importance of digital assets in estate planning: "With more people living more of their lives online, a new kind of asset—a digital asset—needs to be understood and accounted for in the preparation and execution of estate plans."

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It has become the norm to store financial records in smartphones, computers, or the cloud, and to conduct financial transactions electronically. In addition to email and social media accounts, most people also own a trove of digital assets, which can include:

  • Bitcoin, Ethereum, and other cryptocurrencies1
  • Non-fungible tokens (NFTs)
  • Domain names for websites
  • Digital photos and videos
  • Digital rights to literary, musical composition, motion picture, or theatrical works
  • Digital accounts in an online betting account
  • Blog content
  • Airline miles, hotel points, or any other transferable rewards programs
  • Online video channels where the content is monetized and producing an advertising revenue stream for its owner
  • Online gaming avatars that offer online goods or services that may be worth real-world money

The upshot: Accounting for digital property in your estate plan has become essential.

Obstacles to digital access

Because digital assets can exist in many different forms, stored in many different locations, gaining access to digital assets, and to digitally encoded financial information, can present challenges for anyone other than the original owner. In general, there are 4 main obstacles faced by family members of someone who has recently died when trying to access the decedent's digital assets and vital personal information:

  1. Passwords. If family members don't know your passwords, keys, or other requisite access credentials, they may not be able to access information or property stored in your smartphone, computer, online accounts, or the cloud. Some passwords, such as the one you enter to log in to your laptop or tablet, may be easy for experts to bypass; others are more difficult to bypass—and some are practically impossible. An example: Crypto or NFTs stored in a crypto wallet. Losing the password and private key to your noncustodial digital wallet may mean losing access to your crypto forever, as there is no central customer service team.
  2. Data encryption. Digitally stored data may be encrypted, adding another layer of protection. Encryption can scramble data in a particular location—in a single file, on a device, or in the cloud—so thoroughly that it is practically impossible for anyone without the proper passcode to unscramble it. Take cell phones, for example. "New technology in cell phones can be extremely difficult to decrypt," says Beis. "Your content, memories, or personal data may exist on your phone or even in the cloud somewhere. But if you have not transferred them elsewhere, family members may not be able to access them unless they know your passcode."
  3. Criminal laws. Laws on both state and federal levels prohibit unauthorized access to computer systems and private personal data. These laws serve to protect consumers against fraud and identity theft, but they also may create virtually insurmountable obstacles for family members trying to gain access to the digital assets and information of a deceased loved one. The law is evolving to keep up with the rapidly changing online world, but much in this area is still unclear. For that reason, it’s essential to ensure that your estate plan gives your fiduciaries the authorization they need to access any necessary digital data.
  4. Data privacy laws. Generally, federal data privacy laws prohibit online account service providers from turning over the contents of your electronic communications to anyone other than the owner without the owner's lawful consent. That means social media sites or other companies may lock up your content unless you give express permission for others to access it. That might leave your heirs unable to gain access to photos, email messages, or other information stored in the cloud. Fighting for that access in court probably would be cost prohibitive, says Beis: "Attempting to gain access to a deceased person’s digital accounts without lawful consent may involve a court battle with an online account service provider, which has the potential to cost a lot of money."

Make your estate plan digital-savvy

Fortunately, you can help avoid these obstacles by addressing digital property and information in your estate plan. Consider taking the following 4 steps:

  1. Make a list. Start by listing your digital assets so your loved ones know what you have and where they can find it. Include all your important passwords, online accounts (including email and social media accounts) and digital property (including domain names, virtual currency, and money transfer apps). Store your list in a secure location and make sure your family members know how to access it. Avoid storing keys and passwords for crypto and other virtual currencies digitally, as this can help reduce the chances of digital theft. Also note that when hackers hack into a bank account or a brokerage account, the institution may have insurance or protection; but if someone hacks into your crypto wallet, there may be no recourse for getting your money back. Be extra safe where you store your crypto passwords.

    Tip: For non-crypto assets, inexpensive password management apps such as 1Password and LastPass can help.

  2. Understand what you really own. There are instances where you may have thought you purchased a digital asset, but in fact you purchased a license to use the asset. Check the terms of agreement.
  3. Back up data stored in the cloud. For starters, one layer of protection in the cloud to consider is FidSafe®, a free, secure online safe deposit box, to save digital backups of electronically scanned essential documents such as bank and investment account statements, birth certificates, insurance policies, passwords, tax records, wills, and more. If you store any digital assets in the cloud, consider backing them up to a local computer or storage device on a regular basis so that family members and fiduciaries can access them with fewer obstacles. "Some companies provide easy access," says Beis. "Facebook, for example, has a One-Click Download option to download all your data to a computer."

    Tip: Don't just rely on the cloud for backup. Depending on the kind of digital asset, it may be appropriate to also back up your data to a local computer or personal storage device.

  4. Provide consent in legal documents. Work with an estate planning attorney to update your wills, powers of attorney, and any revocable living trusts. You also might consider exactly which information you want to make available, according to Beis. "A blanket authorization may not be appropriate," he says. "You might not be comfortable making all digital assets accessible to your fiduciaries."

    Tip: Ask your estate planner about how to provide your fiduciaries with access to passwords.

Since digital assets are still a relatively new phenomenon, the laws that deal with them are changing rapidly. Talk with your attorney about the steps you can take now, and check in regularly to update your estate plan to accommodate any changes in the law or in your digital property. Lastly, if you have significant digital assets, consider appointing a special executor who has business and legal experience just to deal with your digital assets (in addition to the executor of your general estate).

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1. Crypto is highly volatile, can become illiquid at any time, and is for investors with a high-risk tolerance. Investors in crypto could lose the entire value of their investment. Brokerage services in support of securities trading are provided by Fidelity Brokerage Services LLC (“FBS”), and related custody services are provided by National Financial Services LLC (“NFS”), each a registered broker-dealer and member NYSE and SIPC. Neither FBS nor NFS offer crypto nor provide trading or custody services for such assets. Fidelity® Wealth Services provides non-discretionary financial planning and discretionary investment management through one or more Portfolio Advisory Services accounts for a fee. Advisory services offered by Fidelity Personal and Workplace Advisors LLC (FPWA), a registered investment adviser, and Fidelity Personal Trust Company, FSB (FPTC), a federal savings bank. Nondeposit investment products and trust services offered through FPTC and its affiliates are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, are not obligations of any bank, and are subject to risk, including possible loss of principal. Discretionary portfolio management services provided by Strategic Advisers LLC (Strategic Advisers), a registered investment adviser. Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. FPWA, Strategic Advisers, FPTC, FBS, and NFS are Fidelity Investments companies.

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