retirement

How to Protect Your Digital Assets

Did you know the average American has $55,000 in digital assets? That's something definitely worth including in your estate plan. Here's how to get started.

If you have a normal corporate job and don’t own a website, you may be thinking you don’t have to worry about protecting digital assets. Heck, you may even think you don’t have any assets online!

The reality, however, is that you do have digital assets — even if you don’t know it.

Even something as simple as a username and password can open the door to a broad range of personal information that’s valuable to you or your family.

And if that username and password get into the wrong hands, you may wind up in a situation that results in a huge financial loss or a mountain of hassle and stress.

To find out about the best ways to protect your digital assets in an increasingly complex world, I recently interviewed Professor Jamie Hopkins on my retirement podcast, Stay Wealthy.

What is a Digital Asset?

A recent study from McAfee claims the average American has over $55,000 in digital assets. Keep in mind, however, these assets are not necessarily ones that can be bought or sold. The $55,000 figure represents the average monetary value these assets can be worth to a consumer and the people who love them.

But what is a digital asset exactly?

According to Hopkins, a digital asset could be any type of online information you have stored on the web or in the cloud.

A few examples include your emails, your social media accounts, your LinkedIn account, or a website for your business. Hopkins says it’s common for people to have up to 100 accounts with usernames and passwords at any given time — and sometimes significantly more.

Why are digital assets so important?

These assets do have value, and it’s important to ensure there’s a process for handling them if you suddenly pass away. Unfortunately, digital assets are not always accounted for in regular end-of-life documents like a will. As a result, Hopkins says he’s seen situations where someone he died but they continued “living” on Facebook due to the simple fact their family couldn’t access their account.

Imagine what happens then. Random people continue wishing them “Happy Birthday” and tagging them in posts without realizing they’re gone. This kind of situation is upsetting for the family, of course, which means having access to the account information to close it down does hold some value for them.

On the business side of the equation, preserving digital assets is just as important. If you set up an email account for a business under your name and you die, current laws make it difficult to transfer that email account to the business or anyone else.

Also, note there’s risk involved in letting your digital assets linger once you’re gone. For example, there’s a chance someone could access a username and password for your email account then use that information to hack into other accounts like a bank account or credit card. All of a sudden, someone starts racking up charges on a credit card the surviving spouse didn’t even know about.

Knowing we’re at risk, what can we do?

I asked Hopkins about your next best steps, and here’s what he said:

No. 1: Meet with an Estate Planning Attorney

Hopkins says new laws were introduced two years ago that allow you to create a plan to protect digital assets, including giving a financial planner or family member access to all your accounts. If you have never met with an estate planning attorney — or you last met with one more than two years ago — the most important thing you can do is set an appointment and sit down to take care of these important issues.

Keep in mind that laws require you to state specifically that your heirs have rights to your digital assets upon your death. Meeting with an estate planning attorney to get this wording into your final documents ensures your digital assets won’t be left in limbo once you’re gone.

No. 2: Keep Track of Accounts, Usernames and Passwords

If you were to suddenly pass away, would your spouse know how to access accounts set up solely in your name? Would they even know what accounts you have?

Chances are, they probably wouldn’t, unless you kept track of this information somewhere.

Fortunately, there are some digital estate planning tools that let you store that information in a secure way. Some services even let you set it up so your loved ones will receive an email with information on how to access your accounts when you die. Everplans is a digital asset management platform in this space.

No. 3: Set Up an External Hard Drive

If you don’t like the idea of storing your usernames and passwords with a third-party company, you can consider storing that kind of information in an external hard drive that you connect to your computer. Fortunately, this option is usually inexpensive since you can buy an external hard drive for a few hundred bucks or less.

No. 4: Use a Password Manager

A password manager like Dashlane or LastPass can be a valuable tool when it comes to keeping your personal information and passwords secure. Most password managers will store all your usernames and passwords for multiple accounts while letting you set up a “master password” that lets you log into every digital asset you own.

Some password managers, like Dashlane, will also alert you when one of your accounts may be susceptible to theft, such as after a major data breach.

No. 5: Create a Letter of Instruction

A final low-tech way to protect your digital assets involves creating a letter of instruction that explains how your heirs can access all your digital accounts. This letter may not grant them legal access per se, but it can help them get started with some basic information on the accounts you actually own and how to log in.

Also consider using a legal advance document that lets you inform your family of your final wishes — including the access of your digital assets. A service like Five Wishes can help you compile this information and format it as a living will your family can use in the event of your death.

The bottom line is this: If you’re reading this article right now, you have digital assets. And, in the wrong hands, those assets are extremely valuable. While talking about stocks, bonds and mutual funds can be fun, having a plan for all of your assets that lives longer than you should be at the top of your financial planning to-do list.

About the Author

Taylor Schulte, CFP

Founder and CEO, Define Financial

Taylor Schulte, CFP®, is founder and CEO of Define Financial, a fee-only wealth management firm in San Diego. In addition, Schulte hosts The Stay Wealthy Retirement Podcast, teaching people how to reduce taxes, invest smarter, and make work optional. He has been recognized as a top 40 Under 40 adviser by InvestmentNews and one of the top 100 most influential advisers by Investopedia.

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