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Estate planning must: Safeguard digital assets

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Digital assets are an essential part of clients’ security in estate planning, and financial advisors must ensure that a plan is in place for accessing such assets if a client no longer can.

A digital asset is content owned by an individual that is stored in digital form, including online accounts. These assets include social-media posts, e-mail messages and texts, as well as online banking, bill paying, deposits and investment accounts.

Recently, Delaware became the first state to pass a law permitting fiduciaries to access cyberspace on behalf of clients. And evidence suggests that more advisors and attorneys are starting to take digital assets specifically into account when preparing estate plans or advance directives.

Advisors must ensure that there is a plan in place giving a power of attorney or executor access to digital assets, as companies have become more wary about dealing with those not listed on accounts, estate planning experts say.


“With this universal dependence on the online world, it’s more important than ever that people make plans for what happens if they die or become incapacitated,” says Larry Luxenberg, principal of Lexington Avenue Capital Management in New City, N.Y. “Situations often arise unexpectedly, so planning about digital assets needs to be included in estate planning.”

All problems regarding digital assets could be avoided with some thoughtful planning and good instructions to a family member or friend, advisors say.

Luxenberg says that he has been involved in several cases in which, following surgery, patients weren’t able to handle their financial affairs for a few months or more.

“Had they been expecting this, it would have been a simple matter to prepare,” he says. “As it was, they had no designated representatives, and friends and family had to scramble to put the pieces together.”

Online bill paying, for instance, has become commonplace, with nearly half of bills paid as of last year by a biller, bank or credit union website, 20% by automatic deduction or recurring payment, and 5% by landline or mobile phone, according to a recent study by Western Union.


Complications can arise, however, if a person becomes incapacitated.

“You can become ensnared in a lot of red tape if you haven’t documented all your assets,” says Sean Lee, founder and president of SPL Financial in Murray, Utah. “Many companies will only talk directly to the customer, unless a representative has the proper documentation.

Lee cites one case in which a client’s husband died. The client’s widow subsequently contacted him.
Fortunately, he says, her papers, including information about her digital assets, were in order and her beneficiary information was already on file, so the process of validation went quickly.

Lee says he collects all clients’ pertinent information such as date of birth, financial account information including digital assets, Social Security, beneficiary information, trusts and other legal documents. For security reasons, all this information is scanned, encrypted and password-protected on a dedicated server, he notes.

Bruce W. Fraser is a financial writer in New York who contributes to Financial Planning magazine. He can be reached at brucewfraser@gmail.com.

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